Fundamentals of Management [6th Asia-Pacific Edition] 9780170388443

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6 TH

A S I A - PAC I F I C

DANNY SAMSON

EDITION

TIMOTHY DONNET RICHARD L. DAFT

DANNY SAMSON TIMOTHY DONNET RICHARD L . DAFT

Fundamentals of Management

© 2018 Cengage Learning Australia Pty Limited

6th Edition Danny Samson

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Timothy Donnet

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Richard L. Daft

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Authorised adaptation of Management, 12th edition by Richard L. Daft, published by Cengage Learning, 2016.

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Samson, Danny, author.

Title:

Fundamentals of Management / Danny Samson, Timothy Donnet

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6th edition

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Acknowledgements

and Richard L. Daft.

Industrial management--Textbooks. Organizational effectiveness--Textbooks. Other Creators/Contributors: Donnet, Timothy, author. Daft, Richard L, author.

Cengage Learning Australia Level 7, 80 Dorcas Street South Melbourne, Victoria Australia 3205 Cengage Learning New Zealand Unit 4B Rosedale Office Park 331 Rosedale Road, Albany, North Shore 0632, NZ For learning solutions, visit cengage.com.au Printed in China by 1010 Printing International Limited. 1 2 3 4 5 6 7 21 20 19 18 17

BRIEF CONTENTS

RT ONE PA

PA RT T WO

I N N O VAT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D

1

1 The changing world of management A1 Appendix to Chapter 1 The evolution of management thinking

2 48

T H E E N V I R O N M E N T O F M A N A G E M E N T

83

2 The environment and corporate culture 3 Managing in a global environment 4 Ethics, social responsibility and sustainable development

84 132 172

PA RT THREE P L A N N I N G 5 Organisational planning and goal setting 6 Strategy formulation and implementation A6 Appendix to Chapter 6 Managerial decision making

PA RT FOUR O R G A N I S I N G 7 Designing organisation structure 8 Managing change and innovation 9 Managing human resources

PA RT FIVE L E A D I N G 10 Leadership 11 Motivating employees 12 Communication in organisations 13 Leading teams

PA RT SIX C O N T R O L L I N G 14 Managerial and quality control Capstone Chapter Making effective management happen

2 17 218 258 302

331 334 380 420

463 464 506 550 592

631 634 674

v

CONTENTS Guide to the text xv Guide to the online resources xxii Preface xxv About the authors xxx Acknowledgements xxxii

PART ONE

INNOVATIVE MANAGEMENT FOR A CHANGING WORLD_________ 1

CHAPTER 1 THE CHANGING WORLD OF MANAGEMENT___________________________ 2 1.1 WHY INNOVATIVE MANAGEMENT MATTERS____________ 6 Current challenges for managers 7 Challenges for government 7 Challenges for business 8 Challenges for the individual employee 9 1.2 MANAGERS WHO MAKE A DIFFERENCE________________ 9 The definition of management 10 1.3 THE FOUR MANAGEMENT FUNCTIONS_______________ 12 Planning 12 Organising 12 Leading 13 Controlling 13 1.4 ORGANISATIONAL PERFORMANCE___________________ 14 1.5 MANAGEMENT SKILLS____________________________ 16 Conceptual skills 16 Human skills 17 Technical skill 18 When skills fail 18 1.6 MANAGEMENT TYPES_____________________________ 20 Vertical differences 20 Horizontal differences 22

1.10 STATE-OF-THE-ART MANAGEMENT COMPETENCIES____ 34 1.11 TURBULENT TIMES: MANAGING CRISES AND UNEXPECTED EVENTS_________________________ 36 Stay calm 36 Be visible 37 Put people before business 37 Tell the truth 37 Know when to get back to business 37 1.12 AUSTRALIA’S MANAGERS: IMPROVING FROM A LOW BASE_______________________________ 37

STUDY TOOLS

40

Online study resources

40

◗◗ CourseMate Express for Management ◗◗ Search Me! Management

40 40

Response to the management challenge

40

◗◗ PETRONAS 40

Discussion questions Ethical challenge

41 42

◗◗ Can management afford to look the other way?

42

Group challenge

43

1.7 WHAT IS IT LIKE TO BE A MANAGER?________________ 23 Making the leap: becoming a new manager 23

◗◗ Your best and worst managers

43

Case for critical analysis

43

1.8 MANAGERIAL ACTIVITIES__________________________ 25 Adventures in multitasking 25 Life on speed dial 27 Where does a manager find the time? 28 Manager roles 29

◗◗ SharpStyle Salons

43

On the job video case

44

◗◗ Camp Bow Wow: Innovative management for a changing world ◗◗

44

APPENDIX TO CHAPTER 1

THE EVOLUTION OF MANAGEMENT THINKING__ __________ 48

A1.1 MANAGEMENT AND ORGANISATION_________________ 52 The things of production versus the humanity of production 52 Is social business the answer? 53

vi

1.9 MANAGING IN SMALL BUSINESSES AND NOT-FOR-PROFIT ORGANISATIONS______________ 32

A1.2 CLASSICAL PERSPECTIVE__________________________ 54 Scientific management 55 Bureaucratic organisations 56 Administrative principles 58

A1.3 HUMANISTIC PERSPECTIVE________________________ 59 Early advocates 59 The human relations movement 60 The human resources perspective 61 The behavioural sciences approach 62 A1.4 MANAGEMENT SCIENCE___________________________ 63 A1.5 RECENT HISTORICAL TRENDS_______________________ 64 Systems thinking 65 Contingency view 66 Total quality management 66 A1.6 INNOVATIVE MANAGEMENT THINKING FOR A CHANGING WORLD__________________________ 68 Contemporary management tools 68 Managing the technology-driven workplace 70

PART TWO

The shifting world of e-business Big data analytics Knowledge management Supply chain management Social media programs Managing the people-driven workplace

STUDY TOOLS

70 71 71 72 73 73

77

Online study resources

77

◗◗ CourseMate Express for Management ◗◗ Search Me! Management

77 77

Discussion questions

77

PART 1 CONTINUING CASE: INNOVATIVE MANAGEMENT FOR A CHANGING WORLD_____________ 80

THE ENVIRONMENT OF MANAGEMENT____________________ 83

CHAPTER 2 THE ENVIRONMENT AND CORPORATE CULTURE__ _____________________ 84 2.1 THE EXTERNAL ENVIRONMENT_____________________ 89 General environment 90 Task environment 97 2.2 THE ORGANISATION–ENVIRONMENT RELATIONSHIP___________________________________102 Environmental uncertainty 103 Adapting to the environment 104 Influencing the environment 107 2.3 THE INTERNAL ENVIRONMENT – CORPORATE CULTURE__110 Symbols 112 Stories 113 Heroes 113 Slogans 113 Ceremonies 114 2.4 TYPES OF CULTURE_______________________________115 Adaptability culture 115 Achievement culture 117 Involvement culture 117 Consistency culture 117 2.5 SHAPING CORPORATE CULTURE FOR  INNOVATIVE RESPONSE___________________________118 Managing the high-performance culture 118

2.6 CULTURAL LEADERSHIP___________________________121 Changing and merging corporate cultures 121

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Microsoft: coping with change

Discussion questions Ethical challenge ◗◗ Competitive intelligence predicament

Group challenge ◗◗ Should you go global?

Case for critical analysis

124 124 124 124

124 124

125 126 126

126 126

127

◗◗ Richmond Supply Co.

127

On the job video case

128

◗◗ Camp Bow Wow – the environment and corporate culture

128

CHAPTER CASE STUDIES

Growing a business from scratch – lavender! 99 Green power 112 McDonald’s 116

CHAPTER 3 MANAGING IN A GLOBAL ENVIRONMENT__________________________ 132 3.1 A BORDERLESS WORLD: GLOBALISATION, MULTINATIONAL CORPORATIONS AND THE INTERNATIONAL LANDSCAPE_______________________136 Globalisation 136 Developing a global mindset 138 The changing international landscape 139 Multinational corporations 140

Globalisation backlash Serving the bottom of the pyramid

142 142

3.2 GETTING STARTED INTERNATIONALLY________________145 Exporting 145 Outsourcing 146 Licensing 147 Direct investing 147

CONTENTS

vii

3.3 THE INTERNATIONAL BUSINESS ENVIRONMENT_______148 3.4 THE ECONOMIC ENVIRONMENT_____________________150 Economic development 150 Infrastructure 150 Economic interdependence 151 Resource and product markets 152 Exchange rates 152 Inflation, interest rates and economic growth 152 3.5 THE LEGAL–POLITICAL ENVIRONMENT_______________153 Political risk 154 Political instability 154 Laws and regulations 155 3.6 THE SOCIOCULTURAL ENVIRONMENT________________156 Social values 156 Communication differences 159 3.7 INTERNATIONAL TRADE ALLIANCES_________________160 GATT and the World Trade Organization 161 European Union 161

North American Free Trade Agreement (NAFTA) Association of South East Asian Nations (ASEAN)

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Achieving international competitiveness

Discussion questions Ethical challenge

163 163

165 165 165 165

165 165

166 166

◗◗ Quality or closing

166

Group challenge

167

◗◗ Considerations for overseas expansion

Case for critical analysis ◗◗ Shui Fabrics

On the job video case ◗◗ Black diamond equipment: Managing in a global environment

167

167 167

168 168

CHAPTER CASE STUDY

The axis of India

138

CHAPTER 4 ETHICS, SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT__ __ 172 4.1 WHAT IS MANAGERIAL ETHICS?____________________176 Ethical management today 177 The business case for ethics and social responsibility 178 4.2 ETHICAL DILEMMAS – WHAT WOULD YOU DO?_________179 4.3 CRITERIA FOR ETHICAL DECISION MAKING____________181 Utilitarian approach 181 Individualism approach 181 Moral rights approach 182 Justice approach 182 Practical approach 182 4.4 THE INDIVIDUAL MANAGER AND ETHICAL CHOICES_______ 183 Givers versus takers 186

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Monsanto’s ethical challenges

Discussion questions Ethical challenge

209 209 209 209

209 209

210 211

4.5 WHAT IS CORPORATE SOCIAL RESPONSIBILITY?_______188 Organisational stakeholders 188

◗◗ What is right?

4.6 THE GREEN MOVEMENT___________________________193 Sustainability and the triple bottom line 193

◗◗ Ethics and business costs

212

Case for critical analysis

212

4.7 EVALUATING CORPORATE SOCIAL RESPONSIBILITY______ 196

◗◗ Too much intelligence?

212

On the job video case

213

4.8 MANAGING COMPANY ETHICS AND SOCIAL RESPONSIBILITY______________________198 Code of ethics 200 Ethical structures 201 Whistleblowing 202

viii

4.9 MANAGERIAL ETHICS AND SUSTAINABLE DEVELOPMENT IN AUSTRALIA _____________________203 Organisational sustainable development 204 The ‘why’ of sustainable development 205 The ‘what’ of sustainable development 206 The ‘when’ of sustainable development 207

CONTENTS

Group challenge

◗◗ Theo Chocolate: managing ethics and social responsibility

211

212

213

CHAPTER CASE STUDIES

A leadership dilemma at Timberland A crisis to milk

194 202

PART THREE

PL ANNING__________________________________________ 217

CHAPTER 5 ORGANISATIONAL PLANNING AND GOAL SETTING___________________ 218 5.1 GOALS, PLANS AND PERFORMANCE_________________221 Messages and values contained in goals and plans 223 5.2 GOALS IN ORGANISATIONS________________________225 Organisational mission 225 Goals and plans 226 Aligning goals with strategy maps 229

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Well-laid plans and their vulnerability to external forces

Discussion questions Ethical challenge

5.3 OPERATIONAL PLANNING__________________________231 Criteria for effective goals 231 Management by objectives 234 Single-use and standing plans 238

◗◗ Inspire Learning Corporation

5.4 BENEFITS AND LIMITATIONS OF PLANNING___________239

Case for critical analysis

5.5 PLANNING IN A TURBULENT ENVIRONMENT__________241 Contingency plans 241 Scenario planning 242

◗◗ Central City Museum

5.6 CRISIS PLANNING________________________________243 Pre-event 244 Response and recovery 245 Post-event 245 5.7 INNOVATIVE APPROACHES TO PLANNING_____________247 Set stretch goals for excellence 247

Group challenge ◗◗ Course goal setting

On the job video case ◗◗ Mi Ola swimwear: Managerial planning and goal setting

251 251 251 251

251 251

252 252 252

253 253

253 253

254 254

CHAPTER CASE STUDIES

Planning and implementing the infrastructure of the future 233 Siemens 235

CHAPTER 6 STRATEGY FORMULATION AND IMPLEMENTATION___________________ 258 6.1 THINKING STRATEGICALLY_________________________261 What is strategic management? 262 Purpose of strategy 262 Levels of strategy 266 6.2 THE STRATEGIC MANAGEMENT PROCESS_____________269 Strategy formulation versus implementation 272 SWOT analysis 272 6.3 FORMULATING CORPORATE-LEVEL STRATEGY__________275 The portfolio strategy 275 The BCG matrix 276 Diversification strategy 277 6.4 FORMULATING BUSINESS-LEVEL STRATEGY___________279 Porter’s competitive forces and strategies 279

6.8 STRATEGY IMPLEMENTATION_______________________291 Implementing global strategies 293 Testing the quality of strategy 294

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Netflix: Proof that companies need to adapt, or fail

Discussion questions Ethical challenge ◗◗ A great deal for whom?

Group challenge ◗◗ Developing strategy for a small business

6.5 FORMULATING FUNCTIONAL-LEVEL STRATEGY_________283

Case for critical analysis

6.6 NEW TRENDS IN STRATEGY________________________284 Innovation from within 284 Strategic partnerships 285

◗◗ Costco: a different approach

6.7 GLOBAL STRATEGY_______________________________287 Globalisation strategy 288 Multidomestic strategy 289 Transnational strategy 289

On the job video case ◗◗ Theo Chocolate: strategy formulation and execution

296 296 296 296

296 296

297 298 298

298 298

299 299

300 300

CHAPTER CASE STUDIES

MYOB 265 Apple Inc.’s strategy: much more than iPod, iPhone, iPad and Mac 267

CONTENTS

ix

APPENDIX TO CHAPTER 6

MANAGERIAL DECISION MAKING_____________________ 302

A6.1 TYPES OF DECISIONS AND PROBLEMS_______________304 Programmed and non-programmed decisions 304 Facing uncertainty and ambiguity 305 A6.2 DECISION-MAKING MODELS_______________________308 The classical model: rational decision making 308 How managers actually make decisions 309 The political model 311 A6.3 DECISION-MAKING STEPS_________________________313 Recognition of decision requirement 313 Diagnosis and analysis of causes 314 Development of alternatives 315 Selection of desired alternative 316 Implementation of chosen alternative 317 Evaluation and feedback 317 Personal decision framework 317

PART FOUR

A6.4 WHY DO MANAGERS MAKE POOR JUDGEMENTS?______320 Innovative decision making 321 Start with brainstorming 321 Use hard evidence 322 Engage in rigorous debate 323 Avoid groupthink 324 Know when to pull the plug 324 Do a postmortem 324

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Discussion questions

326 326 326 326

326

PART 3 CONTINUING CASE: PLANNING AND ORGANISING THE TRANSITION AT TOYOTA AUSTRALIA ____________________________________329

ORGANISING _ _ _______________________________________ 331

CHAPTER 7 DESIGNING ORGANISATION STRUCTURE___________________________ 334 7.1 ORGANISING THE VERTICAL STRUCTURE_____________337 Work specialisation 338 Chain of command 339 Authority, responsibility and delegation 339 Span of management 342 Centralisation and decentralisation 344 7.2 DEPARTMENTALISATION___________________________346 Vertical functional approach 347 Divisional approach 350 7.3 MATRIX APPROACH_______________________________353 How it works 353 7.4 TEAM-BASED APPROACH__________________________356 How it works 356 Virtual network approach 358 7.5 ORGANISING FOR HORIZONTAL COORDINATION__________________________________363 The need for coordination 363 Task forces, teams and project management 365 Relational coordination 366

7.6 FACTORS SHAPING STRUCTURE_____________________367 Structure follows strategy 368 Structure fits the technology 369

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge

373 373 373 373

373

◗◗ Unlocking the value of strategic alliances: Renault and Nissan 373

Discussion questions Ethical challenge ◗◗ A matter of delegation

Group challenge ◗◗ Family business

Case for critical analysis

375 375 375

376 376

376

◗◗ Coles 376

On the job video case ◗◗ Honest Tea: Designing organisation structure

377 377

CHAPTER CASE STUDY

Strida Bicycles: a globally networked company

361

CHAPTER 8 MANAGING CHANGE AND INNOVATION____________________________ 380 8.1 INNOVATION AND THE CHANGING WORKPLACE____________________________________383 Why do people resist change? 384 Disruptive innovation 385 The ambidextrous approach 386

x

CONTENTS

8.2 CHANGING THINGS: NEW PRODUCTS AND TECHNOLOGIES______________________________387 Exploration 387

8.3 COOPERATION___________________________________392 Innovation roles 396 8.4 CHANGING PEOPLE AND CULTURE___________________399 Training and development 401 Organisation development 401 8.5 IMPLEMENTING CHANGE__________________________405 Creating a sense of urgency 406 Resistance to change 407 Use implementation tactics 408

STUDY TOOLS

413

Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

CHAPTER 9

413 413 413

413 413

Discussion questions Ethical challenge

414 415

◗◗ Crowdsourcing 415

Group challenge ◗◗ Are you ready to implement personal change?

Case for critical analysis ◗◗ Malard Manufacturing Company

On the job video case ◗◗ Honest Tea: Managing change and innovation

416 416

417 417

417 417

CHAPTER CASE STUDIES

Building a better mouse … General Electric A mini crisis of culture and performance

386 400 410

MANAGING HUMAN RESOURCES_________________________________ 420

9.1 THE STRATEGIC ROLE OF HRM IS TO DRIVE ORGANISATIONAL PERFORMANCE___________________423 The strategic approach 424 Building human capital to drive performance 425 9.2 THE CHANGING NATURE OF CAREERS________________427 The changing social contract 427 Innovations in HRM 428 9.3 FINDING THE RIGHT PEOPLE________________________431 Human resource planning 432 Selecting 436 9.4 DEVELOPING TALENT_____________________________441 Training and development 441 Performance appraisal 445 9.5 MAINTAINING AN EFFECTIVE WORKFORCE____________449 Compensation 449 Benefits 451 Rightsizing the organisation 451 Termination 452

PART FIVE

Response to the management challenge ◗◗ Reinventing Samsung

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ HRM as a vehicle for understanding cultural differences

Discussion questions Ethical challenge ◗◗ Roles and responsibilities

Group challenge ◗◗ Management competencies

Case for critical analysis ◗◗ The right way with employees?

On the job video case ◗◗ Barcelona Restaurant Group: managing human resources

455 455 455 455

455 455

456 457 457

458 458

458 458

459 459

CHAPTER CASE STUDIES

Container Store VIVO Cafe: all in the family … the business is people Biotechnology companies in turbulent environments and challenging times

435 448 453

LE ADING_____________________________________________ 4 63

CHAPTER 10 LEADERSHIP__________________________________________________ 464 10.1 THE NATURE OF LEADERSHIP_______________________467 Bossless does not mean leaderless 468 10.2 CONTEMPORARY LEADERSHIP______________________469 Level 5 leadership 469 Servant leadership 471

Authentic leadership Gender differences

472 473

10.3 FROM MANAGEMENT TO LEADERSHIP_______________475 Leadership traits 476

CONTENTS

xi

Behavioural approaches The Leadership Grid

477 478

10.4 CONTINGENCY APPROACHES_______________________480 The situational model of leadership 480 Fiedler’s contingency theory 482 10.5 SITUATIONAL SUBSTITUTES FOR LEADERSHIP_________485

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Leading a revitalisation

Discussion questions Ethical challenge

10.6 CHARISMATIC AND TRANSFORMATIONAL LEADERSHIP__488 Charismatic leadership 488 Transformational versus transactional leadership 490

◗◗ Does wage reform start at the top?

10.7 FOLLOWERSHIP__________________________________492

◗◗ Which leadership styles are more effective?

10.8 POWER AND INFLUENCE___________________________494 ‘Hard’ position power 494 Personal ‘soft’ power 495 Other sources of power 496 Interpersonal influence tactics 497

Group challenge Case for critical analysis ◗◗ DGL International

On the job video case ◗◗ Camp Bow Wow: Leadership

500 500 500 500

500 500

501 502 502

502 502

503 503

503 503

CHAPTER CASE STUDY

News Corporation

479

CHAPTER 11 MOTIVATING EMPLOYEES_______________________________________ 506 11.1 INDIVIDUAL NEEDS AND MOTIVATION_______________511 Intrinsic and extrinsic rewards 511 Managers as motivators 514 Motivating in a bossless environment 514 11.2 CONTENT PERSPECTIVES ON MOTIVATION____________515 The hierarchy of needs 515 ERG theory 519 A two-factor approach to motivation 520 Acquired needs 522 11.3 PROCESS PERSPECTIVES ON MOTIVATION____________524 Goal setting 524 Equity theory 526 Expectancy theory 527 11.4 REINFORCEMENT PERSPECTIVE ON MOTIVATION_________________________________530 Direct reinforcement 530 Social learning theory 532 11.5 JOB DESIGN FOR MOTIVATION______________________534 Job enrichment 534 Job characteristics model 535 11.6 INNOVATIVE IDEAS FOR MOTIVATING________________537 Building a thriving workforce 538 Empowering people to meet higher needs 538

Giving meaning to work through engagement Keeping staff motivated in Australia and New Zealand

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Sandstrom Products: motivating employees

Discussion questions Ethical challenge ◗◗ Compensation showdown

Group challenge ◗◗ Should, need, like, love

Case for critical analysis

539 541

543 543 543 543

543 543

544 545 545

545 545

546

◗◗ Lauren’s balancing act

546

On the job video case

547

◗◗ Mike Boyle Strength and Conditioning: Motivating employees

547

CHAPTER CASE STUDIES

Managing motivation at Degussa Peroxide Ltd Nintendo Wii U: coping with fierce competition in the world’s video game market Outback Steakhouse

510 517 523

CHAPTER 12 COMMUNICATION IN ORGANISATIONS__ ___________________________ 550 12.1 COMMUNICATION IS THE MANAGER’S JOB___________553 What is communication? 555 A model of communication 555 12.2 COMMUNICATING AMONG PEOPLE__________________557 Open communication climate 558 Communication channels 560

xii

CONTENTS

Communicating to persuade and influence others 563 Communicating with candour 564 Asking questions 566 Listening 567 Non-verbal communication 569

12.3 ORGANISATIONAL AND WORKPLACE COMMUNICATION_____570 Social media 571 Personal communication channels 572 Formal communication channels 576 Crisis communication 580

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ John McFarlane: communicate to build morale

Discussion questions

Ethical challenge ◗◗ The voice of authority

Group challenge

587

Case for critical analysis

588

◗◗ WA Manufacturing

585

◗◗ Intermountain Healthcare: Managing communication

585 585

586

587

587

◗◗ Listen like a professional

585 585 585

587

On the job video case

588

589 589

CHAPTER CASE STUDIES

General Electric Susan Williams

564 579

CHAPTER 13 LEADING TEAMS__ _____________________________________________ 592 13.1 THE VALUE OF TEAMS_____________________________596 What is a team? 596 Contributions of teams 597 13.2 TYPES OF TEAMS_________________________________599 Functional teams 599 Cross-functional teams 599 Self-managed teams 600 Virtual teams 601 13.3 THE DILEMMA OF TEAMS__________________________605 13.4 MODEL OF TEAM EFFECTIVENESS___________________607 13.5 TEAM CHARACTERISTICS__________________________609 Size 609 Diversity 609 Member roles 610 13.6 TEAM PROCESSES________________________________612 Stages of team development 612 Team cohesiveness 614 Team norms 615 13.7 MANAGING TEAM CONFLICT_______________________617 Types of conflict 617 Balancing conflict and cooperation 617 Causes of conflict 618 Styles to handle conflict 618 Negotiation 620

PART SIX

STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Response to the management challenge ◗◗ NEC in Mulgrave: teams that work

Discussion questions Ethical challenge ◗◗ Consumer safety or team commitment?

Group challenge ◗◗ Feedback exercise

Case for critical analysis ◗◗ Are we a team?

On the job video case ◗◗ Tough Mudder: Leading teams

623 623 623 623

623 623

624 624 624

625 625

625 625

626 626

PART 5 CONTINUING CASE: TOYOTA’S  BEHAVIOUR AND TEAMWORK______________________629 CHAPTER CASE STUDIES

The team’s the thing 596 The Aconex team in Melbourne 604 Espresso 611

CONTROLLING_______________________________________ 631

CHAPTER 14 MANAGERIAL AND QUALITY CONTROL_____________________________ 634 14.1 THE MEANING OF CONTROL________________________637 14.2 FEEDBACK CONTROL MODEL_______________________638 Steps of feedback control 639 The balanced scorecard 642

14.3 BUDGETARY CONTROL_____________________________644 Expense budget 645 Revenue budget 645 Cash budget 645

CONTENTS

xiii

Capital budget Zero-based budget

646 646

19.4 FINANCIAL CONTROL_____________________________647 Financial statements 647 Financial analysis: interpreting the numbers 650 14.5 THE CHANGING PHILOSOPHY OF CONTROL____________________________________652 Hierarchical versus decentralised approaches 652 Open-book management 655

Online study resources ◗◗ CourseMate Express for management ◗◗ Search Me! Management

Response to the management challenge ◗◗ Controlling an empire at Dell

Discussion questions Ethical challenge ◗◗ The wages of sin?

Group challenge

14.6 TOTAL QUALITY MANAGEMENT (TQM)________________657 TQM techniques 658 TQM success factors 661

◗◗ Create a group control system

14.7 TRENDS IN QUALITY AND FINANCIAL  CONTROL_______________________________________663 International quality standards 663 Corporate governance 663

On the job video case

14.8 QUALITIES OF EFFECTIVE CONTROL SYSTEMS_______________________________________665

CAPSTONE CHAPTER

Case for critical analysis ◗◗ Lincoln Electric ◗◗ Barcelona Restaurant Group: managing quality and performance

667 667 667

667 667

668 669 669

670 670

670 670

671 671

CHAPTER CASE STUDIES

Semco’s open-book policy A lesson in quality from China The honeybee style

C.1 FUNDAMENTAL PRACTICES COMMON TO WINNING ORGANISATIONS_________________________________678 Leadership practices 678 People management practices 683 Customer focus practices 687 Quality management practices 688 Innovation practices 690 Knowledge management practices 691

STUDY TOOLS

C.2 DEEPER PRINCIPLES COMMON TO THE WORLD’S BEST ORGANISATIONS____________________693

CHAPTER CASE STUDIES

Glossary 701 Name index 711 Subject index 716

CONTENTS

667

656 658 660

MAKING EFFECTIVE MANAGEMENT HAPPEN________________ 674

C.3 PUTTING IT ALL TOGETHER: THE ORGANISATION AS A SYSTEM__________________696

xiv

STUDY TOOLS

Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management

Discussion questions Group challenge ◗◗ Understanding how an organisation works

‘Heartfelt Leadership’ pays off at Toyota Google (Alphabet Inc.): a great place to search – and work Values can come from Mars

699 699 699 699

699 700 700

681 686 696

Guide to the text As you read this text you will find a number of features in every chapter to enhance your study of management and help you understand how the theory is applied in the real world.

PART-OPENING FEATURES

PART T WO T HE E N V I RON M E N T O F M A N AGE M E N T

A Chapter list outlines the chapters contained in each part for easy reference, along with an overview of the part ahead.

Chapter 2 The environment and corporate culture Chapter 3 Managing in a global environment Chapter 4 Ethics, social responsibility and sustainable development

The environment surrounding a sporting

operation? What are the local idiosyncrasies in a foreign market, and how do customer preferences differ from those in the home market?

contest plays a significant part in determining the outcome. In Test cricket, the nature of the pitch determines whether spin bowlers or fast bowlers are favoured for selection. In most football codes, the direction and strength of the

These factors are dynamic, never static. In both sport and business, the environment in which we work and compete is forever changing. A change of wind can dramatically change a sailing competition or a football match, and these are difficult to predict in advance. In business, consider the massive changes going on in Europe such as Britain’s vote to leave the European Union, large influxes of refugees, and terror events. These situations bring changes to the environment in which organisations and their managers must work, and can also change consumer behaviour. The election of Donald Trump as President of the United States – which surprised many people – will impact on business conditions in the United States.

wind can make a difference, and this certainly is also the case in sailing. In Davis Cup tennis contests, the playing surface chosen by the home team and the partisan home crowd are important parts of the environment that affect the outcome. In golf, the weather conditions, speed of the greens, pin placement and other factors are the environment that must be accounted for by competitors. Similarly, in business and management, the environment affects the outcome. When organisations are considering starting a business in a new country, the prevailing work culture plays a significant part in determining the outcome. So do the state of the market, the intensity of competition in an industry and economic circumstances, such as interest rates and unemployment rates. Each of these factors has an impact on the strategies and tactics managers must employ. What ethical standards are being applied in the industry and country of

Because of the changes to international trade conditions advocated in his election policies, many organisations around the world will feel the effects, should those promises become reality. In Part 2, you will study the environment of management, including the trend towards globalisation and the importance of managerial ethics and social responsibility.

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CHAPTER-OPENING FEATURES

CHAPTER 5

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O RG A N IS AT ION A L P L A N N ING A ND GOA L SE T T I NG

MANAGEMENT CHALLENGE

WELL-LAID PLANS AND THEIR VULNERABILITY TO EXTERNAL FORCES

1

When Don Argus finished as CEO of the National Australia Bank (NAB), after its most successful decade ever, he accepted an invitation to join the Board of Directors of BHP, which has been a long-standing steel making company in Australia. BHP has been through some significant turmoil in recent years, and indeed it was becoming very difficult to be competitive and profitable in this industry in Australia, due to the high cost base and small domestic market relative to global conditions. Before and during the appointment of new CEO Marius Kloppers, a plan was hatched to transform BHP from a steel company with patchy performance into a resources company, based on forecasts of the upcoming growth in demand for materials such as iron ore, coal and gas-based energy from Asian growth markets, principally China. Growth was planned and executed via both ‘organic’ means and through mergers and acquisitions. A major success was the merger with the Billiton corporation, making the newly merged BHP Billiton the world’s biggest resources company, which created significant wealth for shareholders and led the mining boom from an Australian perspective.

L E A R N I NG OBJ E C T I V E S A F T E R ST U DY I N G T H I S C H A P T E R , YO U SHO U L D BE ABL E TO :

1 define goals and plans, and explain

6 explain the difference between

the relationship between them

single-use plans and standing plans

2 explain the concept of organisational mission and the way it influences goal setting and planning

7 discuss the benefits and limitations of planning

8 describe and explain the importance

3 describe the types of goals an

of contingency planning, scenario building and crisis planning for today’s managers

organisation should have and why they resemble a hierarchy

4 define the characteristics of effective

9 identify innovative planning

goals

approaches that managers use in a fast-changing environment.

5 describe the four essential steps in the process of management by objectives (MBO)

Further significant plans were developed including two major initiatives of acquiring the second-biggest mining company in the world, Rio Tinto, and building the world’s biggest mining operation in South Australia, known as Olympic Dam. However, these well-laid plans did not come to fruition, due to circumstances beyond BHP Billiton’s control. Geopolitical and market forces led to the Rio Tinto acquisition being blocked and changes in prices and tax regimes caused the Olympic Dam investment to be shelved. BHP Billiton looked elsewhere for its next steps in continuing to grow its shareholder wealth creation path. This highly scrutinised company needed to plan some new initiatives to satisfy its shareholders who were used to and expecting continued double-digit shareholder value creation.

1

Identify the key concepts that the chapter will cover with the Learning objectives at the start of each chapter.

2

The Management challenge at the start of each chapter presents a real-life management scenario that relates to key chapter concepts, and encourages you to think about how best to resolve it.

3

Later in the chapter, the Response to the management challenge offers a conclusion to this scenario, describing how the issue was resolved.

4

New manager self-assessments encourage you to analyse how you would respond to certain managerial situations and provide insight into what to expect and how you might perform as a manager.

QUE S TI O N How should Mr Argus and Mr Kloppers (and their successors Chairman Jacques Nasser and CEO Andrew Mackenzie) go about planning and executing further profitable growth initiatives? Should they stick to mining or diversify, and if so, where and into what? What geographical footprint should they pursue? How confident should they be that prices and demand for commodities such as iron ore and coal will remain at ‘high profit’ levels?

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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ONLINE STUDY RESOURCES

NEW MANAGER SELF-ASSESSMENT ARE YOU FIT FOR MANAGERIAL UNCERTAINTY? Do you approach uncertainty with an open mind? Think back to how you thought or behaved during a time of uncertainty when you were in a formal or informal leadership position. Please answer whether each of the following items was mostly true or mostly false in that circumstance.

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S E A R CH M E! MA NAGE ME NT

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results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’.

RESPONSE TO THE MANAGEMENT CHALLENGE

MICROSOFT: COPING WITH CHANGE One problem for Microsoft, described in the chapter-opening Management Challenge, is that the culture is out of alignment with its environment. Years of success led to complacency and even resistance to changes in key sectors of the environment. The company’s adaptability culture did not stay aggressive. The focus on protecting Microsoft’s dominance in PC software caused the company to miss two of the hottest technology advances – Internet search engines and downloading music. Now, its PC software business, which Microsoft still relies on for up to 80 per cent of its sales and 140 per cent of its profits,

is under attack. Former CEO Steven Ballmer tried various structural alternatives and management changes to beef up boundary spanning and get employees more focused on customers and new trends in the shifting external environment. Microsoft released many new products late in Ballmer’s tenure, which he believed would keep the company on top. However, most of those products were considered ‘catch-up’, while younger, more adaptable companies already moved to the next level of new products. Microsoft is a large and powerful company, but it may have reached a midlife crisis and likely will need a cultural adjustment from current CEO Satya Nadella to stay in tune with changes in key environmental sectors. Managers can use symbols, stories, heroes, slogans and cultural

2 Welcomed unusual viewpoints of others even if we were working under pressure. 3 Made it a point to attend industry trade shows and company events. 4 Specifically encouraged others to express opposing ideas and arguments. 5 Asked ‘dumb’ questions. 6 Always offered comments on the meaning of data or issues. 7 Expressed a controversial opinion to bosses and peers. 8 Suggested ways of improving my own and others’ ways of doing things. Note: The self-assessment questions are based on ideas from R. L. Daft and R. M. Lengel, Fusion Leadership (San Francisco: Berrett Koehler, 2000): Chapter 4; B. Bass and B. Avolio, Multifactor Leadership Questionnaire, 2nd ed. (Menlo Park, CA: Mind Garden, Inc., 2004); and Karl E. Weick and Kathleen M. Sutcliffe, Managing the Unexpected: Assuring High Performance in an Age of Complexity (San Francisco: Jossey-Bass, 2001).

Scoring and Interpretation: give yourself one point for each item you marked as mostly true. If you scored less than five you might want to start your career as a manager in a stable environment rather than unstable environment. A score of five or above suggests a higher level of mindfulness and a better fit for a new manager in an organisation with an uncertain environment. In an organisation in a highly uncertain environment everything seems to be changing. In that case, an important quality for a new manager is mindfulness, which includes the qualities of being open-minded and an independent thinker. In a stable environment, a manager with a closed mind may perform okay because much work can be done in the same old way. In an uncertain environment, even a new manager needs to facilitate new thinking, new ideas and new ways of working. A high score on the preceding items suggests higher mindfulness and a better fit with an uncertain environment.

In high technology industries, environmental conditions are volatile. Telstra, Telecom NZ and Microsoft are currently in a situation similar to the one Xerox faced in the early 1990s. Xerox was dominant in its industry for many years, but managers missed cues from the environment and got blindsided by rivals Canon and Ricoh when they began selling comparable copy machines at lower prices. Moreover, Xerox failed to keep pace with changing methods of document management and had no new products to fill the gaps in the declining copy business. Consequently, the company struggled for more than a decade to find its footing in a vastly changed world. CEO Anne Mulcahy

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sometimes calling it frugal engineering.4 Will this be a buzzword that quickly fades from managers’ vocabularies, or will it become as ubiquitous in management circles as terms such as total quality or kaizen? Managers are always on the lookout for fresh ideas, innovative management approaches, and new tools and techniques. Management philosophies and organisational forms change over time to meet new needs. The Self-assessment at the beginning of this chapter describes two differing philosophies about how people should be managed, and you will learn more about these ideas in this chapter. If management is always changing, why does history matter to managers? The workplace of today is different from 50 years ago – indeed, from even 10 years ago – yet historical concepts form the backbone of management education.5 One reason is that a historical perspective provides managers with a broader way of thinking, a way of searching for patterns and determining whether they recur across time periods. It is a way of learning from others’ mistakes so as not to repeat them; learning from others’ successes so as to repeat them in the appropriate situation; and most of all, learning to understand why things happen to improve organisations in the future. Certain management practices that seem modern, such as open-book management or employee stock ownership, have actually been around for a long time. These techniques have repeatedly gained and lost popularity since the early twentieth century because of shifting historical forces.6 This chapter provides a historical overview of the ideas, theories and management philosophies that have contributed to making the workplace what it is today. The final section of the chapter looks at some recent trends and current approaches that build on this foundation of management understanding. This foundation illustrates that the value of studying management lies not in learning current facts and research, but in developing a perspective that will facilitate the broad, long-term view needed for

FEATURES WITHIN CHAPTERS management success.

Review the key points covered in the chapter with the Remember this lists throughout the chapter. These assist with quick reference and revision.

R EMEMBE R THIS ◗

Management is a dynamic field, always changing in some ways, yet there are some concepts and techniques that have stood the test of time.

◗

There is a lot that can be learned from what has and has not worked in managing organisations in the past, to inform managerial strategies going forward.

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2: THE EVOLUTION OF MANAGEMENT THINKING

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2 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E

TAKE A MOMENT ◗

As a new manager in today’s workplace, R Ehow M would E M Byou E develop R T Hyour I S employees’ abilities to think independently, build relationships and share knowledge? Be prepared to learn to use technology as a tool to tap organisation into the insight creativity person the organisation. Every is and impacted onof byeach forces andin constraints that the external environment imposes upon the organisation.

◗

The environment is far from a static or constant set of forces and can change in ways that are difficult

One segment of knowledge management is the use of sophisticated customer relationship to predict. management (CRM) systems. These collect and manage large amounts of data about customers and make them available to employees, enabling better decision making and superior customer service. The use of CRM has virtually exploded over the past several years. In Bain & Company’s 2011 management tool

THE EXTERNAL ENVIRONMENT

survey, 2.1 for example, 58 per cent of companies reported using CRM, up from only 35 per cent of companies in 2000, one of the largest and fastest usage increases ever revealed by the survey.76 TheInformation world is undergoing tremendous and far-reaching The environmental changes thatmeans shook technology has also contributed to thechange. rapid growth of outsourcing , which Toyota’s leadership position in theorauto industry – a global recession,that natural disasters andmore changing contracting out selected functions activities to other organisations can do the work cost customer needs – were part ofareitsoutsourcing external organisational environment. The external organisational effectively. Today’s companies to free up cash for investment in long-term research environment all elements outside thesuch boundary of the organisation that customer have the and innovation.includes Outsourcing – alongexisting with other trends as supply chain management, 9 potential to management, affect the organisation. relationship telecommuting and virtual teamwork – requires that managers decide exactly

customer relationship management (CRM) Systems that help companies keep in close touch with customers, collect and manage customer data, and collaborate with customers to provide the most valuable products and services. outsourcing Contracting out to another organisational company of a function or environment activity that could be, or All elements existing was previously, produced outside the organisation’s in-house. boundaries that have the

environment includes competitors, resources, and economic conditions thatof influence whatThe they can do competitively and what they shouldtechnology be getting other firms to do via a series supply potential to affect the the organisation. It does not include events so far removed from the organisation that their impact is not and partnering relationships. organisation. perceived. 2: THE EVOLUTION OF MANAGEMENT THINKING 65 environment be conceptualised further as having two components: S UThe P Porganisation’s LY C H Aexternal IN M A NAGcan EM ENT

general and task environments, as illustrated in EXHIBIT 2.1.10 Supply management refers to managing the sequence and purchasers, Thechain general environment affects organisations indirectly.ofIt suppliers includes social, economic, covering political, 77 all stagesDespite of processing, fromtechnological obtaining rawfactors materials distributing goods the toabout consumers. productivity. flawed and methodology or inaccurate conclusions, the findings provided impetus international, natural thatto influence allfinished organisations equally. EXHIBIT 2.7 illustrates aregulations basic supply model. shaped A supply chainare is a part network ofand multiple businesses and for the human This approach management theory practice for well Changes inrelations federal movement. orchain an economic recession of the organisation’s general 78 that are connected through the flow of products or services. Many organisations manage overindividuals a quarter of a century, and the belief that human relations is the best area of focus for increasing environment. These events do not directly change day-to-day operations, but they do affect all the supply chain with sophisticated technology. In India, example, Walmart managers productivity persists today. organisations eventually. The taskelectronic environment is closer to thefor organisation and includes the have invested in an efficient supply chain thatwith electronically links farmers and small manufacturers sectors that conduct day-to-day transactions the organisation and directly influence its basic

Apply the concepts discussed in the text and experiment with implementing the concept as a practising manager with the Take a moment pop-ups. Important Key terms are marked in bold in the text and defined in the margin when they are used in the text for the first time. A full list of key terms is also available in the glossary, which can be found at the back of the book.

general environment The layer of the external environment that affects the organisation indirectly.

task environment The layer of the external environment that directly influences the organisation’s operations and the labour market. The human relations movement initially espoused a ‘dairy farm’ view of management – contented and performance. Suppliers Manufacturers Retailers A new view of the environment argues that organisationsDistributors are now evolving into business ecosystems. EXHIBIT 2.7 Supply cows give more milk, and so satisfied workers will give more work. Gradually, views with deeper chain for a retail An organisational ecosystem is a system formed by the interaction among a community of organisations organisational content began to emerge. The human resources perspective maintained an interest in worker human resources organisation ecosystem in the environment. An ecosystem includes organisations in all the sectors of the task and generalperspective participation and considerate leadership but shifted the emphasis to consider the daily tasks that Includes organisations in all perspective environments that provide the resource and information transactions, flows and linkages necessary forA management the sectors of the task and people perform. The human resources perspective combines prescriptions for design of job tasks that suggests jobs should general environments that an organisation to thrive.11 be designed to meet higherwith theories of motivation.45 In the human resources view, jobs should be designed so that tasks are provide the resource and by allowing For example, Apple’s ecosystem includes hundreds of suppliers and millions of customers for thelevel needs information transactions, not perceived as dehumanising or demeaning but instead allow workers to use their full potential. workers to use their full flows and linkages products that it produces across several industries, including consumer electronics, Internet services,potential. Two of the best-known contributors to the human resources perspective were Abraham Maslow and necessary for an mobile phones, personal computers and entertainment.12 organisation to thrive. Douglas McGregor.

supply chains create T Hdirectly E HtoU the M Aperformance. N maximising R E S OU R Cfor E both Sconsidered Pends. E R79SHowever, P include E C Ttoday’s I V Eglobal suppliers, operations andstores, It isvalue generally to competitors, customers

ICONS

The organisation also has an internal environment, which includes the elements within the internal environment Abraham Maslow (1908–1970), a practising psychologist, observed that his patients’ problems usually Flow of products organisation’s boundaries. The internal environment is composed of current employees, management and Includes elements stemmed from an inability to satisfy their needs. From this, he generalised his work and suggested a within the organisation’s especially corporate culture, which defines employee behaviour in the internal environment and how well hierarchy of needs. Maslow’s hierarchy started needs andand progressed boundaries, such as Source: Adapted from an exhibit from the Global Supplywith Chainphysiological Games Project, Delft University the Universityto of safety, the Maryland, organisation will School adaptoftoBusiness, the external environment. employees, management R. H. Smith www.gscg.org:8080/opencms/export/sites/default/gscg/images/supplychain_ belongingness, esteem and, finally, self-actualisation needs. and corporate culture. simple.gif (accessed 6 February 2008). EXHIBIT 2.1 illustrates the relationship among the general, task and internal environments. As an Douglas McGregor (1906–1964) had become frustrated with the early simplistic human relations open system, the organisation draws resources from the external environment and releases goodsSee Chapter 16 for a more notions while president of Antioch College in Ohio. He challenged both the classical perspective detailed discussion of Maslow’s ideas. and the early human relations assumptions about human behaviour. Based on his experiences as a manager and consultant, his training as a psychologist and the work of Maslow, McGregor formulated 7 : O R G A N I S AT I O N A L P L A N N I N G A N D G O A L S E T T I N G his Theory X and Theory Y, which are explained in EXHIBIT 2.4.46 McGregor believed that the classical perspective was based on Theory X assumptions about workers. He also felt that a slightly modified version of Theory X would fit early human relations ideas. In other words, human relations ideas

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Linkage icons draw attention to connections between topics within individual chapters and across the text; an in-text reference adjacent to the icon directs you to the relevant material.

did not go far enough. McGregor proposed Theory Y as a more realistic view of workers for guiding 7.7 management thinking.

INNOVATIVE APPROACHES TO PLANNING

The process of planning changes over time, like other aspects of managing, to become more in tune with shifts in the environment and employee attitudes. A fresh approach to planning is to involve everyone in TAKE A MOMENT the organisation, and sometimes outside stakeholders as well, in the planning process. The evolution to If you haven’t already completed the self-assessment at the start of this chapter that pertains to old- and a new-style new approach begins with shift How to decentralised planningassumptions , which means that planning work management, take ita now. will your management about people fit intoexperts an organisation today? with managers in major divisions or departments to develop their own goals and plans as is indicated in EXHIBIT 7.8. Managers throughout the company come up with their own creative solutions to problems and become more committed to following through on the plans. As the environment becomes even more The point Theory Ysee is that organisations can take advantageplanning of the imagination and of all volatile, topofexecutives the benefits of pushing decentralised even further by intellect having planning their employees. Employees self-control and contribute goalsplans whenthat given experts work directly withwill lineexercise managers and front-line employeestotoorganisational develop dynamic meet

decentralised planning Managers work with planning experts to develop their own strategic plans.

thefast-changing opportunity. A few organisations today still use Theory X management, but many are trying Theory needs. Y techniques. The Danish company, Oticon Holding A/S, brings out the creativity and enthusiasm of itsthe In a complex and competitive business environment, strategic thinking and execution become employees by operating from Theory Y assumptions. 55 expectation of every employee. Planning comes alive when employees are involved in setting goals and determining the means to reach them. The following sections provide some guidelines for innovative planning.

EXHIBIT 7.8 Structural location of decentralised planning staff

Managing Director

Planning support staff members

Division Heads

Line Managers

Finance

Frozen foods

Breakfast cereals

Production

Marketing

Finance

Production

Canned goods

Marketing

Finance

Production

Marketing

S E T ST R E T C H G OA L S F O R E X C E L L E N C E Stretch goals are reasonable yet highly ambitious goals that are so clear, compelling and imaginative

that they fire up employees and engender excellence. Stretch goals are typically so far beyond the current levels that people have to be innovative to find ways to reach them. Consider the following example from Amazon.com.

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GUIDE TO THE TEXT

stretch goal A reasonable yet highly ambitious and compelling goal that energises people and inspires excellence.

Entrepreneurship icons highlight discussion of contemporary entrepreneurship and related activities, such as innovation, throughout the text.

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PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T

INNOVATIVE WAY COSTCO’S WINNING FORMULA

Gain an understanding of companies and managers at the forefront of innovation in the field of contemporary management practice in both an Australian and global context from the Innovative way boxes.

Costco Wholesale Corporation, a no-frills, self-service warehouse club, operates an international chain of membership warehouses offering a limited selection of products at reduced prices. Costco’s business model focuses

customer base by delving further into the Asian markets, where consumer spending and growth is higher than mature United States and European markets. Costco’s complex environment is illustrated in EXHIBIT 2.2. Costco’s

on maintaining its image as a pricing authority, consistently providing the most competitive prices. ‘Everything we do is to provide goods and services to the customer at a lower price,’ said Jim Sinegal, CEO and founder. Costco warehouses are designed to operate efficiently and to communicate value to members. The warehouse decor –

biggest competitive advantage is its workforce. ‘Costco compensates employees very well, well above the industry

high ceilings, metal roofs, exposed trusses – keeps costs low and contributes to the perception that Costco is for serious shoppers seeking serious bargains. Other strategies for keeping prices low include offering only 3600 unique products at a time and negotiating low prices with suppliers. Only about a quarter of sales come from outside the United States, but store sales in overseas markets – including Australia – have been growing about four times faster than those in the United States. Costco plans to expand its

in terms of wages and benefits,’ says R. J. Hottovey, a retail analyst at Morningstar. ‘When retailers are cutting health benefits, Costco employees don’t have to worry about that,’ he says. The happiness and morale of employees is often overlooked in the retail industry, but not at Costco. Thanks to its good treatment of workers, Costco has one of the lowest turnovers in the retail industry (only six per cent), and it earns US$530 000 of revenue per employee. Costco has successfully opened stores in Australia and is planning more than the eight major stores it had in 2016, due to the great success it has achieved in Melbourne and Sydney. Costco has entered the petrol retailing market in Australia in three states.

Sources: Edelson, S. (30 January 2012). Costco Keeps Formula as It Expands. Women’s Wear Daily, 19, 1; Cheng, A. (2 April 2010). Costco Cracks Taiwan Market. The Wall Street Journal, B5; and Form 10-K for Costco Wholesale Corporation. Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations, Costco Annual Report, http://www.sec.gov/Archives/edgar/data/909832/000119312511271844/d203874d10k. htm#toc203874_9 (accessed 10 July 2012).

L AB OUR M AR K E T labour market The people available for hire by the organisation.

The labour market represents people in the environment who can be hired to work for the organisation. Every organisation needs a supply of trained, qualified personnel. Unions, employee associations and the availability of certain classes of employees can influence the organisation’s labour market. Labour market forces affecting organisations right now include (1) the growing need for computer-literate knowledge workers; (2) the necessity for continuous investment in human resources through recruitment, education and training to meet the competitive demands of the borderless world; and (3) the effects of international trading blocs, automation, outsourcing and shifting facility locations upon labour dislocations, creating unused labour pools in some areas and labour shortages in others.33 Argyle Diamonds in Western Australia is a company with substantial management challenges – in particular, the need to manage a large workforce at a very remote location. This is a typical challenge faced

INNOVATIVE WAY

by mining and oil companies. Changes in these various sectors of the general and task environments can create tremendous challenges, especially for organisations operating in complex, rapidly changing industries.

Twitter and square

Ch 01, p. 6

Procter & Gamble

Ch 08, p. 396

Budget blockbusters

Ch 01, p. 16

General Electric’s work out

Ch 08, p. 404

Clickcorp: Taking Ugg to the world

Ch 01, p. 35

Staying in the picture: Ted’s cameras

Ch 08, p. 406

Shopping online, even for cars

Ch 02, p. 95

ENSR

Ch 08, p. 409

Costco’s winning formula

Ch 02, p. 100

Anglo American plc.

Ch 09, p. 424

Zappos family

Ch 02, p. 111

Taj Mahal Palace, Mumbai

Ch 09, p. 442

Hollywood studios

Ch 03, p. 146

Level 5 leadership at work

Ch 10, p. 470

Gap Inc

Ch 04, p. 189

Charismatic leadership

Ch 10, p. 488

Cultivating a service mindset

Ch 04, p. 199

Flexible work policies

Ch 11, p. 520

Google

Ch 04, p. 200

Prudential UK and Europe

Ch 11, p. 540

Planning for a bigger Toll

Ch 05, p. 240

Virtual brainstorming

Ch 12, p. 562

Jetblue

Ch 05, p. 246

Cisco systems

Ch 12, p. 567

The birth of the Kindle

Ch 05, p. 248

Amgen Inc.

Ch 12, p. 568

Amazon Prime

Ch 06, p. 266

Tupperware Nordic

Ch 12, p. 572

Dell Technologies

Ch 06, p. 271

Spring company

Ch 13, p. 603

Facebook

Ch 06, p. 274

McDevitt Street Bovis

Ch 13, p. 619

Focused innovation in marketing

Ch 06, p. 285

7-Eleven

Ch 14, p. 649

The Dodo is not extinct!

Ch 06, p. 290

Campbell soup

Ch 14, p. 654

Caterpillar

Ch 07, p. 340

The global success of eBay

Ch 14, p. 662

Teams work at Imagination ltd.

Ch 07, p. 357

GE people/talent management

Capstone Ch, p. 685

Flight coordination

Ch 07, p. 366

GUIDE TO THE TEXT

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CASE STUDIES

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Growing a business from scratch: lavender!

Ch 02, p. 99

Green power

Ch 02, p. 112

McDonald’s

Ch 02, p. 116

The axis of India

Ch 03, p. 138

A leadership dilemma at Timberland

Ch 04, p. 194

A crisis to milk

Ch 04, p. 202

Planning and implementing the infrastructure of the future

Ch 05, p. 233

Siemens

Ch 05, p. 235

MYOB

Ch 06, p. 265

Apple Inc.’s strategy: much more than iPod, iPhone, iPad and Mac

Ch 06, p. 267

Strida Bicycles: a globally networked company

Ch 07, p. 361

Building a better mouse …

Ch 08, p. 386

General Electric

Ch 08, p. 400

A mini crisis of culture and performance

Ch 08, p. 410

Container Store

Ch 09, p. 435

VIVO Cafe: all in the family … the business is people

Ch 09, p. 448

Biotechnology companies in turbulent environments and challenging times

Ch 09, p. 453

News Corporation

Ch 10, p. 479

Managing motivation at Degussa Peroxide Ltd

Ch 11, p. 510

Nintendo Wii U: coping with fierce competition in the world’s video game market

Ch 11, p. 517

Outback Steakhouse

Ch 11, p. 523

General Electric

Ch 12, p. 564

Susan Williams

Ch 12, p. 579

The team’s the thing

Ch 13, p. 596

The Aconex team in Melbourne

Ch 13, p. 604

Espresso

Ch 13, p. 611

Semco’s open-book policy

Ch 14, p. 656

A lesson in quality from China

Ch 14, p. 658

The honeybee style

Ch 14, p. 660

‘Heartfelt Leadership’ pays off at Toyota

Capstone Ch, p. 682

Google (Alphabet Inc.): a great place to search – and work

Capstone Ch, p. 686

Values can come from Mars

Capstone Ch, p. 696

GUIDE TO THE TEXT

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Obtain an understanding of how leading practitioners are applying management theory from the real-world examples in the Case study boxes.

PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T

at the company is ‘We reserve the right to make mistakes’. Founder and CEO Mark Constantine is passionately devoted to change and encourages employees to break boundaries, experiment and take risks. The company kills off one-third of its product line every year to offer new and offbeat products.76 Other companies in the cosmetics industry, as well as those involved in electronics, e-commerce and fashion, often use an adaptability culture because they must move quickly to respond to rapid changes in the environment.

CASE STUDY MCDONALD’S Ray Kroc, founder of McDonald’s, once said, ‘I don’t know what we’ll be serving in the year 2000, but we’ll be serving more of it than anybody’. From its founding through to the early 1980s, McDonald’s changed with consumers’ tastes, seeming to give us what we wanted before we even knew we wanted it. Today, however, Kroc’s bold claim does not seem so assured. Although McDonald’s still has a majority share of the US fast-food market and continues to expand internationally, the company is slipping fast in its ability to recognise and shape popular trends. Some analysts and investors believe the widespread problems with McDonald’s are due to the company’s insular, arrogant culture. The average top executive at McDonald’s started working at the company when Richard Nixon was President of the United States, and the company has been reluctant to bring in outside leaders to guide management as the external environment changes. And the board is made up of close-knit insiders who have done little to agitate for change. As performance declined, top leaders tended to blame others, such as dissident franchisees, news reporters and Wall Street analysts. ‘If there were one thing I would change about McDonald’s,’ said senior vice-president Brad A. Ball, ‘it would be to correct the misconceptions and misperceptions that have become so pervasive in the last few years.’ In the late 1990s, McDonald’s embarked on an effort to reform. Management was reorganised, and the then-head of the US domestic division, Jack M. Greenberg, brought in at

divided the United States into territories, creating smaller companies to recapture some of McDonald’s entrepreneurial zeal. ‘We are not afraid to do things differently,’ Greenberg said. Managers began to recognise that, even though McDonald’s was still the world’s most successful restaurant company, it was far from achieving its potential. They were trying to return McDonald’s to the healthy, adaptive culture of the early years, when it was constantly in touch with the tastes of consumers. By the late 2000s, McDonald’s had made many changes, was operating more efficiently and sustainably and offering new products such as salads and café products. It increased sales across its 35 000 stores, obviously giving its 60 million customers per day an experience that they value, while also increasing the company’s stock price by a factor of three over the five years to 2007. Growth in emerging economies has been very solid. McDonald’s has more recently refurbished its stores and redesigned its products in leading markets such as Australia, now making many products to the specific orders of its customers. By 2014, McDonald’s had substantially accomplished this product and process upgrade through rolling it out on an international basis. As of 2016, McDonald’s has engaged in significant innovations, from ‘Create Your Taste’ to table service options and a range of new services and initiatives. McCafe’s, which are an Australian innovation for McDonald’s, have been rolled out internationally. These new services have led to significant sales growth, and have even brought new customers to

least a handful of new managers, including executives from Burger King, Boston Market and General Electric. He also

consume from McDonald’s.

Sources: Euromonitor International. (September 2013). Country Report: Fast Food In The US. http://www.euromonitor.com/fast-food-in-the-us/report (accessed 3 November 2013; Leonardt, D. (9 March 1998). McDonald’s: Can it Regain its Golden Touch? BusinessWeek, 70–7

make self-sacrifice for the sake of a larger purpose an increasingly beneficial characteristic. In one study, Grant found that the single biggest predictor of a team’s effectiveness was the amount of help and support that members gave to one another. Grant says that, in the past, takers (people who put their own interests first) could climb to the top over the backs of givers, but that is changing as the nature of work has shifted. For example, Howard Lee, who was heading the South China office for Groupon, received a flood of applications for sales jobs. By searching social media, he could identify that some candidates had a pattern of self-serving behaviour. He quickly weeded those out and focused on the applicants who demonstrated a track record as givers.49 The shift toward admiring and rewarding givers over takers can bring significant positive changes within organisations. The simple categories of giver and taker help people understand how they might contribute to or detract from an organisation’s ethical culture.

MANAGEMENT IN PRACTICE GUIDELINES FOR ETHICAL DECISION MAKING

122

If a 60 Minutes crew was waiting on your doorstep one ✚ Is the action you are considering legal? Is it ethical? If you are morning, would you feel comfortable justifying your actions not sure, find out. to the camera? One young manager, when confronted with ✚ Do you understand the position of those who oppose the Others PAethical R T T W Odilemmas, : T H E E N V gives I R O N Mthem E N T Othe F M‘60 A NMinutes A G E M E N test’. T action you are considering? Is it reasonable? say they use such criteria as whether they would be proud ✚ Who does the action benefit? Who does it harm? How much? to tell their parents or grandparents about their decision, or For how long? whether they could sleep well at night and face themselves in ✚ Would you be willing to allow everyone to do what you are the mirror in the morning. Managers often rely on their own considering doing? personal integrity in making ethical decisions. But knowing TAKE A MOMENT ✚ Have you sought the opinion of others who are what to do is not always easy. As a future manager, you will Consider an organisation in which you have worked, been a repeat customer, or for some other reason knowledgeable on the subject and who would be objective? surely face ethical dilemmas one day. The following guidelines been able to closely observe the workplace culture. Describe that culture, and consider how it developed will not tell you exactly what to do, but taken in the context of ✚ Would your action be embarrassing to you if it were made and has been led to its current state. the text discussion, they will help you evaluate the situation known to your family, friends, co-workers or superiors? more clearly by examining your own values and those of your There are no correct answers to these questions in an organisation. The answers to these questions will force you absolute sense. Yet, if you determine that an action is potentially to think hard about the social and ethical consequences of harmful to someone or would be embarrassing to you, or if you R EMEMBE R THIS your behaviour. do not know the ethical or legal consequences, these guidelines will help you clarify whether action is socially responsible. ✚ Is the problem or◗dilemma really whatand it appears be? If you Managers create sustain to adaptive high-performance cultures through the cultural leadership.

are not sure, find out. ◗ Cultural leaders define and articulate important values that are tied to a clear and compelling mission, which they communicate widely and uphold actions SOURCE: Pagano, A. M. through and Verdin, their J. A. (1988), The External Environment of Business, Chap. 5. New York: Wiley.

MANAGEMENT IN PRACTICE

Analyse practical applications of management concepts in the Management in practice boxes which highlight specific aspects of management and offer in-depth, practical advice about how to address them in a work context.

UNLOCKING INNOVATIVE SOLUTIONS THROUGH PEOPLE – IT IS POWER (AND RESPONSIBILITY) TO THE PEOPLE Feeling all too burdened by responsibility, 24-year-old Ricardo Semler created a new vision for the culture of his family’s business in 1983, while recuperating from a stress-related illness. When Semler had taken over Brazil-based Semco Corporation from his father in 1980 as a freshly minted Harvard MBA (one of the youngest ever to earn the prestigious degree), the company was manufacturing equipment for a Brazilian shipbuilding industry that was in abysmal shape. As Semco’s president and majority owner, Semler fired most of the top management and used a series of strategic acquisitions to steer the company into more viable markets. Ironically, as the company’s fortunes began to revive, Semler’s own health took a nosedive. As he lay in a hospital bed, Semler had a vision for a new way to manage – by relinquishing control to his employees. Thus began a five-year process of building a radically democratic culture based on open information and employee participation. Semler started modestly – letting employees choose their uniform colour, for example – and eventually moved to the creation of egalitarian project teams that had complete responsibility for particular projects, total authority regarding how to perform them, and the opportunity for team members to pocket a substantial percentage of any profits generated. Today, self-directed teams form the basis of the company’s loose, flexible organisation structure. People typically have a chance to choose what projects

they will work on, based on how they think they can best make a contribution. Semco uses few job titles and only three management levels: counsellors (the name Semler now goes by); partners; and associates. The CEO position rotates every six months among the counsellors. Workers set their own hours, elect and evaluate supervisors, and have major input into how they are compensated, with some actually setting their own pay rates. All financial information, including salaries, is available to everyone, and any employee is eligible to attend any meeting, including board meetings, where two seats are reserved for employees on a first-come, first-served basis. The result of applying these rather radical cultural values is that Semco has not only survived but prospered in Brazil’s often chaotic economic and political climate. The conglomerate now produces a diverse range of products and services, from manufacturing giant oil pumps to participating in mail processing joint ventures. Its revenues grew from US$4 million in 1982 to approximately US$240 million recently. ‘It’s about competitive advantage,’ Semler says. ‘Once you stop trying to control employees,’ he insists, ‘you release the powerful twin forces of self-discipline and peer pressure. Performance becomes the only criterion for success.’ At Semco, treating employees like responsible adults is just good business. With this

MANAGEMENT IN PRACTICE Do you really want to be a manager?

Ch 01, p. 27

Would you like to work in your pyjamas?

Ch 07, p. 362

Time management tips for new mangers

Ch 01, p. 28

Use six thinking hats for better ideas

Ch 08, p. 391

Management tools and trends

Appendix to Ch 01, p. 69

The right way to interview a job applicant

Ch 09, p. 439

How to delegate

Ch 10, p. 483

Creating Guanxi in China

Ch 02, p. 92

Are you a charismatic leader?

Ch 10, p. 488

Unlocking innovative solutions through people – it is power (and responsibility) to the people

Ch 02, p. 122

How to utterly destroy motivation

Ch 11, p. 513

Challenging the boss on ethical issues

Ch 04, p. 184

The carrot-and-stick controversy

Ch 11, p. 533

Guidelines for ethical decision making

Ch 04, p. 186

Gender differences in communication

Ch 12, p. 557

Who sets the goals? Manager versus coalition

Ch 05, p. 228

Leaping over language barriers

Ch 12, p. 582

Will strategy ever be the same?

Ch 06, p. 270

How to be a great team leader

Ch 13, p. 608 Ch 13, p. 616

Evidence-based management

Appendix to Ch 06, p. 322

Team leader qualities Quantify yourself

Ch 14, p. 640

Two useful theoretical frames: resources and capabilities

Capstone Ch, p. 677

How to delegate

Ch 07, p. 342

GUIDE TO THE TEXT

xix

AUSTRALIAN MANAGER PROFILES Justin Pierce, Cotton On group

Ch 02, p. 109

Glenn Barnes, Chairman Ansell ltd. and Australian Unity ltd

Ch 03, p. 143

Susan Mizrahi, Human rights advocate

Ch 04, p. 192

Meet real Australian managers in the Australian manager profiles and gain an insight into some of the organisation challenges that Australian managers have had to overcome in their careers.

Maureen and Tony Wheeler, Co-founders, Lonely Planet Ch 05, p. 224 Publications James Campbell, Biotech executive

Ch 06, p. 278

Rachael Robertson: Leadership lessons from the world’s toughest workplace

Ch 07, p. 349

Yanna Talpis, Business development consultant

Ch 08, p. 389

Aston Ladzinski, Continuous improvement lead

Ch 10, p. 486

Rocio Bustinza, From engineer to manager

Ch 11, p. 529

Jane Evans, Program manager

Ch 12, p. 580

Peter Richardson, Invention is singular; innovation is plural

Ch 13, p. 601

Justin Ryan, Head of logistics

Ch 14, p. 643

Richard Goyder, Managing director of Wesfarmers

Capstone Ch, p. 684

284

PA R T T H R E E : P L A N N I N G

AUSTRALIAN MANAGER PROFILE

When they began producing a travel guide, Maureen and Tony Wheeler did not realise that it would bloom and grow into a significant corporate empire from its base in Melbourne (see http://www. lonelyplanet.com).

MAUREEN AND TONY WHEELER, CO-FOUNDERS, LONELY PLANET PUBLICATIONS

After arriving in Sydney with 27 cents and a passion for travel, Maureen and Tony Wheeler started Lonely Planet Publications in 1973 in a basement flat. Since then, Lonely Planet has become a powerful brand right across the world, having printed over 100 million books in nine languages. The company’s website, http:// www.lonelyplanet.com, has become a gathering point for global travellers, and the business is now a mature success story. From its humble origins, Lonely Planet became the acknowledged leader in travel publications. In publishing, you pay for everything upfront – shipping, printing and research. There is a wait of months for a return on investment. The Wheelers’ operation grew from a do-it-yourself business to a global enterprise, with at one point over 450 staff working around the world and 200 authors contributing. Lonely Planet products have expanded to include phrasebooks, travel maps, pictorials, travel literature and reference books. The website receives millions of visitors per month and its active Thorn Tree forum receives 100 000 new posts each month. The books are now sold in many languages including French, Italian, Spanish, German, Chinese, Korean and Japanese. In reflecting on the company’s early life, Tony Wheeler says: ‘When Maureen and I put together Across Asia on the Cheap – that first amateurishly produced guidebook to kicking around Asia – we had no idea we were starting on the long road to running an amazingly successful business. First of all, we had a very good idea. Of course, we didn’t realise at the

time how clever we’d been – so clearly there was a major element of luck in that good idea. Secondly, once we’d had that good idea we ran with it for all we were worth; the 1 per cent inspiration was definitely followed by the 99 per cent perspiration. Then, when our dream began to take wing, we haven’t been afraid to let other people take the controls; in fact we’ve welcomed that because flying isn’t all fun and I’m only too happy to escape from the routine. ‘Way back down the evolutionary scale you can forget the little details. Will it fly or is it going to crash is all that matters. I’ve never been afraid to have a go at things; if it was something that I felt was going to work we’d try it. Gut feeling has always been just as important as careful analysis.’ In 1984, Lonely Planet opened its US office. In the late 1980s, it opened an office in England serving Africa, Europe, the Middle East and Great Britain. In late 2007, the Wheelers sold a majority interest in the Lonely Planet business to BBC Worldwide, the main commercial arm of the British Broadcasting Corporation (BBC). The company has moved forward and embraced digital media, continuing to lead its industry. In 2011 BBC Worldwide took total control of the company when the Wheelers sold their remaining 25 per cent share for $67 million. Both Maureen and Tony still travel and are concerned with charitable causes. Their Planet Wheeler Foundation, which is funded solely by the two of them, supports educational and health projects in developing countries.

SOURCES: Lonely Planet website, http://www.lonelyplanet.com (accessed 21 December 2013); Sweney, M. (21 February 2011). BBC to Buy the Rest of Lonely Planet. http://www.theage.com.au/business/bbc-to-buy-the-rest-of-lonely-planet-20110220-1b112. html (accessed 19 March 2014).

1 0 : D E S I G N I N G O R G A N I S AT I O N S T R U C T U R E

The Antarctic winter is harsh – temperatures hover around minus 35 degrees Celsius, there are constant blizzards, months of darkness, and you can’t get in or out of the place. Work becomes tedious and you know that nothing will change until the resupply ship arrives, a distant nine months away. It sounds extreme. But the reality is every workplace has an Antarctic winter. Every business has a period of time where the work slows down and work is just work. Three tools kept my team inspired, motivated and resilient through the long Antarctic winter.

✚ No triangles. The practice of only having direct conversations built respect within my team and resulted in very high performance. We had a simple rule: ‘I don’t speak to you about him, or you don’t speak to me about her’. No triangles; go direct to the source. It is a powerful tool that reduces conflict and clarifies accountability. It ensures you deal with the important issues and avoid wasted time handling personal disputes that simply burn energy.

✚ Manage your bacon wars. A major dispute once threatened to shut down the station: Should the bacon be soft or crispy? Your workplace will have Bacon Wars. They are seemingly small, irrelevant issues that grate on people but build up until they become distractions and affect productivity. It may be dirty coffee cups, people who are

consistently late for meetings, people playing on phones while someone is talking – they are offences that appear to be small but are often a symptom of a deeper issue. We must identify and probe our Bacon Wars, find out what’s underneath and resolve it quickly. If left and ignored, small problems will fester and undermine all the good things you are doing.

AUSTRALIAN MANAGER PROFILE

✚ Respect trumps harmony. My expedition team was the most diverse team I had ever worked with. I didn’t recruit them, I was handed them. We were from vastly different backgrounds and a mix of professions including scientists, engineers, IT, trades, pilots and weather specialists. The interpersonal pressure was intense and privacy was scarce. It was impractical to think we’d all get along with each other all the time. Instead of ‘happy families’, we aimed for respect. Simple, professional courtesy and respect. Striving for a harmonious workplace is dangerous for two reasons. First, dysfunctional behaviour doesn’t disappear, it just goes underground, so the illusion of harmony remains. Second, it stifles innovation. People are often too afraid to put up their hand and offer a different view because they don’t want to rock the harmony boat. So, in your team, aim for respect, because ‘respect trumps harmony’, every time.

417

Source: Courtesy Rachel Robertson

from Lonely Planet Publications © 2008.

Source: Reproduced with permission

17 per cent, managers will have exceeded their prescribed standard. The overall planning process prevents managers from thinking merely in terms of day-to-day activities. When organisations drift away from goals and plans, they typically get into trouble.

RACHAEL ROBERTSON: LEADERSHIP LESSONS FROM THE WORLD’S TOUGHEST WORKPLACE

SOURCE: Rachael Robertson (MBA, Melbourne), author, professional speaker and mentor.

xx

GUIDE TO THE TEXT

ADVANTAGES

DISADVANTAGES

Efficient use of resources, economies of scale

Poor communication across functional departments

In-depth skill specialisation and development

Slow response to external changes, lagging innovation

Career progress within functional departments

Decisions concentrated at top of hierarchy, creating delay

Top manager direction and control

Responsibility for problems is difficult to pinpoint

Excellent coordination within functions

Limited view of organisational goals by employees

High-quality technical problem solving

Limited general management training for employees

EXHIBIT 10.5 Advantages and disadvantages of functional structure

END-OF-CHAPTER FEATURES

218

PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T

◗ deep practices that achieve genuine improvements in sustainable development outcomes, rather than superficial tick-a-box efforts

◗ mature, leading-edge approaches that offer the best available value proposition for the business on the scale from comply through to transform

◗ well-integrated with other business practices, thus promoting efficiency and effectiveness in

At the end of each chapter you will find several tools to help you to review, practise and extend your knowledge of the key learning objectives.

implementation.

220

1

2

Sustainable development section describe aspects of sustainability that are relevant to the management concepts described in each chapter. Challenge the theory you have learned by considering the Discussion questions, perhaps in group discussion. Explore the real-world ethical issues faced by managers in the Ethical challenge boxes.

4

Expand your teamwork and analytical skills with the Group challenge activities or exercises, suitable for tutorials.

5

Analyse in-depth real-world management cases with the Case for critical analysis. Each case concludes with a set of questions that encourage you to sharpen your diagnostic skills for management problem solving.

6

Deepen your understanding of the practical application of management theories using the on the job video cases. These ask questions about the videos located on the Management CourseMate Express.

◗

Sustainability involves economic development that generates wealth and meets the needs of the current population while preserving the environment for the needs of future generations.

Australian stakeholders are increasingly requiring higher standards of ethical and responsible behaviour from managers than ever before.

DISCUSSION QUESTIONS 1

ownership. What is your opinion of this explanation in terms of

Is it reasonable to expect that managers can measure their social

ethics and social responsibility?

and environmental performance on the same level as they measure financial performance with a triple bottom line? Discuss.

6

2

A noted business executive once said, ‘A company’s first obligation

is to be profitable. Unprofitable enterprises can’t afford to be responsible’. Discuss whyDo you agree or disagree withof this theirsocially own. Why might this happen? you believe being more statement. a ‘giver’ than a ‘taker’ will translate into greater career success for 7 Domanagers? you believe that it is ethical for organisational managers to try these Discuss. to get access to and scrutinise the Facebook pages of employees or

In September 2013, Tokyo Electric Power Company (Tepco) reported contaminated water leaking fromthan a storage 10 Many peoplehighly think cheating is more common today it was atank at the Fukushima nuclear powerisplant in or thedoes March 2011 decade ago. Do you think cheating morecrippled common, it just ART TWO: THE ENVIRONMENT OF MANAGEMENT 222 P earthquake seem so? Why?and tsunami. From what you know of the ongoing disaster,studies discussthat theshow various stakeholder groups that 11 ThisFukushima chapter described that people work harder respond to in order to handleofthis latest crisis. and Tepco better should for managers who put the interests others above

job applicants? Discuss.

Imagine yourself in a situation of being encouraged by colleagues to inflate your expense account. What factors do you think would influence your decision?

8

Which do you think would be more effective for shaping longterm ethical behaviour in an organisation, a written code of ethics combined with ethics training or strong ethical leadership? Which would have more impact on you? Why?

4

Is it socially responsible for organisations to undertake political activity or join with others in a trade association to influence the WHAT RIGHT? ETHICAL CHALLENGE c government? work with the bosses on a plan toIS recognise the company’s Discuss. error andatset up abanks schedule rebates that would not 5 Managers some andof mortgage companies haveunduly argued penalise the company. mortgages was based on their desire to that providing It is often hard for a subprime manager to determine what is ‘right’ 6 even In give thismore morning’s mail, you received plans andinsamples for aofpromising poordifficult people ato chance to participate theinto dream home and put ethical behaviour practice. new product fromorientation a competitor’s disgruntled You: A manager’s ethical often brings employee. him or her into a with throw the plans away customers or bosses. Consider the conflict people, policies, b send the samples your research department following dilemmas. Howtowould you handle them?for analysis notify your competitor whatan is excellent going on record confides 1 Acwell-liked member of yourabout staff with thehepolice. todyoucall that has acquired immune deficiency syndrome (AIDS).

9 The technique of stakeholder mapping lets managers classify which A D D Istakeholders TI ONA L QUE STI ONS they consider more important and will invest more 1

time to satisfy.described Is it appropriate for management to define some Use theinguidelines in Management in practice, ‘guidelines stakeholders as more important than others? Should allbehaviour stakeholders ethical making’ to on determine the data appropriate Afor report youdecision completed, based inaccurate she provided, be considered in these cases. Doequal? you have all the information youasks need to for make has been criticised by management. Your manager you an an ethical decision? How would family or friends react to each explanation. You: youthe were in these situations? a alternative apologiseif for inaccuracies and correct the data

tell your manager that the data supplied your colleague was 2 bWhich approach to ethical decision making by – utilitarian, the source of the problem individualism, justice or moral rights – seems most appropriate for c handling say your colleague has a problem and needs support these situations? Although his illness has not affected his performance, you are d tell your manager that because of your work load, you did not SOURCES: Game developed Nelson, K. (Spring 1990). the Boardreactions Games. OwenofManager, C. andtime Rice, D.to (December 1991).figures Office Ethics. Working Woman, 35–9; Kelly, K. and Weber, J. concerned about his futurebyhealth and about his 14–16; Dreilinger,have check the in the report. (20 May 1991). When a Rival’s Trade Secret Crosses Your Desk. BusinessWeek, 48. co-workers. You: 4 Your firm recently hired a new manager who is at the same level a tell him to keep you informed about his health and say nothing you are. You do not like the man personally and consider him a to his co-workers rival professionally. You run into a friend who knows your rival b arrange for him to transfer to an area of the organisation where well. You discover this man did not attend Sydney University, as he he can work alone GROUP CHALLENGE ETHICS AND BUSINESS COSTSstated on his résumé, and that he in fact has not graduated from c hold a staff meeting to inform his co-workers and ask them any institution. You know his supposed university background was how they feel about his continued presence on your team instrumental in getting him hired. You: Your group is theresources leadershipofficer team on of ahow company called suppliers would not bear those costs. So you are stuck in the middle d discussion consult your human to proceed. a expose the lie to your superiors Furniture Imports, which imports andstaff dining suites from between a customer who is holding to high ideals and suppliers who 2Aussie During a reorganisation, you are told lounge to reduce in the b without naming names, consult your human resources officer China and Vietnam and sells After them analysing to Australian retailers. Your biggest will not comply. Switching suppliers will lead to higher costs and cut department you manage. staffing requirements, you on how to proceed customer has job recently sent letter ifoftwo demand requiringwho thatare you your profitability to the bone. What policy will you adopt? Generate realise the would be you a lotaeasier professionals, c say nothing – the company obviously failed to check him out, provide with60, documentary evidence some alternative responses to your customer’s demand and evaluate both them over age would retire. You: that all the furniture you and the lie probably will surface on its own sellathem from thatlay-offs apply high standards of ethics, these, before making a decision. (This exercise is based closely on a saycomes nothing andfactories determine based purely on d confront the man with the information and let him decide workplace health and safety, and environmental performance. This is real situation, one that is becoming increasingly common in Australian performance and length of service what to do. a noble ideal, buta itmeeting costs extra do these things,and andask those foreign b schedule withtoboth employees if they would 5businesses.) During a changeover in the accounting department, you discover consider early retirement your company has been routinely overcharging members of the c schedule a meeting with all staff and ask if anyone is interested public for services provided to them. Your superiors say repayment in severance or early retirement of charges would wreak havoc on company profits. Your bosses d lay off the older workers. say the problem will never come to light and they will take steps to One ofFOR yourCRITICAL colleagues has recently experienced personalINTELLIGENCE? correct the problem so it never happens again. You: TOOtwo MUCH CASE ANALYSIS tragedies her husbandANALYSIS filed for divorceSHARPSTYLE and her mother died.SALONS a make the matter public, anonymously or otherwise CASE FOR –CRITICAL

3

Although you feel genuine sympathy for her, her work is suffering. The rapid growth of InPace Solutions occurred in no small part because

b say nothing – it is now in the hands of the bosses InPace organisation. Awareness that some competitor sat on the verge of

of sales managertakes Ken Bodine skills of savvy youngfor sales Jamie Westbrook pride inand herthe position asthe salon manager team he had assembled. prided himself on finding andthe hiring top SharpStyle Salon, one of aBodine chain of hairdressing salons under Gold

a big sale always stirred Bodine’sCentre, passionthe for top-performing sales and ignitedsalon his desire to manager at Riverwood Shopping ‘one-up these guys’area and of grab sale out from under them. ‘If this was a located in an upscale thethe city. graduates from She twooversees major business in the state. In additiona to the poker game,’ one board member mused, ‘ InPace would win every Group umbrella. a staffschools of 15 including hairdressers, nail Distracted, Jamie walks past the receptionist, Marianne, whohand. top salaries offered by InPace, the graduates were attracted Bodine’s It’s likeanswering Bodine as well his staffHanging possess the ability to know technician, receptionists and hairdressing apprentices. Jamie by enjoys a is busily the as phones. up uncanny the phone, Marianne energy, innovative thinking can-do was care the embodiment theJamie cardsthat yourHolly company holding. Hetwo keeps a straight face, a low profile reputation as a manager whoand works veryattitude. hard andHetakes of her tells and isCarol Jean, popular hairdressers, of InPace culture – moving and throughout then he laystheir his cards on the table and people. Hairdressers want tofast work forahead her. of the knowledge curve in called in sick, the andgame, Jamieand now hassuddenly to reschedule clients. Jamie Following the salon’s policy, Jamie began a hairdressing high-tech. InPace’s sales new-hire force consistently stunned the as competition apprentice became a top hairdresser the company with theirand highquickly performance level. Among other in things, InPace had the through a combination of skill, a large and loyalCompetitors client base and long reputation for aggressive business intelligence. found both

had denied their earlier request of town to attend a you’re sunk. Here at InPace, weto all travel love it.’out A former military intelligence concert, herbrought irritation is obvious. She orders Marianne to adding call officer,and Bodine that ‘sneaky’ air into the InPace culture,

both women and instruct that, when they return‘With to work, a bit of excitement to the them day-to-day business of sales. a great hours at work. In 2016, retiring managerability Carla to Weems hand-picked they are each tostaff, bringand a medical certificate. ‘They had better amusing and frustrating the company’s outmanoeuvre others product, great great business intelligence,’ Bodine wasbe fond of Jamie her successor, the enjoyed board quickly Jamie shouts as she enters her office, slamming the door more and as capture accounts.and Bodine the air approved. of mystery surrounding the sick!’ saying, ‘you can dominate the market.’ He wanted everyone – customers, Initially, the salon, located in a suburban shopping centre, forcefully than she intended. Startled employees and early-morning managed a strong, steady increase, holding its position as one of the customers heard the outburst, and, after a momentary pause, they PA performers. R T T W O : T HBut E EN R O N M E N Tcrisis O F hit M Athe N A Garea E M Ehard, NT 272 top company’s anV Ieconomic resumed their activities and quiet conversation, surprised by the with increases in unemployment and mortgage woes among current show of managerial anger. Jamie knows she has let Holly and Carol and potential customers. As families sought ways to save, the luxury of Jean get away with unwarranted absences before and worries that regular visits to the hair salon was among the first logical budget cuts. she will do it again. She needs every head of hair they can style to The past year has reflected this economic reality, and Jamie’s salon saw help the salon’s profit. a sharp decrease in profits. Jamie takes a deep breath and sits at her desk, turning on Jamie’s stomach is in knots as she arrives at the salon on Monday. the computer and checking emails, including one from the group Scheduled to fly interstate the next morning for a meeting at head manager reminding her to send the salon’s status report in advance of R Tfears O N Epotential : INNOV AT I V Ecuts, MAN A Gmore E M Eimportant, N T F O R Ashe C Hfears A N G I N Gtomorrow’s W O R L D meeting. She asks Marianne to have final figures for the 90 office,PA she staffing but

BISSELL BROTHERSreport BREWING: MANAGING START-UPS AND NEW on her desk by 1.00 p.m. VENTURES

the loss of opportunity secure her dream job, replacing the retiring ON THE JOBtoVIDEO CASE

Watch the following video to see how Bissell Brothers approaches its management functions. QUESTIONS 1

What are some of the entrepreneurial traits found in the two Bissell brothers that help make them successful? Are there any skills or traits you and think they could improve upon? Offer Safety Plan for 80 Steven Greenhouse Stephanie Clifford, ‘U.S. Retailers

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Australian organisations face a wide range of ethical challenges.

5. measure progress, adapt, review and extend their sustainable development practices within an evolving business environment, strategy, culture and business practice set. In short, companies can make the most of their sustainable development practices, not simply by reacting to a single stimulus like managing compliance 5 : E T H I or C Sprotecting , S O C I A L Rtheir E S P reputation. O N S I B I L I T YRather, A N D Sa Ustronger S TA I N A argument B L E D E V Efor L O Psustainable MENT 221 development practices rests in the creation of business advantage and innovation.

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The Continuing case at the end of each Part offers a running description of the ongoing management issues faced by one organisation. Each case segment relates to the management topics described in the preceding Part.

R EMEMBE R THIS

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Australian companies have increased the attention that they are paying the environmental and Monsanto has ◗published a pledge to stakeholders and ◗ conserving resources throughto developing seeds and traits bottom lines of their organisations. measures itself againstsocial this pledge: that use one-third fewer key resources per unit of output to we want to◗make the world amany betterchallenges place for future growofcrops while working lessenashabitat lossofand improve In Australia, exist in the domain managerial ethics,tosuch conflict interest. generations. As an agricultural company, Monsanto water quality can do this best by providing value through the ◗ helping improve the lives of all farmers who use our products and systems we offer to farmers. With the products, including an additional five million people in growth of modern practices that It is notagricultural possible to specifyand onecrops single formula that connects sustainable practices to businessinsuccess. resource-poor farmdevelopment families by 2020. And specifically SUSTAINABLE generate ever increasing yields, are helping Further, there is nowe definitive set farmers of sustainable development practices, there a single persuasive argument or Australia, support nor the is long-term viability of rural communities DEVELOPMENT around the motivation world to create a better future for human for embarking on them. However, it is possible to recognise the high-level framework for sustainable for future generations. TAKING beings, the environment, economies. development and thatlocal is common to advanced companies.Sources: From Wheeler, our observations, that are successful: D., Colbert, B. companies and Freeman, R. E. (Spring 2003). Focusing on MANAGERIAL Monsanto’s long term vision and sustainability strategy is that Value: Reconciling Corporate Social Responsibility, Sustainability, and a Stakeholder 1. review, recognise and acknowledge the company’s sustainability orientation as it develops as an integral part of ACTION by ON2030, Monsanto Approach in a Networked World. Journal of General Management, 28:3, 1–28; Post, globally commits to help farmers produce the business strategy and culture SUSTAINABLE J. E., Preston, L. E. and Sachs, S. (Fall 2002). Managing the Extended Enterprise: more and conserve more by: The New Management Review, 45:1, Fritsch, P. and DEVELOPMENT 2. canvass their specific sustainable development issues andStakeholder. businessCalifornia activities for opportunities to6–28.; make beneficial Mapes, T. (5 April 2005). Seed Money; In Indonesia, a Tangle of Bribes Creates ◗ developing improved seeds and traits that help farmers changes (implement sustainable development practices) Trouble for Monsanto. The Wall Street Journal; Monsanto website, http://www. double yields from 2000 levels for corn, canola, soybeans monsanto.com.au/sustainable_agriculture/default.asp,http://www.monsanto.com. 3. analyse the potential for these sustainable development practices to contribute to one or more of three and cotton, with a US$10 million grant also pledged to au/who_we_are/our_pledge.asp. strategic business requirements, namely stakeholder support, efficiency and market edge improve wheat and rice yields globally 4. choose, develop and implement their unique set of sustainable development practices

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Bangladeshi Factories’ The New York Times (10 July 2013), http://www.nytimes. com/2013/07/11/business/global/us-retailers-offer-safety-plan-for-bangladeshifactories.html?pagewanted=all&_r=0 (accessed 21 August 2013); and Kate O’Keeffe and Sun Narin, ‘H&M Clothes Made in Collapsed Cambodian Factory,’ The Wall Street Journal (21 May 2013), http://online.wsj.com/article/SB1000142412788732478700457849 7091806922254.html (accessed 21 August 2013). ENDNOTES Rigby and Bilodeau. Management Tools and Trends 2011. Bain and Company, Inc., http://www.bain.com/publications/articles/Managementtools-trends-2011.aspx (accessed 22 June 2012). 1 Brian Stelter, ‘He Has Millions and a New Job at Yahoo!. Soon, He’ll Be 18,’ The New York Times, Survey: 25 March37% 2013,Use http://www.nytimes.com/2013/03/26/business/media/nick-daloisio18 April 2012). Social Media to Check Candidates. Workforce. http://www. 17-sells-summly-app-to-Yahoo!.html?_r=0 (accessed 26 March and Sarah Kessler, workforce.com/article/20120418/NEWS01/120419964 (accessed 222013); June 2012). ‘Exposing Yahoo!’s Strategy,’ Fast Company (April 2013): 40, 45. Roxane Divol and Thomas Fleming, The Evolution of Work: One Company’s Story, 2 Stelter, ‘He Has Millions and a New Job at Yahoo!.’ McKinsey Quarterly, Issue 4 (2012): 111–115. 3 ‘Small Business Trends,’ U.S. Small Business Administration, http://www.sba.gov/content/ Tom Ashbrook, The Bossless Office, On Point with Tom Ashbrook (20 June 2013), http:// small-business-trends (accessed 6 September 2013). onpoint.wbur.org. 4 Donald F. Kuratko and Richard M. Hodgetts, Entrepreneurship: A Contemporary Approach,

2

How would you summarise the steps the brothers took to launch their business? What challenges did they have to address?

3

Which one of the business tactics described in the text did the Bissell brothers use to become business owners? What are some possible reasons why they rejected the other options?

85 Hamel, First, Let’s Fire All the Managers. 86 This definition is based on Mercer Human Resource Consulting’s Employee Engagement Model, as described in Paul Sanchez and Dan McCauley, Measuring and Managing Engagement in a Cross-Cultural Workforce: New Insights for Global Companies, Global Business and Organizational Excellence (November–December 2006): 41–50. 87 Rigby and Bilodeau, Management Tools and Trends 2013. 88 Max Mihelich, Another Generation Rises: Looking Beyond the Millennials, Workforce (12 April 2013), http://www.workforce.com/articles/108-another-generation-rises-lookingbeyond-the-millennials (accessed 22 August 2013). 89Interview Matson, E. (October–November You Can Teachand This Old Company New Tricks. Fast with David Birch. Academy of 1997). Management Learning Education, 3:3, 289–92; Office of Advocacy, Company, 44–6. U.S. Small Business Administration, http://www.sba.gov/advo/stats/ 19 August 2010). at Toyota, http://www.toyota-global.com/company/vision_ 90sbfaq.pdf Toyota (accessed (2017) Guiding principles 16 Global Entrepreneurship Week 2012 Impact Report, p. 7, http://www.unleashingideas.org/ philosophy/guiding_principles.html (accessed 2 February 2017). impact (accessed 13 August 2013). 91 Toyota (2017) Toyota Way 2001, http://www.toyota-global.com/company/history_of_ 17 Doing Business, 2012. Doing Business in a More Transparent World, http://www. toyota/75years/data/conditions/philosophy/toyotaway2001.html (accessed 2 February 2017). doingbusiness.org/rankings (accessed 13 August 2013).

4th ed. (Fort Worth, TX: Dryden Press, 1998), p. 30. 5 ITC Ltd Report and Accounts 2013, p. 61, http://www.itcportal.com/about-itc/shareholdervalue/annual-reports/itc-annual-report-2013/pdf/report-accounts-2013.pdf (accessed 20 August 2013) and http://www.itcportal.com/businesses/group-companies/technico.aspx (accessed 20 August 2013) 6 Quinlivan, B. (23 August 2001). Ahead of the Pack, with a High-tech Spud. Business Review Weekly, 60–1. 7 Study conducted by Yankelovich Partners, reported in Mark Henricks. (March 2000). TypeCast. Entrepreneur, 14–16. Moss, M. R. (Maybecome 1998). Fourth Charm. Nation’s Business, 85; Tennesseanwith (19 By 2014,8Toyota had a Time’s verythe successful global automaker April 1998). Please, Thank You Still Go a Long Way, 2E. 53 overseas manufacturing companies in Entrepreneurs 28 countries and 9 John A. Byrne. (9 April 2012). The 12 Greatest of Ourand Time.regions, Fortune, 67–86; (2 November 2010). Asia 200: Infosys Tops India’s Most Admired Companies. The Wall Street vehicles sold in more than 170 countries and regions. Toyota was seen Journal Asia Online, http://online.wsj.com/article/SB100014240527023041737045755776836 13256368.html (accessed 2 October 2012); Asia 200 Interactive. The Wall Street Journal by many industries and researchers as aand benchmark of ‘world’s best Online, http://online.wsj.com/article/SB10001424052702304410504575559363431123480. practice’ inhtml operational excellence, which in Toyota was referred to as (accessed 2 October 2012). 10 Siri Roland Xavier, System Donna Kelley, Jacqui Kew, Mike Herrington, and Arne Vorderwülbecke, the Toyota Production (TPS). Global Entrepreneurship Monitor 2012 Global Report, 17 January 2013, http://www. More generally, Toyota built on the core values created by 2013). its gemconsortium.org/docs/2645/gem-2012-global-report (accessed 7 September Donna J. Kelley, Slavica Singer, and Mike Herrington, Global Entrepreneurship Monitor founders11and had implemented its ‘Toyota Way’ philosophy since 2001, 2011 Executive Report, 26 July 2012, http://www.gemconsortium.org/docs/2409/gem-2011global-report 9 October based on two pillars(accessed of respect for2012). people and continuous improvement, 12 Donna J. Kelley, Candida G. Brush, Patricia G. Greene, and Yana Litovsky, Global driving customer value creation and constantly pursuing perfection. Entrepreneurship Monitor 2012 Women’s Report, 31 July 2013 http://www.gemconsortium. org/docs/2825/gem-2012-womens-report (accessed 7 September These approaches have raised Toyota to a point where2013). its vehicles were 13 Reported in J. D. Harrison, ‘New Rankings: The World’s Top Nations for Female viewed by Entrepreneurs,’ many customers as being in their ‘value proposition’, The Washington Post, 17high June 2013, http://articles.washingtonpost. com/2013-06-17/business/40035405_1_female-entrepreneurs-three-nations-fewerbased on reliability and durability, especially at the competitive price businesses (accessed 29 June 2013). points that were and offered customers. 14 Research statisticsto reported in (29 May 2001). The Job Factory. Inc., 40–3. 15 Ian Mount. (March 2005). The Return of the Lone Inventor. Fortune Small Business, 18; Yet in Magnus Australia, Toyota faced some significant challenges. Its Aronsson. (2004). Education Matters – But Does Entrepreneurship Education? An

18 Hodgetts, R. M. and Kuratko, D. F. (2010). Effective Small Business Management, 7th ed. (New York: Wiley). 19 Case, J. (1995). The Wonderland Economy. Inc. special issue: The State of Small Business, 14–29; Daft, R. L. (1992). Management, 3rd edn, Fort Worth: The Dryden Press. 20 Bureau of Labor Statistics. Jobs for People with Green Thumbs. p. 34, Occupational Outlook Quarterly, Spring 2005, http://www.bls.gov/opub/ooq/2005/spring/art03.pdf (accessed 12 March 2014). 21 Global Entrepreneurship Monitor website, http://www.gemconsortium.org (accessed 27 February 2014). 22 Department of Industry, Innovation, Science, Research and Tertiary Education. Australian Small Business Keyother StatisticsToyota and Analysis December 2012, http://www.innovation.gov.au/ sourced from plants if necessary. Australia was one of the SmallBusiness/KeyFacts/Documents/AustralianSmallBusinessKeyStatisticsAndAnalysis.pdf very first20plants that Toyota had established outside Japan, and Toyota (accessed December 2013). 23 Galuskza, P. (1 June 1998). The $44 Million Mom-and-Pop. BusinessWeek, 74, 76; Useem, J. had a corporate sense of loyalty to its Australian operations, where it (December 1997). The New Entrepreneurial Elite. Inc., 50–68. 24 Kumparak, (5 February 2015).ways ‘Slack’s co-founders take home the Crunchie had cut itsGreg teeth in some of managing manufacturing operations for Founder Of The Year,’ Available: https://techcrunch.com/2015/02/05/slacks-cooutside Japan, in a Western culture, some decades ago. Further, founders-take-home-the-crunchie-for-founder-of-the-year/ (accessed 4 November 2016); Tam, Donna (14 August 2013). ‘Flickr founder to kill company e-mails with Toyota globally had corporately beenplans expanding overseas year on year, Slack,’ Available: https://www.cnet.com/news/flickr-founder-plans-to-kill-companycontinuously for(accessed some450 years,2016); apart from during the 2016). 2008–10 global e-mails-with-slack/ November Newton, Casey (3 November ‘Why Slack may live to regret its smarmy letter to Microsoft,’ http://www.theverge. financial crisis (when all automotive companies experienced economic com/2016/11/3/13504932/slack-microsoft-teams-letter-wtf (accessed 4 November 2016); McCracken, (9 February 2015). ‘Slack,’ Fast Company, Available:or https:// difficulties), andHarry was completely unused to reducing shutting down www.fastcompany.com/3039579/most-innovative-companies-2015/slack (accessed operations or country level plants or business units, but rather was very 4 November 2016). 25 Johnversed Case. (June The Origins of Entrepreneurship. Inc., 51–3. well in1989). growing, upgrading and investing in these. 26 This discussion is based in part on Charles R. Kuehl and Peggy A. Lambing. (1994).Small The Planning challenges facing3rd Toyota of high local costs and a small Business: and Management, ed. (Fort Worth, TX: The Dryden Press). 27 Leigh Buchanan. (March 2012). The Motivation Matrix. Inc., http://www.inc.com/ domestic market also faced the other two companies operating magazine/201203/motivation-matrix.html (accessed 20 August 2012). in Quoted Australia, Ford and General Motors Holden (GMH). When in 28 in Jessica Bruder. (25 May 2012). A Harvard Professor Analyzes Why Start-Ups Fail. The New York Times, http://boss.blogs.nytimes.com/2012/05/25/a-harvard-professor2013/4, first Ford and then GMH announced the closing of their analyzes-whystart-ups-fail (accessed 9 August 2012).

and all its other imported vehicles, such as RAV4, Corolla, Landcruiser, Hilux, Prius and others. Investments had been made in new model

operation. So in February 2014, Toyota announced their decision to close manufacturing operations at their Altona manufacturing facility.

development, new technology such as the new hybrid synergy drive for Camry. However, with the changing business environment, the

Toyota’s global president, Akio Toyoda, visited the Melbourne plant to make the plant closure announcement, which was a solemn, sad

ongoing viability of its Australian manufacturing operations was being questioned. The local market was small, and local costs of

and momentous occasion for Toyota’s long serving employees, many of whom had been part of the company for over 30 years and had expected to be there until retirement.

PART 1 CONTINUING CASE

INNOVATIVE MANAGEMENT FOR A CHANGING WORLD

Australian business was established in 1963, created a proud history of being the biggest selling brand in the Australian market. It was well ahead of all competitors, based mainly on the locally produced Camry

manufacturing were high compared with many other countries. Australia was a place that had supplied Camry vehicles to Toyota’s Middle East markets for nearly 20 years, with about two thirds of the production volume from the Altona, Melbourne manufacturing facility being exported there. These 60 000 or so exported vehicles could be

Australian operations as of 2016 and 2017 respectively, Toyota followed, because the whole supply chain and industry could not be sustained in Australia when it was ‘feeding’ only one assembly plant

This introduced a new challenge to Toyota executives and managers at all levels in Australia, of how to manage the operations, motivation, quality and continuous improvement in a business unit that was going to close and ultimately make over 2500 people redundant.

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Guide to the online resources FOR THE INSTRUCTOR Cengage is pleased to provide you with a selection of resources that will help you prepare your lectures. These teaching tools are accessible via cengage.com.au/instructors for Australia or cengage.co.nz/instructors for New Zealand.

MINDTAP MindTap is an interactive, customisable and complete online course solution. MindTap integrates authoritative text book pedagogy with customisable student ‘learning paths’, an innovative ‘app’ model of instructional utilities, LMS interoperability, and the power of social media to create a personal learning experience for today’s mobile students. To prescribe MindTap for your students, please contact your Learning Consultant.

COURSEMATE EXPRESS CourseMate Express is your one-stop shop for learning tools and activities that help students succeed. As they read and study the chapters, students can access an eBook, self tests, cases and experiential exercises, review with flash cards and weblinks, listen to audio summaries as well as check their understanding of the chapter with interactive quizzing. CourseMate also features the Engagement Tracker that monitors student engagement in the content. Ask your Learning Consultant for more details.

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INSTRUCTOR’S MANUAL

The Instructor’s manual includes:

• learning objectives • chapter outlines • discussion questions • case question and project solutions

• suggested class discussions and projects • videos • websites and readings.

WORD-BASED TEST BANK This bank of questions has been developed in conjunction with the text for creating quizzes, tests and exams for your students. Deliver these though your LMS and in your classroom.

POWERPOINTTM PRESENTATIONS Use the chapter-by-chapter PowerPoint slides to enhance your lecture presentations and handouts by reinforcing the key principles of your subject.

ARTWORK FROM THE TEXT These digital files of graphs, pictures and flowcharts from the text can be used in a variety of media. Add them into your course management system, use them within student handouts or copy them into lecture presentations.

MANAGEMENT LOCAL VIDEO PACKAGE This video package, featuring large and small local companies, provides a relevant and engaging visual teaching tool for the classroom. Scenarios will link the application of management concepts to key graduate outcomes.

GUIDE TO THE ONLINE RESOURCES

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FOR THE STUDENT New copies of this text come with an access code that gives you a 12-month subscription to the CourseMate Express website and Search Me! Management. Visit http://login.cengagebrain.com and log in using the access code card.

COURSEMATE EXPRESS FOR MANAGEMENT Access your CourseMate Express website, which includes a suite of interactive resources designed to support your learning, revision and further research. Includes: • Self-tests • On-the-job videos • Revision quizzes • Case study activities • Audio summaries • Glossary and flashcards • And more!

SEARCH ME! MANAGEMENT Expand your knowledge with Search Me! Management. Fast and convenient, this resource provides you with 24-hour access to relevant full-text articles from hundreds of scholarly and popular journals and newspapers, including The Australian and The New York Times. Search Me! Management allows you to explore topics further and quickly find current references.

MINDTAP A new approach to highly personalised online learning, MindTap is designed to match your learning style and provides you with an engaging interface to interact with the course content, multimedia resources as well as your peers, lecturers and tutors. In the MindTap Reader, you can make notes, highlight text and even find a definition directly from the page. To purchase your MindTap experience for Management, please contact your instructor.

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PREFACE

TA K I NG T H E L E A D The world seems to be changing ever faster, with social, technological, economic and political forces reverberating around the globe every day. Volatility seems to be increasing: just consider the 2011 earthquakes in New Zealand and Japan, and the 2008–10 global financial crisis and the political and military problems in Syria and Ukraine. Political turbulence increased in democracies such as the USA and UK in 2017, and Europe's economic future is being partially destabilised by the UK BREXIT vote, after decades of stability. Globally, managing increasing numbers of refugees is a challenge for many countries. Environmental issues, particularly global warming, present major challenges to society. Managers need to know what is going on in their industries and economies on a current and ongoing basis. In Australia, New Zealand and other Asia Pacific countries, the challenges and opportunities facing managers have never been greater. New technology and globalisation mean that managers in these countries must not just be competitive with the organisation ‘down the road’ or across the country, but must also recognise that the only realistic standard for comparison of performance in the new millennium is ‘world’s best’. The announced demise of Australia’s automotive assembly industry (effective 2017) after more than 50 years of operations demonstrates the intensity of global competitive forces. In every industry, competition is becoming fiercer each month, and there are always winners and losers. Winners grow and prosper, but uncompetitive companies quickly wither away and their shareholders lose their investments, while managers and other staff lose their jobs. Not-for-profit organisations such as government service suppliers, charities and clubs must also excel in their focus and use of resources, since their employees, consumers and suppliers have high expectations of effectiveness and output. Technological change is accelerating and driving exciting new competitive dynamics in most industries. This includes new process technologies such as manufacturing automation, and in particular the web-based and social networking technologies such as Facebook, Instagram, Google and Twitter that are making information available to people as never before. The Internet has a profound effect on all forms of organisation, business and consumer behaviour. Consider how Amazon and eBay have impacted on consumer shopping habits. New business models and innovative ways to combine products and services are made possible by the Internet, as well as much richer, faster, cheaper and more detailed information exchange between businesses. The cost of close coordination between organisations is lower as a result of these new technologies, leading to new networks of collaboration within supply networks. Another major trend that will impact on managers and businesses all over the world is the coming of age of the Chinese economy and, behind that, India, Brazil and others. These low-wage countries, which have over half of the world’s people living in them and hence huge internal developing markets, provide both opportunity and threat for all Asia Pacific-based companies and countries. In addition, political instability, terrorism, disease such as bird flu, climate change and other unanticipated events, coupled with the rise of regional trade blocs and free trade agreements, will impact substantially on the opportunities for companies to export and trade globally. Managers must be capable of planning and leading their organisations under both stable and unstable conditions. Risk management and crisis management are new processes with which managers must formally engage and become competent. Further, brought on by the collapse of major companies such as Lehman Brothers and many others as part of the global financial crisis, managers must now demonstrate the quality of governance in their systems and decisions, through compliance with strict new procedures, as legislated by governments and required by shareholders.

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And through all this, the fundamental management requirements – being highly competent in managing people, processes, customers, products and services; devising and planning strategies; organising resources; and leading and controlling work – have not gone away and never will. Rather, they must now be conducted at higher standards than ever in order to keep customers, employees and shareholders satisfied. A further requirement comes with the challenge of ‘sustainable development’, of being socially and environmentally responsible, while still maximising profits and behaving with high standards of ethics and integrity. This book gives the reader a realistic perspective of what management is and what managers really do. Management as a profession is dynamic, challenging and exciting for those who want to excel at it. Each day brings new and often unanticipated challenges despite the plans made by even the best managers and leaders. The relatively new challenges of sustainable development are integrated into every chapter of this book. Management involves creating and conducting the affairs of organisations so as to achieve valuable outcomes for many different stakeholders, particularly staff, owners, and clients or customers. In order to do this well, leaders in organisations must achieve many things at high levels – including motivating staff and themselves, ensuring that their products and services match customer requirements, efficiently managing finances and resources, and, above all else, assembling all this into an overall strategy that makes sense for all participants. Good managers need to understand and apply the fundamentals of fields as diverse as economics and psychology, as well as using various analytical techniques. We chose a sporting theme and analogy for this book because the challenges facing managers have so much in common with those of competitive sports. In both sports and management, no matter how well you’re doing, improvement is always possible. There is no such thing as the perfect tennis game, golf swing or score, and no such thing as the perfect manager or organisation. There is always room for improvement. In both sport and management, planning and strategising usually helps. What are our competitors likely to be doing? What are the conditions in the field, economy or marketplace that we participate in? In both sport and management, the best-laid plans often don’t come to fruition because things keep changing, so adjustments, sometimes radical, must be made to the planned business or sporting tactics. Decisions must be made under pressure – whether it’s during a tennis match or a business day – because unforeseen events occur, and unanticipated consequences develop in real time. At its extreme, this is referred to as ‘crisis management’. Finally, in both sport and management, there are always new competitors, new technologies, new strategies developing and new products that we must adapt to and find ways to turn into opportunities. Just like sport, management is dynamic and challenging. Just as new technologies, such as graphite tennis racquets and titanium golf clubs, changed those games and allowed for new levels of performance, so, too, has the Internet significantly created new opportunities and business strategies. Learning and innovation are the keys. For those who excel, the personal rewards that come from the satisfaction of achievement – as well as the creation of value for many stakeholders in the community – can be immense. While the challenges of achieving competitiveness and organisational effectiveness through excellent leadership and management have never been greater, the other side of the same coin is that for those who ‘get it right’, the opportunities have never been greater! Products and services can be developed by small and large companies and sold globally over the Internet. Consider Apple’s success with its iPhone and iPad, or the achievements of Samsung, Google or General Electric. Entrepreneurs are springing up and starting companies in all industries, challenging market leaders as never before. A small, new software company in Auckland, New Zealand, can now effectively sell and distribute its products in Sydney, Perth, Fiji, Moscow

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and New York – which would have been far too expensive to contemplate in the ‘pre-Internet’ world of just a decade ago. These new international sales or ‘extended market reach’ will only occur if the products and services offered by the company are competitive and provide superior value for customers. One vital thing that all successful organisations need, no matter whether their products are very simple or incredibly sophisticated, is solid management. Even the strongest of technological leadership in a product or industry will not lead to commercial success if the enterprise that owns and controls it is not managed well. The field of management is continually changing, yet some fundamental foundations remain the same. Demands made on today’s managers go well beyond the techniques and ideas traditionally taught in management courses. The traditional management paradigm assumes that the purpose of management is to control and limit people, enforce rules and regulations, seek stability and efficiency, design a top-down hierarchy to direct people and achieve bottom-line results. The emerging paradigm recognises that today’s managers need different skills to engage workers’ hearts and minds, as well as take advantage of their physical labour. The emerging management paradigm focuses on leadership, on harnessing people’s creativity and enthusiasm, finding shared vision and values, and sharing information and power. Teamwork, collaboration, participation and learning are guiding principles that help managers and employees. One of the key skills of great managers is the ability to achieve a blending and balancing of controls needed within a business with the leadership actions to achieve high levels of human motivation across the organisation. It’s all about balance and ‘shades of grey’, not ‘black and white’. Both the new and the traditional paradigms are guiding management actions in the world today. Our vision for Fundamentals of Management is to explore the new paradigm in a way that is interesting and valuable to students, while retaining the best of traditional management ideas. To achieve this vision, we have included the most recent management thinking and research, as well as the contemporary application of management ideas in organisations. The combination of established scholarship, new ideas and real-life applications gives students a taste of the energy, challenge and adventure inherent in the dynamic field of management. We have worked together to provide a textbook better than any other at capturing the excitement of organisational management. We wrote Fundamentals of Management to provide a book of the highest quality – one that will create in students both respect for the changing field of management and confidence that they can understand and master it. The textual portion of this book has been enhanced by an engaging, easy-to-understand writing style and many in-text examples and boxed items that bring concepts to life for students.

O RGA N I S AT I O N The chapter sequence in Fundamentals of Management is organised around the management functions of planning, organising, leading and controlling. These four functions effectively encompass both management research and real-life characteristics of the manager’s job. Part One introduces the world of management, including the nature of management, the emerging management paradigm, the learning organisation and historical perspectives on management. Part Two examines the environments of management and organisations. This section includes material on the business environment and corporate culture, the global environment, ethics and social responsibility, the natural environment, and the environment of entrepreneurship and small-business management.

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Part Three presents chapters on planning, including organisational goal setting and planning, strategy formulation and implementation, and the decision-making process. Part Four focuses on organising processes. These chapters describe the dimensions of structural design, the design alternatives managers can use to achieve strategic objectives, structural designs for promoting innovation and change, the design and use of the human resource function, and the ways in which managing diverse employees are significant to the organising function. Part Five is devoted to leadership. This section begins with a chapter on organisational behaviour, providing a grounding in understanding people in organisations. This foundation paves the way for subsequent discussions of leadership, motivating employees, communication and team management. Part Six describes the controlling functions of management, including basic principles of quality improvement, the design of control systems, information technology and techniques for control of operations management. Finally, our Capstone chapter integrates many of the themes of management and considers ‘best practices’ in organisations, at the cutting edge of our dynamic field. It provides a practical yet integrative way to think about the ‘world of work’, and how to succeed in it.

S P E C I A L F E AT U R E S One major goal of this book is to offer better ways of using the textbook medium to convey management knowledge to the reader. To this end, the book includes several special features.

◗◗ Chapter objectives. Each chapter begins with a clear statement of its learning objectives. This device provides an overview of what is to come and can also be used by students to see whether they understand and have retained important points.

◗◗ Management challenge and response. The text portion of each chapter begins with a real-life problem faced by organisation managers. The problem pertains to the topic of the chapter and will heighten students’ interest in chapter concepts. The questions posed in the Management challenge are resolved in the Response at the end of the chapter, where chapter concepts guiding management’s actions are highlighted.

◗◗ Contemporary examples from all over the Asia–Pacific region – and, indeed, the world. Every chapter contains a number of examples of real-life management incidents. These are placed at strategic points in the chapters and are designed to demonstrate the application of management concepts in specific companies. These in-text examples include well-known companies such as National Australia Bank, BHP Billiton, McDonald’s, ANZ, General Electric and Google, as well as less-well-known companies and notfor-profit organisations such as Austel, Dryen Australia and TAC. These examples put students in touch with the real world of organisations so they can appreciate the value of management concepts.

◗◗ Exhibits. Many aspects of management are research based, and some concepts tend to be abstract and theoretical. To enhance students’ awareness and understanding of these concepts, many exhibits have been included throughout the book. These exhibits consolidate key points, indicate relationships among variables and visually illustrate concepts. They also make effective use of colour to enhance their imagery and appeal.

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◗◗ Glossary. Learning the management vocabulary is essential to understanding contemporary management. This process is facilitated in three ways. First, key terms and concepts are coloured and defined where they first appear in the text. Second, brief definitions are set out in the margin for easy review and follow-up. Third, a glossary summarising all key terms and definitions appears at the end of the book for handy reference.

◗◗ ‘Remember this’ summaries and Discussion questions. Each chapter contains a number of Remember this boxes, summaries of key points that students should retain. The end-of-chapter discussion questions are a complementary learning tool that will enable students to check their understanding of key issues, to think beyond basic concepts and to determine areas that require further study. The Remember this summaries and Discussion questions help students to discriminate between the text’s main and supporting points, and provide mechanisms for self-teaching.

◗◗ Management in practice exercises. Management in practice, Ethical challenge, Group challenge, Case for critical analysis and New manager self-assessment exercises provide students with an opportunity to experience management issues in a personal way. These exercises take the form of questionnaires, scenarios and activities, and also provide opportunities for students to work in teams.

◗◗ Video cases. The chapters of the book conclude with video cases that illustrate concepts discussed in the text. The videos will enable students to consider the practical applications of management theory.

◗◗ Continuing case. Each Part of the book finishes with a contemporary continuing case study, of car company Toyota, which faces many managerial challenges and opportunities.

◗◗ Icons. The Linkage icon highlights links between topics within and across chapters, and the Entrepreneurship icon points to examples and issues related to new value creation.

P R E FA C E

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ABOUT THE AUTHORS Danny A. Samson, BE, PhD, is Professor of Management and was Head of the Department of Management at the University of Melbourne, where he has also been Associate Dean (Development) of the Faculty of Economics and Commerce and Director of the Foundation for Sustainable Economic Development and the Centre for Manufacturing Management. Professor Samson has been a member of a number of boards of directors, committees and industry bodies, including appointments as a member of the TAC Board, Australian Manufacturing Council and the Commonwealth Government Industry Task Force on Leadership and Management (Karpin committee). He has written eight books in the fields of decision analysis, manufacturing and production strategy, strategy, e-business and technology management. He has won research and best paper awards from leading journals, as well as teaching excellence awards, and has been Associate Editor of various management journals, such as the Journal of Operations Management. His principal research interests are in the strategic competitiveness of organisations and in the effective use of operations systems towards achieving that competitiveness. He has won numerous competitive research grants and published in a variety of journals that reflect the breadth of his research interests, including the Academy of Management Executive, Journal of the Operational Research Society, European Journal of Operational Research, Journal of Risk and Insurance, Journal of Business Research, International Journal of Management Science, ASTIN Bulletin, Journal of Operations Management, Interfaces, Decision Sciences Journal, International Journal of Technology Management, Australian Accounting Review, Decision Support Systems and the International Journal of Production and Operations Management. In addition to teaching many thousands of business and commerce students over the past 25 years, Professor Samson has conducted over 100 public education short courses in engineering management, manufacturing management, strategy, general management and professional practice management, as well as numerous executive seminars in decision analysis, business strategy, total quality and related fields, logistics and statistical analysis. His work history includes three years as an engineer at ICI Australia, appointment as a lecturer at Australian Graduate School of Management, five years as an Assistant Professor of Business Administration at the University of Illinois, and 10 years as a professor at the Melbourne Business School, University of Melbourne. During his career he has been a consultant to senior executives in most manufacturing industries and in numerous service sector organisations in Australia, New Zealand, the US, the UK and Europe. These include major companies in food, building products, pharmaceuticals, aerospace, paper and printing, chemicals, processing, banking, government and other industries. He is currently a board member of the Australian Institute of Management.

Timothy Donnet, PhD, is a lecturer in the School of Management at QUT Business School. Dr Donnet delivers a range of units including first year Management and final year Risk Management in the Bachelor of Business Management Major, as well as postgraduate-level studies in Managing Self and Others in the Australia-wide Public Sector Management Program. His research focuses on managerial decision making and broader policy making network, incorporating risk management perspectives to improve the effectiveness of governance frameworks for transport and urban infrastructure.

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Having only completed his PhD in 2012, Dr Donnet is relatively early in his research career, yet has already run lectures for over 5000 undergraduate students in the field of Management. He has secured commercial research funding for reviewing governance arrangements for enhancing the effectiveness of Queensland’s aviation networks, and developing business models that incorporate innovative technologies into air traffic control systems. His supervision of Higher Degree Research students from a range of backgrounds demonstrates the portability of his investigative techniques for managerial decision making, with recent research focusing on policy making networks for nutrition policy. His research has been published in Research in Transportation Business and Management, European Journal of Transport and Infrastructure Research, Public Health Nutrition and Obesity Reviews. Dr Donnet is an innovative lecturer with a focus on incorporating emergent trends in social media and video production into his teaching approach, including video interviews with local businesses and study vlogs into his delivery of unit content.

Richard L. Daft, PhD, is Associate Dean for Academic Programs and the Brownlee O. Currey, Jr Professor in Management in the Owen Graduate School of Management at Vanderbilt University. Professor Daft specialises in the study of organisation theory and leadership, and enjoys applying these ideas in his roles as Associate Dean. Professor Daft is a Fellow of the Academy of Management and has served on the editorial boards of Academy of Management Journal, Administrative Science Quarterly and Journal of Management Education. He was the Associate Editor-in-Chief of Organization Science and served for three years as associate editor of Administrative Science Quarterly. Professor Daft has authored or co-authored 13 books and has also authored dozens of scholarly articles, papers and chapters. His work has been published in Administrative Science Quarterly, Academy of Management Journal, Academy of Management Review, Strategic Management Journal, Journal of Management, Accounting Organizations and Society, Management Science, MIS Quarterly, California Management Review and Organizational Behavior Teaching Review. Professor Daft has been awarded several government research grants to pursue studies of organisation design, organisational innovation and change, strategy implementation and organisational information processing. Professor Daft also is an active teacher and consultant. He has taught management, leadership, organisational change, organisational theory and organisational behaviour. He has been involved in management development and consulting for many companies and government organisations.

ABOUT THE AUTHORS

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ACKNOWLEDGEMENTS

A gratifying experience for us was working with the teams of publishing professionals who were committed to the vision of producing the best management text ever. In particular, we thank the Cengage Australia team of Dorothy Chiu, Sutha Surenddar, Michelle Aarons, Kate Doherty and many others who worked on this edition. Another group of people who made a major contribution to this textbook are the management experts who provided advice, reviews, answers to questions, and suggestions for changes, insertions and clarifications. We want to thank all of these colleagues for their valuable feedback and suggestions. Finally, we thank those professional managers from whom we have learned so much about ‘what works’ in building, running and sustaining effective organisations.

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PART ONE IN NOVAT I V E M A N AGE M E N T F O R A C H A NGING W O R L D

Chapter 1 The changing world of management Appendix to Chapter 1 The evolution of management thinking

Australia is often described as a country that punches above its weight when it comes to sporting achievement – an accurate description, as we see in the Australian team’s achievements at Olympic and Commonwealth Games. The same can be said for New Zealand in respect of its tremendously successful rugby union accomplishments. Most people can relate to sporting excellence and the levels achieved by elite athletes because they have played sports themselves. But what do sporting efforts and achievements have to do with management? Team sports in particular have a great deal to do with management. If they are to succeed, sporting teams require good planning, leadership, organising and control, and so do business teams. According to Rod Macqueen,1 the former coach and manager of the Wallabies, the team that took Australian rugby union to its unprecedented domination of the sport from 1990 to 2000, the answer is that sporting success and business management success come from the same roots. Macqueen says his success with the Wallabies resulted from his use of the same strategies and tactics that drove his own success in his business display and services organisation. He planned the Wallabies strategies by conducting strength,

weakness, opportunity and threat (SWOT) analyses of their competitors. Macqueen motivated his staff and the Wallabies by using innovative ‘bottom up’ management techniques, so that staff and players take ownership of decisions, which in turn increases their motivation. What is the ultimate goal of a sportsperson, a team or a manager? Doing everything they can to achieve success by planning and implementing strategies and tactics that lead to that success. In management, as in sport, there are strong connections between actions – what you do – and outcomes – how well you do. This explains why so many high achievers in sport go on to achieve success in business or government. Examples abound, and there are too many leaders who were once great athletes for this to be a coincidence. Perhaps the common factor is sheer drive and ambition – or, as Rod Macqueen puts it, the same human and organisational factors and techniques that work when innovation and high levels of performance are needed, whatever the activity. In Part one of this textbook, we look at the skills and roles of managers, the history of management, and new management models.

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CHAPTER 1 T HE C H A NGING W O R L D O F M A N AGE M E N T

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 understand the personal challenges involved in becoming a new manager in an organisation in today’s world 2 describe the four management functions and the type of management activity associated with each 3 explain the difference between efficiency and effectiveness and their importance for organisational performance, including in terms of innovation outcomes 4 describe conceptual, human and technical skills, and their relevance for managers and employees

5 describe management types and the horizontal and vertical differences between them 6 discuss the innovative management competencies needed to deal with today’s turbulent business environment, including issues such as diversity, globalisation and rapid change 7 explain the leadership skills needed for effective crisis management 8 discuss the future challenges for Australian managers 9 discuss the meaning of sustainable development.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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PETRONAS The business environment, through which managers steer their companies to achieve their goals, is changing faster and is more unpredictable than ever before. Consider oil industry executives who are responsible for exploring, finding, evaluating, developing and producing oil and gas that is converted (refined) into valuable petroleum products. These products keep the world moving, and without them it would be more difficult to power cars, buses, planes, ships and trucks. These core products are also the raw materials for most forms of plastics, petrochemicals, fertilisers and other categories of goods that we all take for granted as consumers. For the better part of 200 years, companies such as Shell, Exxon Mobil and BP had a relatively stable world in which to operate. They were relatively unfettered by government controls on pollution and able to count on stable prices and predictable costs, and hence on profits and returns on invested funds. However, those factors have changed dramatically in the past decade, necessitating a complete rethink of how these businesses are run. Consider the very successful national oil company of Malaysia, called PETRONAS. From its beginning in 1974, this company operated in Malaysia, and more recently it branched out successfully into over 30 other countries, operating exploration, oilfield development and even petrol retailing outlets in countries as diverse as South Africa, Thailand and Sudan, as well as many other Asian, European and African countries. Recent major PETRONAS investments are in gas field development and export in Queensland and Western Australia. The world that these international oil companies operate in has changed a lot recently, for example, as the price of oil has spiked and fallen, often quickly and unpredictably. Consider other challenges, such as:

◗◗ PETRONAS executives have had to do their planning, investment decision making and run their operations as the global price of oil rose from around US$23 per barrel to over US$140 per barrel within a period of five years. They were then forced to plan for the possibility that the price would go up to a massive US$200 per barrel, which was being forecast by some industry experts. Such high prices made oilfields that were previously unfeasible into highly profitable enterprises. Large expansions became viable. But then the global oil price quickly and unpredictably fell to below US$40 per barrel, bottoming briefly at US$34. Plans went out the window: a new world emerged almost overnight. Then, just when PETRONAS was getting used to a world of low oil prices, low profit margins and tightening operations and costs, prices shot back up to over

US$90 in 2011 and have hovered within this range since. What is next? Could it go back down below US$40? The environment in which managers must plan and execute their strategies is one of high uncertainty and unpredictable volatility.

◗◗ The unfortunate disaster experienced by BP in the Gulf of Mexico in April 2010, in which one of its oil wells leaked large amounts of crude oil (five million barrels) into the sea, led to governments and communities globally taking a negative attitude towards BP and the industry in general; this brought about tougher regulation, and, at least for a while, a ban on further exploration and oilfield development. Despite ‘best efforts’, this whole industry suffers from unpredictable safety and environmental events and outcomes.

◗◗ The global financial crisis (GFC) of 2008–10 was also in full swing during this period, such that consumer demand, including for oil and derivative plastics products, went into meltdown in the United States and then elsewhere. In countries such as Iceland, Spain, Ireland, Greece, Portugal and many others, unprecedented recessions took place. Not since the Great Depression of 1930 had such events occurred.

◗◗ More recently, major markets in which PETRONAS and other leading oil companies have investments and operations have experienced significant political instability, such as the ’Arab Spring’ revolutions in Egypt and Libya, and the splitting of Sudan into two countries. The major ongoing problems in Syria and Egypt make it even more challenging than usual to do business. What is next?

◗◗ The natural environment appears to be increasingly volatile. PETRONAS managers signed up for a major investment in Central Queensland, Australia, where major storms and cyclones in 2011 and 2017, for example, led to extreme flooding, delaying and disrupting operations, destroying assets and interfering with markets.

◗◗ PETRONAS is losing its staff on a significant and regular basis. They are being poached by competitors from developing Middle Eastern companies, which operate in countries that are oil-rich and able to offer large cash salary packages to the best engineers and others.

◗◗ Climate change and the danger of the world choking itself on carbon released from oil and coal into the environment are threats to the core business of companies in this industry, and come simultaneously with predictions that global oil reserves are dwindling anyway. The potential for carbon taxes and emission trading schemes can add costs and complexity to energy businesses. The ongoing low price of oil puts a great deal of pressure on PETRONAS in 2017

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and beyond, with strong cost cutting pressure being exerted throughout this group. Sources: PETRONAS (2015) Annual Report 2015, http://www.petronas.com.my/ investor-relations/Documents/PETRONASAnnualReport2015.pdf (accessed 11 February 2017); http://en.wikipedia.org/wiki/2000s_energy_crisis (accessed 6 March 2014); Futures Trading Charts (2017) Crude oil EmiNY, http://tfc-charts.com/ chart/QM/W (accessed 6 March 2014).

QU E S T I O N How can the managers in PETRONAS and other oil companies, large and small, have any confidence in their decisions and plans in an environment where the low prices for their main products are out of their control and unpredictable?

NEW MANAGER SELF-ASSESSMENT ARE YOU READY TO BE A MANAGER? Welcome to the world of management. Are you ready for it? This questionnaire will help you see whether your priorities align with the demands placed on today’s managers. Rate each of the following items based on what you think is the appropriate emphasis for that task to achieve success as a new manager of a department. Your task is to rate the four top-priority items as high priority and the other four as low priority (that is, four of the items should be rated high and four rated low.) PRIORITIES

HIGH PRIORITY LOW PRIORITY

1 Spend 50 per cent or more of your time in the care and feeding of people. 2 Make sure people understand that you are in control of the department. 3 Use lunches to meet and network with peers in other departments. 4 Implement the changes you believe will improve department performance. 5 Spend as much time as possible talking with and listening to subordinates. 6 Make sure jobs get done on time. 7 Reach out to your boss to discuss his expectations for you and your department. 8 Make sure you set clear expectations and policies for your department. Note: This questionnaire is adapted from research findings reported in Linda A. Hill, Becoming a Manager: How New Managers Master the Challenges of Leadership, 2nd ed. (Boston, MA: Harvard Business School Press, 2003); and John J. Gabarro, The Dynamics of Taking Charge (Boston, MA: Harvard Business School Press, 1987).

Scoring and Interpretation: all eight items in the list may be important, but the odd-numbered items are considered more important than the even-numbered items for long-term success as a manager. If you checked three or four of the odd-numbered items, consider yourself ready for a management position. A successful new manager discovers that a lot of time has to be spent in the care and feeding of people, including direct reports and colleagues. People who fail in new management jobs often do so because they have poor working relationships or they misjudge management philosophy or cultural values. Developing good relationships in all directions is typically more important than holding on to old work skills or emphasising control and task outcomes. Successful outcomes typically will occur when relationships are solid. After a year or so in a managerial role, successful people learn that more than half their time is spent networking and building relationships.

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Most people think of Jon Bon Jovi as an ageing rock star. What many don’t realise is that Bon Jovi is still one of the world’s top-selling bands (in terms of both record sales and concert touring) because their lead singer is also a consummate manager. ‘In the late 1980s,’ one music historian wrote, ‘it seemed inconceivable that [the group] would last five years.’ In 2011, Jon Bon Jovi was ranked No. 2 on Forbes’s list of the year’s highest-paid musicians.2 As the group prepared for the launch of a tour in February 2013, Jon Bon Jovi was hidden away in the arena at the Mohegan Sun casino in Uncasville, Connecticut, for days, overseeing nearly 100 people organised into various teams such as lighting, sound and video. It is an activity that he performs again and again when the band is touring, managing a tightly coordinated operation, that is similar to setting up or readjusting a production line for a manufacturing business. Yet Bon Jovi is also performing other management activities throughout the year – planning and setting goals for the future, organising tasks and assigning responsibilities, influencing and motivating band members and others, monitoring operations and finances, and networking inside and outside the organisation. In 2016, Bon Jovi celebrated the 10-year anniversary of the Jon Bon Jovi (JBJ) Soul Foundation. The JBJ Soul Foundation was created to ‘combat issues that force families and individuals into economic despair’ and ‘support innovative community efforts to break the cycle of poverty and homelessness’.3 Efficiency and effectiveness are key words in his vocabulary. ‘Jon is a businessman,’ said former co-manager David Munns. ‘He knows how to have a great-quality show, but he also knows how to be efficient with money.’4 Jon Bon Jovi was smart enough to hire good people who could handle both production activities and the day-to-day minutiae that are integral to a successful global music business. However, it took several years to develop and hone his management skills. He assumed top management responsibilities for the band in 1992, about 10 years after founding it, because he had a vision that his professional managers weren’t supporting. ‘Most of my peers wanted to be on the cover of Circus [a magazine devoted to rock music that was published from 1966 to 2006],’ he said. ‘I wanted to be on the cover of Time.’5 One particular surprise for many people when they first step into a management role is that they are much less in control of things than they expected to be. The nature of management is to motivate and coordinate others to cope with diverse and far-reaching challenges. Many new managers expect to have power, to be in control, and to be personally responsible for departmental outcomes. However, managers depend on subordinates more than the reverse, and they are evaluated on the work of other people rather than on their own achievements. Managers set up the systems and conditions that help other people perform well. In the past, many managers exercised tight control over employees. But the field of management is undergoing a revolution that asks managers to do more with less, to engage employees’ hearts and minds as well as their physical energy, to see change rather than stability as natural, and to inspire vision and cultural values that allow people to create a truly collaborative and productive workplace. This textbook introduces and explains the process of management and the changing ways of thinking about the world that are critical for managers. By reviewing the actions of some successful and not-so successful managers, you will learn the fundamentals of management. By the end of this chapter, you will recognise some of the skills that managers use to keep organisations on track, and you will begin to understand how managers can achieve astonishing results through people management. By the end of this book, you will understand the fundamental management skills needed for planning, organising, leading, and controlling a department or an entire organisation.

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INNOVATIVE WAY TWITTER AND SQUARE ‘By inventing Twitter, Jack may have well brought down dictators in North Africa and the Middle East,’ said Sir Richard Branson, Virgin Group Chief Executive Officer (CEO). He was talking about Jack Dorsey, one of the co-founders of the microblogging service Twitter, which has more than 313 million monthly active users, 1.3 billion registered users, and processes over 303 million tweets per day. As Branson’s comment reflects, tweeting isn’t just about gossiping or showing off. It’s used for all sorts of activities, from organising protests and spreading the word about political turbulence or natural disasters to marketing products and gathering customer feedback. Ultimately, though, Dorsey’s other company, Square, founded in 2010, may eventually have even greater impact and influence. Square started with one product – a simple credit card reader that can be plugged into the audio jack of a supported smartphone or tablet and allow anyone to accept credit card payments. On the iPad version of the Square Register

app, the interface resembles a traditional cash register. Today, almost 2 million small businesses and individuals in the United States of America, Canada, Japan, and Australia use Square to process credit cards. Square is also creating a variety of other products and services and is growing rapidly. Much of the success of Twitter and Square can be attributed to managers’ high levels of innovation. Dorsey refers to new initiatives at Square as ‘resets’ because they aim to be so groundbreaking that they reset the nature of the financial world. ‘Everything we do is about getting people to be more open, more creative, more courageous,’ says Dorsey. In 2014, Fast Company featured Square on their World’s 50 Most Innovative Companies list. As of late 2016, with Jack Dorsey into his third stint as CEO, some commentators are wondering about the leadership stability and ongoing market leadership of Twitter, which is still going strong, but under threat from many new startups that want to disrupt its marketspace.

Sources: Smith, C. (28 August 2016). Twitter Statistics and Facts (August 2016), http://expandedramblings.com/index.php/march-2013-by-the-numbers-afew-amazing-twitter-stats/ (accessed 21 October 2016); Mac, R. (17 February 2016). Square Makes Small Business Push for Growth Ahead of Earnings. http://www.forbes.com/sites/ryanmac/2016/02/17/square-small-business-payroll-capital-transition/#57df4e70420d (accessed 21 October 2016); Fast Company (10 Feburary 2014). Square. https://www.fastcompany.com/most-innovative-companies/2014/square (accessed 21 October 2016); Quoted in Ellen McGirt. (March 2012). 05: Square, For Making Magic Out of the Mercantile. Fast Company, 82–5, 146–7 (part of the section, The World’s 50 Most Innovative Companies); Will Self. (26 March 2012). Twitter Is Just a New Home for Old Bores. New Statesman, 53; (13 January 2011). Could Tunisia Be the Next Twitter Revolution? The Atlantic, http://www.theatlantic.com/daily-dish/archive/2011/01/could-tunisia-be-the-next-twitter-revolution/177302/ (accessed 11 June 2012); Alexander Mills et al. (2009). Web 2.0 Emergency Applications: How Useful Can Twitter Be For Emergency Response? Twitter for Emergency Management and Mitigation, http://denman-mills.net/web_ documents/jips_mills.etal._2009.07.22_finalsubmission.pdf (accessed 11 June 2012). http://www.vanityfair. com/news/2016/06/twitter-is-betting-everything-on-jack-dorsey

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WHY INNOVATIVE MANAGEMENT MATTERS

A major theme of this text is innovation, and related to that, sustainable development. To gain or keep a competitive edge, today’s managers have renewed their emphasis on innovation, shifting away from a relentless focus on controlling costs towards investing in the future. In a survey of nearly 1000 executives in North America, Europe, South America and Asia, 86 per cent agreed that ‘innovation is more important than cost reduction for long-term success’.6 Why does innovative management matter? Innovations in products, services, management systems, production processes, corporate values, and other aspects of the organisation are what keep companies growing, changing and thriving. Without innovation, no company can survive over the long run. Industries, technologies, economies, governments and societies are in a constant state of change, and managers are responsible for helping their organisations navigate through unpredictable environments with flexibility and innovation.7 The growing clout and expertise of companies in developing countries, particularly China

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and India, have many Western managers worried. In a hypercompetitive global environment, companies must innovate more – and more quickly – than ever. Throughout this text, we will spotlight various companies that reflect this new innovation imperative. In addition, Chapter 8 discusses innovation and change in detail. First, let’s begin our adventure into the world of management by learning about some of the current challenges for managers, and what it means to be a manager.

C U R R E N T C H A L L E NG E S F O R M A NAG E R S Managers have both challenges and opportunities, whatever the size and industry or sector that they work in. We can consider the new challenges of the workplace at three levels: government, business and individual.

C H A L L E NG E S F O R GOV E R N M E N T Imagine the vast range of challenging issues managers face in the three levels of government in Australia – federal, state and local (that is, local shire or council). Consider the challenges of providing competitive services and sound policy frameworks on such difficult issues as healthcare, education, transport, economic management, local services, defence and protection and environmental management, among a host of others. For example, what regulations should govern the growing telecommunications industry and the competition between mobile phone suppliers? The Australian Taxation Office is currently challenging itself to use innovation to improve both taxpayer service levels and its own effectiveness as an organisation. The same is so for virtually all of the hundreds of hospitals around Australia: they see innovation as the way of improving efficiency, effectiveness and especially patient outcomes. Other examples are: what safety standards should apply in the chemical industry; and what hygiene standards in the food industry? An issue may be specific, such as what to do about the acute shortage of capacity for aircraft movement in Sydney (solving the ‘second Sydney airport’ problem) or more general, such as what to do about floods, droughts and cyclones, how to combat climate change or how to fund healthcare as our population continues to age. The list of challenges for government at all three levels is virtually endless. Most involve allocating limited resources between alternatives, where conflicting objectives and tradeoffs between interest groups need to be considered. Although most of the challenges of government are managerial challenges, many are also policy challenges. Some are purely policy issues without much direct monetary cost to the government. For example, should the government preserve or relax the existing ‘four pillars’ policy in our banking industry, which prevents mergers or acquisitions between the big banks – ANZ, Commonwealth Bank, National Australia Bank and Westpac – and limits competition? Another example is the question of whether government should allow or disallow same-sex marriage. Governments across Asia have faced many challenges, including dealing with economic uncertainty and responding to the critical levels of air, water and land pollution that have occurred as they have industrialised. Many of Asia’s 4.5 billion people are breathing toxins at unacceptable levels as some of the world’s worst-polluted cities are in Asia. The past decades of growth and increased prosperity in Asia have led to these outcomes, which are not sustainable in the long term. The estimated total costs of pollution in China are as high as 10 per cent of gross domestic product (GDP). Hotels in Hong Kong have banded together to improve their energy consumption and reduce their pollutants. Pollution from forest burning in Indonesia is impacting on the air quality and reducing tourism in Indonesia, Singapore and Malaysia.

See Chapter 8 for a detailed discussion on innovation and change.

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Governments also face many challenges in regulating how business does business. In Australia, New Zealand and elsewhere, government regulators are constantly working to ensure that businesses do not unfairly take advantage of consumers, workers or competitors. Governments make and implement laws against unfair trading, paying below minimum wage levels, unsafe workplaces or practices, pollution, nondisclosure of information, monopolistic practices and cartel behaviours, misinforming consumers and a host of other issues. Managers within government have great responsibility on their shoulders in advising politicians and interpreting and implementing policies. Managers in industry must ensure that their firms continuously comply with literally hundreds of laws.

C H A L L E NG E S F O R B U S I N E S S The challenge of pollution control and sustainable development is not just for governments, but clearly also for the business sector and for individuals as consumers. For example, the tourism industry of a region or country can be significantly affected by air pollution, undrinkable water and other environmental problems. In Australia, the Murray-Darling River system has been compromised and continues to be threatened by pollutants, and salinity and water shortage are widespread problems in the farming sector. Vast resources are needed to address these problems and farming businesses will need to work cooperatively with governments for decades to come.8 Many Australian businesses sell their products and services overseas as well as domestically, and many Australian managers have consequently been exposed to the sharp competitive forces of the Asian, United States and European marketplaces in which they do business. As a result of this, Australian managers have learned a great deal about how to manage their businesses in the changing environment. Even more important has been the translation of that learning into improved and widespread knowledge, practices and behaviour in Australian-based organisations. Further, many Australian businesses are not just buying and selling their raw materials and products and services outside Australia, but are also establishing operations outside Australia. These include retailers, banks, mining companies, manufacturers, distributors, software houses, internet-based businesses and a variety of other enterprises. In the business sector, large enterprises such as Telstra, Coles and the big banks each employ tens of thousands of people and are constantly faced with the challenge of managing the enormous costs of these labour forces. The challenge is smaller in scale, but similar, in the local milk bar or petrol station. In essence, this challenge is to continually generate enough revenue to pay all the firm’s costs for labour, rent, materials, energy, advertising and other expenses, while also producing a profit for the business owner that will be a sufficient return on investment. And while doing all this, managers must ensure that they and their companies comply with myriad laws: tax laws, labour standards, reporting of information, environmental regulations, consumer protection and many others. The strategies and decisions that governments, businesses and individuals make increasingly are being taken in the face of uncertainty. A study of senior executives conducted at the London Business School found that decision making, negotiation skills and agility in dealing with people and customers were key to what makes for successful leaders and managers at all levels. And we must remember how easy it is to ‘fall off the log’ of success – just consider the National Australia Bank. It went from being a darling of the Australian market and the leader in its industry in the 1990s under the leadership of Don Argus to a scandal-ridden company with a falling share price after Mr Argus passed on the reins of leadership to a successor. This led to shareholders losing about a quarter of their wealth, and the embarrassing

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resignations of the board chairman, board members and the managing director. Many employees lost their jobs in the culminating restructure in 2004. This shows how even the mightiest companies can fall from grace when leaders and managers get it wrong. Under Don Argus, the bank grew its share price 600 per cent, moved towards globalisation and increased its annual profits from AU$500 million to over AU$3 billion. Its market leadership was unquestioned for a decade. Under the next CEOs, overseas assets were sold, the bank pulled back from the global model it had aspired to, and shareholders suffered badly with long-lasting negative impacts. In 2016, this company has still not been able to recover its industry leadership position. Currently its market share sits at 18.3 per cent, behind the Commonwealth Bank of Australia (20.9 per cent), Westpac Banking Corporation (19.9 per cent), and ANZ (18.8 per cent). Over the past five years, NAB has aimed to compete on price and focused on volume. By dropping its mortgage rates significantly below those of the other major banks, NAB has sought to increase its market share. The company’s strategy has achieved some success, but in the process, the bank has initiated a price war among the major players.9

C H A L L E NG E S F O R T H E I N D I V I D UA L E M P L OY E E For the individual who wants to exchange work for money in the labour market, getting and keeping a job means to demonstrate the skills, attitude and performance that enables the employer to justify the costs of employment. In a business environment that has spent the last decade shedding labour, individual competitiveness for jobs is a continuing challenge, and the notion of job security is, for most people, a thing of the past. The challenge to individuals then is planning for their next job. A career becomes a series of employment relationships. Most university graduates will have many different jobs throughout their working lives. How do individuals, who want to achieve a good return on the human capital they invest in their work, maximise their competitiveness in winning and retaining a series of suitable jobs? They must add value to the organisations that employ them. The challenge of being competitive in the workplace follows the challenge of being competitive in school, getting into a suitable course at university, then graduating and getting a job that meets their own expectations. For governments, companies and individuals, the challenge of being competitive is continuous.

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The decisions made by managers are always challenged by turbulence in the business environment. Change is the only constant – whether it is in a mature industry such as oil and gas, or in the new economy such as Twitter – the competitive market forces that managers must face seem to only get more intense.

1.2

MANAGERS WHO MAKE A DIFFERENCE

The turbulence and change in today’s competitive business environment has led to a revolution in the field of management. A new kind of leader is needed who can guide organisations through this turbulence – a strong leader who recognises the complexity of today’s world and realises there are

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no perfect answers. Unanticipated crises must somehow be prepared for. As we discussed earlier, the revolution asks managers to see change as the normal nature of things rather than stability, and to create vision and cultural values that allow people to foster a truly collaborative workplace, even under the most difficult conditions. This new management approach is very different from a traditional mindset that emphasises a fixed, top-down control, employee separation and specialisation, and management by impersonal measurement and analysis. Australian enterprises that want to be part of a successful and positive economic future are responding to this revolution towards a new management paradigm, or way of thinking by embracing change. Making a difference as a manager today and tomorrow requires a different approach from yesterday. Successful departments and organisations do not just happen – they are managed to be that way. Managers in every organisation face major challenges and have an opportunity to make a difference. Flexibility and agility are important new approaches and capabilities needed by managers and their organisations. Chanut Piyaoui made a difference by changing the somewhat unsavoury reputation of Thai hotels as ‘places of entertainment’, as she delicately phrased it. With little initial capital, Chanut’s vision and management skills created Thailand’s leading hotel chain, one that Asiamoney magazine has ranked one of the 100 best-managed companies in Asia.10 An initial change in the market positioning of the chain was pivotal, and has now led to international expansion of the hotel group into China, Dubai and India – all growth markets – and the development and operation of other hospitality businesses, including a training college. With further international expansion into related businesses being planned, Chanut’s vision is coming to fruition. Such managers are not unusual. Every day, managers solve difficult problems, turn organisations around and achieve astonishing performances. To be successful, every organisation needs skilled managers.

T H E D E F I N I T I O N O F M A NAG E M E N T So what do managers actually do? The late, famed management theorist Peter Drucker, who is often credited with creating the modern study of management, summed up the job of the manager by specifying five tasks, as outlined in EXHIBIT 1.1.11 In essence, managers set goals, organise activities, motivate and communicate, measure performance and develop people. These five manager activities apply not only to top executives such as Elon Musk at Tesla, Mark Zuckerberg at Facebook, Alan Mulally at Ford Motor Company and Ursula Burns at Xerox, but also to the manager of a restaurant in your home suburb, the leader of an airport security team, a supervisor at a web hosting service, or the director of sales and marketing for a local Coles or Woolworths supermarket. The activities outlined in EXHIBIT 1.1 fall into four core management functions: planning (setting goals and deciding activities), organising (organising activities and people), leading (motivating, communicating with and developing people) and controlling (establishing targets and measuring performance). Depending on their job situation, managers perform numerous and varied tasks, but they all can be categorised under these four primary functions. Following on from this, our definition of management is as follows:

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EXHIBIT 1.1 What do managers do?

1. Set Objectives Establish goals for the group and decide what must be done to achieve them

5. Develop People Recognise the value of employees and develop this critical organisational asset

4. Measure Set targets and standards; appraise performance

2. Organise Divide work into manageable activities and select people to accomplish tasks

3. Motivate and Communicate Create teamwork via decisions on pay, promotions, etc., and through communication

Source: Based on ‘What Do Managers Do?’, The Wall Street Journal Online, http://guides.wsj.com/management/developinga-leadershipstyle/what-do-managers-do/ (accessed 11 August 2010), article adapted from Alan Murray, The Wall Street Journal Essential Guide to Management (New York: Harper Business, 2010).

Management is the attainment of organisational goals in an effective and efficient manner through

planning, organising, leading and controlling organisational resources. This definition includes two important ideas:

1 the four functions of planning, organising, leading and controlling 2 the attainment of organisational goals in an effective and efficient manner. Let’s first look at the four primary management functions. Later in this chapter, we’ll discuss organisational effectiveness and efficiency, as well as the multitude of skills that managers use to perform their jobs successfully.

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Managers get things done by coordinating and motivating other people.

◗◗

Managers at all levels, from those running a country to those managing just themselves or a small team, must meet many challenges of creating and delivering value to their organisation and its stakeholders.

Management is often a different experience from what people expect. Innovative management is critical in today’s turbulent world. Management is defined as the attainment of organisational goals in an effective and efficient manner through planning, organising, leading and controlling organisational resources.

management The attainment of organisational goals in an effective and efficient manner through planning, organising, leading and controlling organisational resources.

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1.3

THE FOUR MANAGEMENT FUNCTIONS

EXHIBIT 1.2 illustrates the process of how managers use resources to attain organisational goals through the functions of planning, organising, leading and controlling. Chapters of this book are devoted to the multiple activities and skills associated with each function, as well as the environment, global competitiveness and ethics that influence how managers perform these functions.

EXHIBIT 1.2 The process of management

Management Functions Planning Select goals and ways to attain them

Performance

Resources Human Financial Raw materials Technological Information

Organising

Controlling

Assign responsibility for task accomplishment

Monitor activities and make corrections

Attain goals Products Services Efficiency Effectiveness

Leading Use influence to motivate employees

P L A N N I NG planning The management function concerned with defining goals for future organisational performance and deciding on the tasks and resource use needed to attain them.

Planning means identifying the future goals for the organisation and the tasks required and resources

needed to attain them. In other words, managerial planning defines where the organisation wants to be in the future and how it will achieve this. A good example of planning comes from General Electric (GE) – a company that will be repeatedly referred to throughout this book – where managers have sold off such divisions as Plastics, Insurance and Media to focus the company’s resources on four key business areas: energy; aircraft engines; healthcare; and financial services. GE used to relocate senior executives every few years to different divisions so that they developed broad, general expertise. In line with its strategic priorities, the company now keeps people in their business units longer so they gain a deeper understanding of products and customers within each of the four core businesses.12 Good planning must be more than just aspirational statements such as, ‘how many can we make and sell?’ Good planning involves understanding the enterprise’s environment and how it is changing, forecasting changes as best you can, and considering how to position the enterprise to make its market offerings (products and services) attractive. Good planning, then, overlaps with organising – working out the details of the resources necessary to achieve all this, and how they will be marshalled.

organising The management function concerned with assigning tasks, grouping tasks into departments and allocating resources to departments.

O RGA N I S I NG Organising typically follows planning and reflects the way the organisation tries to accomplish the plan. Organising involves the assignment of tasks, the grouping of tasks into departments and

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the allocation of resources to departments. For example, Hewlett-Packard, NAB and Xerox have all undergone structural reorganisations to accommodate their changing plans. Semco, a Brazilian company making industrial pumps, mixers, propellers and other products, reorganised from a highly structured, autocratic business into a company run on trust, freedom and democracy. Six people rotate as CEO, for six months each. Employees set their own work schedules, organising themselves to accomplish their tasks. Semco’s loose organisational structure has been so successful that executives from Mobil, IBM and hundreds of other organisations have travelled to São Paulo to study Semco and see the operation first-hand.13 Organising is a key task for Oprah Winfrey as she strives to turn around her struggling start-up cable network, OWN. Winfrey took over as CEO of the company, repositioned some executives and hired new ones, and cut jobs to reduce costs and streamline the company. She is hoping the structural changes will bring a lean, entrepreneurial approach that will get OWN on solid ground. Winfrey said, ‘I prided myself on leanness’, referring to the early days of her TV talk show. ‘The opposite was done here.’14 Oprah’s personal leadership has indeed led to a resurgence of that network, with some 80 million homes in the USA accessing OWN.15 The restructuring of the business has lead to a successful turnaround and future expansion plans.

L E A D I NG Leading uses influence to motivate employees to achieve organisational goals. Leading means

creating a shared culture and values, communicating goals to people throughout the organisation and infusing employees with the desire to perform at a high level. You don’t have to be a top manager of a big corporation to be an exceptional leader. Many managers working quietly in both large and small organisations around the world provide strong leadership within departments, teams, non-profit organisations and small businesses. Well-known managers such as Don Argus and the late Steve Jobs are (and were) exceptional leaders. They are able to communicate their vision throughout the organisation and energise employees into action. In times of uncertainty, international competition and growing diversity in the workforce, the ability of leaders to shape culture, communicate goals and motivate employees is critical to business success. Change is scary and difficult for the unimaginative manager, but a positive opportunity for those who are forward-looking.16

leading The management function that uses influence to motivate employees to achieve the organisation’s goals.

CO N T RO L L I NG Controlling is the fourth function in the management process. Controlling means monitoring employees’ activities, determining whether the organisation is on target to meet its goals and making corrections as necessary. Managers must ensure that the organisation is moving towards its goals. New trends towards empowerment and trust of employees have led many organisations to place less emphasis on top-down control and more on training employees to monitor and correct themselves. At International Service System (ISS), the Danish company that grew from a local office-cleaning contractor to a US$2 billion multinational business, the entire control system is built on the belief that people at all levels will make the right decisions if they are provided with the appropriate information. Front-line employees are thoroughly trained to measure their own performance against company standards and make corrections needed. Ongoing training programs at Accenture (formerly Andersen Consulting) instil into every employee the

controlling The management function concerned with monitoring employees’ activities, keeping the organisation on track towards its goals and making corrections as needed.

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firm’s core values and standards of expected performance, enabling the firm to give its employees great freedom without endangering its high standards. However, managers must realise that what works in one organisation or one situation may not work in another. The Mars (Uncle Ben’s) pet-food operations in Australia are responsible for most of the major brands of pet food (such as Pal) in Australian supermarkets. The company runs an open-styled culture – at Uncle Ben’s head office in Wodonga, Victoria, even the most senior executives sit near sales clerks in a single, large, open-plan office area. However, an example of a managerial control in Mars is that everyone, without exception, clocks on when they arrive at work each day. It works for them, and is a part of the way Mars organises its employees all around the world.17 The challenge to managers is to find the right mix between employee empowerment and maintaining adequate control. New information technology is also helping managers provide necessary organisational control without strict top-down constraints. Companies such as Cisco Systems use the Internet and other information technology to coordinate and monitor virtually every aspect of operations, which enables managers to keep tabs on performance without maintaining daily authoritarian control over employees. Cisco employees have amazing freedom to make decisions and take action, but they also know that top managers can keep a close eye on what is going on throughout the company with just a few mouse clicks.

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Managers perform a wide variety of activities that fall within four primary management functions.

◗◗ ◗◗ ◗◗

Organising involves assigning tasks, grouping tasks into departments and allocating resources.

Planning is the management function concerned with defining goals for future performance and how to attain them.

Leading means using influence to motivate employees to achieve the organisation’s goals. Controlling is concerned with monitoring employees’ activities, keeping the organisation on track towards meeting its goals and making corrections as necessary.

1.4

ORGANISATIONAL PERFORMANCE

The other part of our definition of management is the attainiment of organisational goals by being efficient and effective. Organisations are important because organisations bring together knowledge, people and raw materials to perform tasks no individual could do alone. Without organisations, how could thousands of airline flights a day be accomplished without an accident? How could electricity be produced from large dams or wind generators, millions of cars be manufactured, or hundreds of films and books be made available for our entertainment? Organisations pervade our society. Many students will work in an organisation – perhaps a Coles or Woolworths supermarket, a BP or Shell petrol station, or a McDonald’s fast-food restaurant. McDonald’s employ some 100 000 people in Australia, and bring together the best management principles of high levels of efficiency and innovation, to create high levels of value for their customers.

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This can only be implemented through the managers and employees at McDonald’s. Students are already members of several organisations, such as university or TAFE, sporting clubs, churches or social organisations. Students also deal with organisations every day to get or renew a driver’s licence, be treated in a hospital emergency department, buy food from a supermarket, eat in a restaurant or buy new clothes. Managers are responsible for these organisations and for seeing that resources are used wisely to attain organisational goals. Our formal definition of an organisation is a social entity that is goal-directed and deliberately organisation A social entity that is goalstructured. A social entity is made up of two or more people. Goal directed means being designed to achieve directed and deliberately some outcome, such as make a profit (all companies seek this), win pay increases for members (unions), structured. meet spiritual needs (any church) or provide social satisfaction (clubs). Being deliberately structured means that tasks are divided, and responsibility for their performance is assigned to organisation members. This definition applies to all organisations, whether profit-making or not-for-profit. Based on our definition of management, the manager’s responsibility is to coordinate resources in an effective and efficient manner to accomplish the organisation’s goals. Organisational effectiveness effectiveness The degree to which the is the degree to which the organisation achieves a stated goal. It means that the organisation succeeds organisation achieves a in accomplishing what it tries to do. Organisational effectiveness means providing a product or service stated goal. that customers value. Organisational efficiency refers to the amount of resources used to achieve an efficiency The use of minimal organisational goal. It is based on how much raw materials, money and people are necessary for producing resources – raw materials, a given volume of output. Efficiency can be calculated as the amount of resources used to produce a money and people – to produce a desired volume product or service. of output. Both efficiency and effectiveness can be high in the one organisation. For example, at the Orica Botany site in Sydney – a large petrochemical complex that makes basic plastics and related chemicals needed for everyday life, such as soap and plastic bags – productivity was low due to the poor management relationship with plant operating staff and maintenance workers. After a long and difficult strike, a new management approach succeeded in bringing the workforce into alignment with management goals and nearly all workers were put into staff and salaried positions. New cooperative working arrangements led to dramatic improvements in efficiency – greater than 100 per cent in many parts of the business. These efficiency improvements went hand in hand with improvements in areas such as quality and service, and delivery reliability. The resulting improved customer satisfaction led to higher Holding degrees in both physics and economics, entrepreneur Elon Musk certainly possesses his share sales volumes and the achievement of of technical skills. He designed and created the first viable electric car – the Tesla roadster – as well as increased business effectiveness as measured the web-based payment service PayPal, and a spacecraft that will enable private citizens to travel to outer space. But it is his stellar conceptual skills that allow him to lead the innovative companies that against the company’s goals of significantly are making these products and services available to people worldwide. 18 improved cash flow and profitability.

Source: Brandy Baker/Detroit News/PSG/Newscom

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INNOVATIVE WAY BUDGET BLOCKBUSTERS You can’t quite make a blockbuster movie without a substantial budget, but Christopher Meledandri is out to prove that strict cost controls and hit animated films aren’t mutually exclusive. Most computer-generated animated films cost at least US$100 million, with some budgets pushing US$150 million. In contrast, Illumination Entertainment made the hit film Despicable Me for only US$69 million; the budget for Hop came in at a mere US$63 million; and the company produced its third blockbuster, Dr. Seuss’ The Lorax, for US$70 million – less than the movie brought in at the box office on its opening weekend. Managers at the company use many approaches to increase efficiency. For example, when making Despicable Me, they decided to eliminate details such as animal fur, which the audience couldn’t see on the screen. Other details that were extremely costly to render in computer graphics but that weren’t central to the story were also cut, saving the detail work for sets that were used repeatedly. The company paid a significant amount for the voice of Steve Carell, but hired other vocal talent with less star power, a practice that the company’s managers follow for all their films. They also seek out first-time directors and young,

enthusiastic, less-experienced animators, who often cost less than half what a more experienced artist commands. Organisational details also contribute to efficiency – Meledandri keeps layers of the hierarchy to a minimum so that decisions can be made quickly and movies don’t languish for years in development, eating up money. Offices are in a low-rent area behind a cement plant rather than in sumptuous surroundings. Illumination Entertainment is quickly becoming the envy of Hollywood. Movie-going in general is down, but animated family films are popular. And Illumination has had some of the most popular films in recent times. Peter Chernin, former president of News Corporation, said of Meledandri: ‘It is rare to find people whose business sense is as strong as their creative sense.’ Meledandri and his management team are using their business sense to run an efficient operation and manage the company’s direction, and their creative instincts to produce popular, often critically acclaimed animated films. This team has gone on to create a string of new offerings such as Minions, The Secret Life Of Pets, Despicable Me 3, Sing and Dr. Seuss’ How The Grinch Stole Christmas.

Sources: Based on Lauren A. E. Schuker. (15 July 2010). Movie Budget Lesson #1: Skip the Fur. The Wall Street Journal, B1; Brooks Barnes. (4 April 2011). Animation Meets Economic Reality. The New York Times, B1; and Allison Corneau. (4 March 2012). The Lorax Tops Weekend Box Office. US Weekly, http:// www.usmagazine.com/entertainment/news/the-lorax-tops-weekend-box-office-201243 (accessed 12 June 2012); Busch, L. (28 April 2016) Chris Meledandri: Hollywood’s New Animation Czar. Deadline.com, http://deadline.com/2016/04/chris-melendandri-illumination-dreamworks-animation-czar-1201745913/ (accessed 21 February 2017).

1.5

MANAGEMENT SKILLS

A manager’s job requires a range of skills. Although some management theorists propose a long list of skills, the necessary skills for managing a department or an organisation can be placed in three categories: conceptual; human; and technical.19 As illustrated in EXHIBIT 1.3, the application of these skills changes dramatically when a person is promoted to management. Although the degree of each skill that is required at different levels of an organisation may vary, all managers must possess some skill in each of these important areas to perform effectively.

conceptual skill The cognitive ability to see the organisation as a whole and the relationship among its parts.

CO N C E P T UA L S K I L L S Conceptual skill is the cognitive ability to see the organisation as a whole and the relationship between

its parts. Conceptual skill involves the manager’s thinking, information-processing and planning abilities. It involves knowing where the department fits into the total organisation and how the organisation

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EXHIBIT 1.3 Relationship of conceptual, human and technical skills to management

Middle managers

Non-managers (Individual contributors)

fits into the industry, the community, Conceptual and the broader business and social skills environment. It means the ability to Human skills think strategically, and understand the broad, long-term view. Technical skills Conceptual skills are important for all managers at all levels of organisations. For example, Datuk Wan Zulkiflee Wan Ariffin President Conceptual skills and Group Chief Executive Officer of Petronas in Malaysia will need to Human skills work his way through the challenges of being an oil and gas company in a Technical skills world that is increasingly challenged by climate change, to which fossil fuels are a major contributor. His company has articulated policies for change and innovation, but the company’s operations are substantially fixed in oil and gas production, such that implementing changes even in the long term, is difficult. At a different level, a team leader in any business who is looking to drive operating improvement would need to use their conceptual skills to make decisions about whether a restructuring of work processes would lead to higher levels of efficiency.

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HUMAN SKILLS Human skill is the manager’s ability to work with and through other people, and to work effectively as

a group member. This skill is demonstrated in the way a manager relates to other people, including the ability to motivate, facilitate, coordinate, lead, communicate and resolve conflicts. A manager with human skills allows subordinates to express themselves without fear of ridicule and encourages participation. The ANZ Bank is a company that relies heavily on the quality of its people for its success. This bank took tremendous strides consistently over 10 years, led by its very personable (now retired) CEO, John McFarlane, who introduced a whole new culture of making the ANZ people friendly for its staff. Staff satisfaction at ANZ rose from 49 per cent to 85 per cent, resulting in increased customer satisfaction and profitability. Interestingly, such initiatives, even when they are strong and successful, rarely last forever, and after the retirement of McFarlane, a new CEO with a different strategic focus (growth in Asia) allowed this staff- and culture-led strategy to dissipate. Google is almost always acknowledged as one of the world’s most innovative companies. Even at a company such as Google that depends on technical expertise, human skills are considered essential for managers. Google analysed performance reviews and feedback surveys to find out what makes a good manager of technical people and found that technical expertise ranked last among a list of eight desired manager qualities, as shown in EXHIBIT 1.4. The exhibit lists eight effective behaviours of good managers. Notice that almost all of them relate to human skills, such as communication, coaching and teamwork. People want managers who listen to them, build positive relationships, and show an interest in their lives and careers.20 A recent survey comparing the importance of managerial skills today with those from the late 1980s found a decided increase in the role of skills for building relationships with others.21

human skill The ability to work with and through other people, and to work effectively as a group member.

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EXHIBIT 1.4 Google’s rules – eight good behaviours for managers

To know how to build better managers, Google executives studied performance reviews, feedback surveys, and award nominations to see what qualities made a good manager. Here are the ‘Eight Good Behaviours’ they found, in order of importance: 1 Be a good coach. 2 Empower your team and don’t micromanage. 3 Express interest in team members’ success and personal well-being. 4 Don’t be a sissy: Be productive and results-oriented. 5 Be a good communicator and listen to your team. 6 Help your employees with career development. 7 Have a clear vision and strategy for the team. 8 Have key technical skills so you can help advise the team. Source: ‘Google’s Quest to Build a Better Boss’, by Adam Bryant, published 12 March 2011 in The New York Times. Courtesy of Google, Inc.

TECHNICAL SKILL technical skill The understanding of and proficiency in the performance of specific tasks.

Technical skill is the understanding of and proficiency in the performance of specific tasks. Technical skill includes mastery of the methods, techniques and equipment involved in specific functions such as engineering, manufacturing or finance. Technical skill also includes specialised knowledge, analytical ability and the competent use of tools and techniques to solve problems in that specific discipline. Technical skills are particularly important at lower organisational levels. Many managers get promoted to their first management jobs by having excellent technical skills. However, technical skills become less important than human and conceptual skills as managers move up the hierarchy. Top managers with strong technical skills sometimes have to learn to step back so others can do their jobs effectively. David Sacks, founder and CEO of enterprise social network Yammer, designed the first version of the product himself, but now the company has 200 employees and a dozen or so product managers and design teams. Sacks used to ‘walk around and look over the designers’ shoulders to see what they were doing’, but says that habit prevented some people from doing their best work.22

W H E N S K I L L S FA I L Everyone has flaws and weaknesses, and these shortcomings become most apparent under conditions of rapid change, uncertainty or crisis.23 Consider how Tony Hayward, a geologist by training, handled the BP Deepwater Horizon crisis in the Gulf of Mexico, which we alluded to earlier, an event that ended his career as the company’s CEO and further damaged BP’s reputation. Until the spring of 2010, Hayward had been praised for leading a successful turnaround at the oil giant. Yet, after an oil rig drilling a well for BP exploded in April, killing 11 workers and sending hundreds of millions of gallons of oil spewing into the Gulf of Mexico, Hayward faltered in his role as a crisis leader. His ill-advised comment that he wanted the crisis over as much as anyone because he ‘wanted his life back’ showed an insensitivity and lack of diplomacy that angered the public. Hayward’s poor handling of the crisis eventually led to calls for his departure, and he resigned in July 2010.24

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During turbulent times, managers have to stay on their toes and apply all their skills and competencies in a way that benefits the organisation and its stakeholders – employees, customers, investors, the community and so on. In recent years, numerous highly publicised examples have shown what happens when managers fail to apply their skills effectively to meet the demands of an uncertain, rapidly changing world. Ethical and financial scandals have left people cynical about business managers and even less willing to overlook their mistakes. Crises and examples of corporate deceit and greed grab the headlines, but many more companies falter or fail less spectacularly, when managers fail to listen to customers, are unable to motivate employees or can’t build a cohesive team. For example, Australia’s biggest supermarket chain, Woolworths, experienced many problems after entering the home hardware division in 2011 with its 31 new Masters stores. Eager to compete in the AU$40 billion home improvement market, Woolworths invested AU$2 billion into establishing the stores nationally. Together with its American joint partner, Lowes, Woolworths has been forced to acknowledge the errors it made in selecting inappropriate stock for the Australian seasons and customer wants, which gave rise to heavy discounting of unwanted stock. Masters also grappled with premium suppliers who refused to sell to them, preferring the wellestablished, 300-strong Bunnings stores. Analysts were concerned about management’s ability to generate profit with average quarterly sales of AU$22 million, but losses of AU$29 million. At that rate Woolworths would have had to spend AU$5 billion to break even.25 In 2016, Woolworths announced the closure of the Masters group, admitting its failure. The company wrote off large amounts of losses, and many employees lost their jobs. EXHIBIT 1.5 shows the top 10 factors that cause managers to fail to achieve desired results, based on a survey of managers in organisations in the United States of America operating in rapidly changing business environments.26 Notice that many of these factors are due to poor human skills, such as the inability to develop good work relationships, a failure to clarify direction and performance expectations, or an inability to create cooperation and teamwork. 1. Ineffective communication skills and practices

81%

2. Poor work relationships/interpersonal skills

78%

3. Person - job mismatch

69%

4. Failure to clarify direction or performance expectations

64%

5. Failure to adapt and break old habits

57%

6. Breakdown of delegation and empowerment

56%

7. Lack of personal integrity and trustworthiness 8. Inability to develop cooperation and teamwork 9. Inability to lead/motivate others 10. Poor planning practices/reactionary behaviour 0%

52% 50% 47% 45% 50%

90%

Source: Adapted from Clinton O. Longenecker, Mitchell J. Neubert and Laurence S. Fink, ‘Causes and Consequences of Managerial Failure in Rapidly Changing Organizations’, Business Horizons 50 (2007): 145–55, Table 1, with permission from Elsevier.

EXHIBIT 1.5 Top causes of manager failure

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The number one reason for manager failure is ineffective communication skills and practices, which were cited by 81 per cent of managers surveyed. Especially in times of uncertainty or crisis, if managers do not communicate effectively, including listening to employees and customers and showing genuine care and concern, organisational performance and reputation suffer.

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Managers have complex jobs that require a range of abilities and skills.

◗◗

Human skill refers to a manager’s ability to work with and through other people and to work effectively as part of a group.

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Technical skill is the understanding of and proficiency in the performance of specific tasks.

Conceptual skill is the cognitive ability to see the organisation as a whole and the relationships between its parts.

The two major reasons why managers fail are poor communication and poor interpersonal skills. A manager’s weaknesses become more apparent during stressful times of uncertainty, change or crisis.

1.6

MANAGEMENT TYPES

Managers use conceptual, human and technical skills to perform the four management functions of planning, organising, leading and controlling in all organisations – large and small, manufacturing and service, profit and not-for-profit. But not all managers’ jobs are the same. Managers are responsible for different departments, work at different levels in the hierarchy and meet different requirements for achieving high performance. For example, Gail Kelly made her name as a CEO in building St George Bank’s reputation for good customer service, profitability and growth, and then took on the major challenge of moving into the same role in the bigger and more complex Westpac. Once she became chief executive of Westpac, she engineered a Westpac takeover of her former company, St George Bank. In a much smaller business (Dryen Australia), Peter Dryen assumed the top job as chairman and owner in the business his father, George, started 40 years ago. Dryen had all the same types of responsibilities as Kelly had at Westpac, ranging from employee safety and motivation, through customer satisfaction to the financial bottom line, as well as many types of legal compliance. The difference, of course, is in the scale and the resources that are involved in these executives’ challenges and opportunities. All managers must contribute to planning, organising, leading and controlling their organisations – but in different amounts and ways. Yet in 2016, both Ms Kelly and Mr Dryen moved on from their leadership roles in these organisations to do new and different innovative things in their respective business worlds. Management always involves a dynamic and changing landscape and set of opportunities.

V E RT I C A L D I F F E R E N C E S An important determinant of the manager’s job is the hierarchical level. EXHIBIT 1.6 illustrates the three levels in the hierarchy. A study of more than 1400 managers examined how the manager’s job differs

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across these three hierarchical levels and found that the primary focus changes at different levels.27 For first-level managers, the main concern is facilitating individual employee performance. Middle managers, though, are concerned less with individual performance and more with linking groups of people, such as by allocating resources, coordinating teams or putting top management plans into action across the organisation. For top-level managers, the primary focus is monitoring the external environment and determining the best strategy to be competitive. Let’s look in more detail at differences across hierarchical levels. Top managers are at the top of the hierarchy and are responsible for the entire organisation. They have titles such as president, chairperson, executive director, CEO and executive vice president. Top managers are responsible for setting organisational goals, defining strategies for achieving them, monitoring and interpreting the external environment, and making decisions that affect the entire organisation. They look to the long-term future and concern themselves with general environmental trends and the organisation’s overall success. Top managers are also responsible for communicating a shared vision for the organisation, shaping corporate culture, and nurturing an entrepreneurial spirit that can help the company innovate and keep pace with rapid change.28 Middle managers work at middle levels of the organisation and are responsible for business units and major departments. Examples of middle managers are department head, division head, manager of quality control and director of the research lab. Middle managers typically have two or more management levels beneath them. They are responsible for implementing the overall strategies and policies defined by top managers. Middle managers are generally concerned with the near future, rather than with longrange planning. The middle manager’s job has changed dramatically over the past two decades. Many

Top managers General Manager, Administration

Business Unit Head General Manager

People at these levels may also have horizontal project manager responsibility

Administrator Middle managers

Department Manager Information Product Line or Services Manager Service Manager

Functional Head Production, Sales, R&D Supervisor

First-line managers

MIS, HRM, Accounting Supervisor

Non-managerial employees Line jobs

top manager A manager who is at the top of the organisational hierarchy and is responsible for the entire organisation.

middle manager A manager who works at the middle levels of the organisation and is responsible for major departments.

EXHIBIT 1.6 Management levels in the organisational hierarchy

CEO

Corporate or Group Head

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Staff jobs

Source: Adapted from Bonoma, T. V. and Lawler, J. C. (Spring 1989). Chutes and Ladders: Growing the General Manager. Sloan Management Review, 27–37.

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project manager A manager responsible for a temporary work project that involves the participation of other people in the organisation. first-line manager A manager who is at the first or second management level and is directly responsible for the production of goods and services.

organisations improved efficiency by laying off middle managers and slashing middle management levels. Traditional pyramidal organisation charts were flattened to allow information to flow quickly from top to bottom and decisions to be made with greater speed. In addition, technology has taken over many tasks once performed by middle managers, such as monitoring performance and creating reports.29 EXHIBIT 1.6 illustrates the shrinking middle management. Yet even as middle management levels have been reduced, the middle manager’s job has taken on a new vitality. Research shows that middle managers play a crucial role in driving innovation and enabling organisations to respond to rapid shifts in the environment.30 As Ralph Stayer, CEO of Johnsonville Sausage, said, ‘Leaders can design wonderful strategies, but the success of the organisation resides in the execution of those strategies. The people in the middle are the ones who make it work.’31 A study by Nicholas Bloom and John Van Reenen seems to support Stayer’s observation. In an experiment with textile factories in India, improved middle management practices were introduced into 20 facilities, and the results were compared to factories that did not improve management procedures. After just four months of training in better management methods, the 20 factories cut defects by 50 per cent, boosted productivity and output, and improved profits by $200 000 per year.32 Middle managers’ status also has escalated because of the growing use of teams and projects. A project manager is responsible for a temporary work project that involves the participation of people from various functions and levels of the organisation, and perhaps from outside the company as well. Many of today’s middle managers work with a variety of projects and teams at the same time, some of which cross geographical and cultural boundaries as well as functional ones. First-line managers are directly responsible for the production of goods and services. They are the first or second level of management and have such titles as supervisor, line manager, section chief and office manager. They are responsible for teams and non-management employees. Their primary concern is the application of rules and procedures to achieve efficient production, provide technical assistance and motivate subordinates. The time horizon at this level is short, with the emphasis on accomplishing day-to-day goals. This type of managerial job might also involve motivating and guiding young, often inexperienced workers, providing assistance as needed and ensuring adherence to company policies.

H O R I Z O N TA L D I F F E R E N C E S functional manager A manager who is responsible for a department that performs a single functional task and has employees with similar training and skills.

general manager A manager who is responsible for several departments that perform different functions.

The other major difference in management jobs occurs horizontally across the organisation. Functional managers are responsible for departments that perform a single functional task and have employees with similar training and skills. Functional departments include advertising, sales, finance, human resources, manufacturing and accounting. Line managers are responsible for the manufacturing and marketing departments that make or sell the product or service. Staff managers are in charge of departments, such as finance and human resources, that support line departments. General managers are responsible for several departments that perform different functions. A general manager is responsible for a self-contained division, such as a David Jones or Myer department store or a Toyota assembly plant, and for all the functional departments within it. Project managers also have general management responsibility because they coordinate people across several departments to accomplish a specific project.

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R EMEMBE R THIS ◗◗ ◗◗

There are many types of managers, based on their purpose and location in an organisation.

◗◗

Middle managers work at the middle level of the organisation and are responsible for major divisions or departments.

◗◗

A project manager is a manager who is responsible for a temporary work project that involves people from various functions and levels of the organisation.

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Most new managers are first-line managers – managers who are at the first or second level of the hierarchy and are directly responsible for overseeing groups of production employees.

◗◗

A functional manager is responsible for a department that performs a single functional task, such as finance or marketing.

◗◗

General managers are responsible for several departments that perform different functions, such as the manager of a David Jones department store or a Toyota assembly plant.

A top manager is one who is at the apex of the organisational hierarchy and is responsible for the entire organisation.

1.7

WHAT IS IT LIKE TO BE A MANAGER?

Unless you have actually performed managerial work, it can be hard to understand exactly what managers do hour by hour, day by day. The manager’s job is so diverse that a number of studies have been undertaken in an attempt to describe exactly what happens. The question of what managers actually do to plan, organise, lead and control was first answered by Henry Mintzberg, who followed managers around and recorded all their activities.33 He developed a description of managerial work that included three general characteristics and 10 roles. Subsequent research supported his categorisation.34 More recently, research looked at what managers like to do. The research found that both male and female managers most enjoy activities such as leading others, networking and leading innovation. Activities managers enjoy least include controlling subordinates, handling paperwork and managing time pressures. Interestingly, managers in five different countries have shown substantial agreement among these preferences.35 Many new managers in particular find the intense time pressures of management, the load of administrative paperwork and the challenge of directing others to be quite stressful as they adjust to their new roles and responsibilities. Indeed, the initial leap into management can be one of the scariest moments in a person’s career.36

M A K I NG T H E L E A P: B E CO M I NG A N E W M A NAG E R Many people who are promoted into a manager position have little idea what the job actually entails and receive little training about how to handle their new role. It’s no wonder that, among managers, firstline supervisors tend to experience the most job burnout and attrition.37 Making the shift from individual contributor to manager is often tricky. Mark Zuckerberg, whose company, Facebook, went public a week before he turned 28, provides an example. In a sense, the public has been able to watch as Zuckerberg ‘grows up’ as a manager. He was a strong individual performer in creating the social media platform and forming the company, but he fumbled with day-to-day management, such as interactions with employees

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and communicating with people both inside and outside Facebook. Zuckerberg was smart enough to hire seasoned managers, including former Google executive Sheryl Sandberg, and cultivate advisers and mentors who have coached him in areas where he is weak. He also shadowed David Graham at the offices of the Post Company (publisher of The Washington Post) for four days to try to learn what it is like to manage a large organisation. Now that Facebook is a public company, Zuckerberg is being watched more closely than ever to see if he has what it takes to be a manager of a big public corporation.38 Harvard professor Linda Hill followed a group of 19 managers over the first year of their managerial careers and found that one key to success is to recognise that becoming a manager involves more than learning a new set of skills. She found that becoming a manager means a profound transformation in the way people think of themselves, called personal identity, which includes letting go of deeply held attitudes and habits and learning new ways of thinking.39 EXHIBIT 1.7 outlines the transformation from individual performer to manager. Recall our earlier discussion of the role of manager as the person who builds systems rather than doing specific tasks. The individual performer is a specialist and a ‘doer’. His or her mind is conditioned to think in terms of performing specific tasks and activities as expertly as possible. The manager, on the other hand, has to be a generalist and learn to coordinate a broad range of activities. Whereas the individual performer strongly identifies with his or her specific tasks, the manager has to identify with the broader organisation and industry. In addition, the individual performer gets things done mostly through their own efforts and develops the habit of relying on themselves rather than on others. The manager, though, gets things done through other people. Indeed, one of the most common mistakes that new managers make is wanting to do all the work themselves, rather than delegating to others and developing others’ abilities.40 Hill offers a reminder that, as a manager, you must ‘be an instrument to get things done in the organisation by working with and through others, rather than being the one doing the work’.41

EXHIBIT 1.7 Making the leap from individual performer to manager

From individual identity

Specialist; performs specific tasks

Gets things done through own efforts

An individual actor

Works relatively independently

To manager identity

Generalist; coordinates diverse tasks

Gets things done through others

A network builder

Works in highly interdependent manner

Source: Based on Exhibit 1.1, ‘Transformation of Identity’, in Linda A. Hill, Becoming a Manager: Mastery of a New Identity, 2nd edn (Boston, MA: Harvard Business School Press, 2003), p. 6.

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Another problem for many new managers is that they expect to have greater freedom to do what they think is best for the organisation. In reality, though, managers find themselves hemmed in by interdependencies. Being a successful manager means thinking in terms of building teams and networks, and becoming a motivator and organiser within a highly interdependent system of people and work. Although the distinctions may sound simple in the abstract, they are anything but in reality. In essence, becoming a manager means becoming a new person and viewing yourself in a completely new way. Many new managers have to make the transformation in a ‘trial by fire’, learning on the job as they go, but organisations are beginning to be more responsive to the need for new manager training. The cost to organisations of losing good employees who can’t make the transition is greater than the cost of providing training to help new managers cope, learn and grow. In addition, some organisations use great care in selecting people for managerial positions, including ensuring that each candidate understands what management involves.

R EMEMBE R THIS ◗◗ ◗◗

Being a manager is quite different to any other job role.

◗◗

Managers coordinate other people’s activities, which requires more skills than just being a highperformer.

◗◗

Many people who get promoted into managerial roles require training to become proficient, due to the transition from being a high-functioning team member to a team leader.

To be effective as a manager you must have the skills to plan and organise people, so that they will be motivated to work effectively.

1.8

MANAGERIAL ACTIVITIES

Most new managers are unprepared for the variety of activities that they must routinely perform. One of the most interesting findings about managerial activities is how busy managers are and how hectic the average workday can be.

A DV E N T U R E S I N M U LT I TA S K I NG Managerial activity is characterised by variety, fragmentation and brevity.42 The widespread and voluminous nature of a manager’s tasks leaves little time for quiet reflection. A recent study by a team from the London School of Economics and Harvard Business School found that the time CEOs spend working alone averages a mere six hours a week, and the rest of their time is spent in meetings, on the phone, travelling, and talking with others inside and outside the organisation.43 Managers shift gears quickly. In his study, Mintzberg found that the average time a top executive spends on any one activity is less than nine minutes, and another survey indicates that some first-line supervisors average one activity every 48 seconds.44 Significant crises are interspersed with trivial events in no predictable sequence. Every

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manager’s job is similar in its diversity and fragmentation to what Workforce Management described as a typical day in the life of human resources (HR) manager Kathy Davis:45

◗◗ 6.55 a.m. – Arrives at work early to begin investigating a complaint of sexual harassment at one of the factories, but as she’s walking to her office, she bumps into someone carrying a picket sign that reads ‘Unfair Hiring! Who Needs HR?’ Spends a few minutes talking with the young man, who is a temp who she had let go due to sloppy work.

◗◗ 7.10 a.m. – Finds the factory shift supervisor and a security staff member already waiting outside her door to discuss the sexual harassment complaint.

◗◗ 7.55 a.m. – Sue, a member of Kathy’s team who has just arrived and is unaware of the meeting, interrupts to let Kathy know there is someone picketing in the hallway outside her office and the CEO wants to know what’s going on.

◗◗ 8.00 a.m. – Alone at last, Kathy calls the CEO and explains the picketing situation, and then begins her morning routine. Checking her voicemail, she finds three messages that she must respond to immediately, and passes four others to members of her team. She begins checking her email but is interrupted again by Sue, who reminds her they have to review the recent HR audit so that the company can respond promptly and avoid penalties.

◗◗ 9.15 a.m. – As she is reviewing the audit, Kathy gets a call from manager Pete Channing, asking if she’s sent the offer letter to a prospective hire. ‘Don’t send it,’ Pete said, ‘I’ve changed my mind.’ Weeks of interviewing and background checks, and now Pete wants to start over!

◗◗ 11.20 a.m. – Kathy is getting to the end of her critical email list when she hears a commotion outside her door and finds Linda and Sue arguing. ‘This report IT did for us is full of errors,’ Linda says, ‘but Sue says we should let it go.’ Kathy agrees to take a look at the IT department’s report and discovers that there are only a few errors, but they have critical implications.

◗◗ 12.25 p.m. – As she’s nearing the end of the IT report, Kathy’s email pings an ‘urgent’ message from a supervisor informing her that one of his employees will be absent from work for a few weeks ‘while a harassment charge is worked out’. This is the first she’s heard about it, so she picks up the phone to call the supervisor.

◗◗ 1.20 p.m. – Time for lunch – finally. She grabs a sandwich at a local cafe and brings one back for the picketer, who thanks her and continues his march.

◗◗ 2.00 p.m. – Meets with CEO Henry Luker to review the audit and IT reports, discuss changes to the company’s superannuation plan and talk about ideas for reducing turnover.

◗◗ 3.00 p.m. – Rushes back to her office to grab her keys so that she can drive to a meeting with the manufacturing facilities manager, who has asked Kathy to ‘shadow’ him and share ideas about training and skills development.

◗◗ 3.15 p.m. – As she gets out of her car at the facility, Kathy runs into a man who had attended a supervision training course a few months earlier. He tells her that the class really helped him – there are fewer misunderstandings, and the staff seems to respect him more.

◗◗ 3.30 p.m. – Arrives right on time and spends the next couple of hours observing and asking questions, talking to employees to learn about the problems and obstacles they face.

◗◗ 5.40 p.m. – All is quiet back in the HR department, but there’s a message from Sue that Kathy has an appointment first thing tomorrow morning with two women who had gotten into a fight in the elevator. Sighing, Kathy returns to her investigation of the sexual harassment complaint that she had begun at 7.00 that morning.

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LIFE ON SPE ED DI AL The manager performs a great deal of work at an unrelenting pace.46 The managers observed by Mintzberg processed 36 pieces of written correspondence each day, attended eight meetings and took a tour through the building or factory. Most top executives routinely work at least 12 hours a day and spend 50 per cent or more of their time travelling. Calendars are often booked months in advance, but unexpected disturbances erupt every day.47 Mintzberg found that the majority of executives’ meetings and other contacts are ad hoc, and even scheduled meetings are typically surrounded by other events such as quick phone calls, scanning of email or spontaneous encounters. During time away from the office, executives catch up on work-related reading, paperwork, phone calls and email. Technology, such as email, text messaging, smartphones and tablets, only intensifies the pace leading to even further pressure on all managers to be able to be interrupted and instantly available, making it harder for them to find even small blocks of time to think and strategise. Management can be rewarding, but it can also be frustrating and stressful, as discussed in the Management in practice box below. As the job of a manager becomes increasingly tough, a certain degree of resilience is essential for success.

MANAGEMENT IN PRACTICE DO YOU REALLY WANT TO BE A MANAGER? Is management for you? Becoming a manager is considered by most people to be a positive, forward-looking career move and, indeed, life as a manager offers appealing aspects. However, it also holds many challenges, and not every person will be happy and fulfilled in a management position. Here are some of the issues potential managers should consider before deciding they want to pursue a management career.

✚✚ The increased workload. It isn’t unusual for managers to work 70–80 hours per week, and some work even longer hours. A manager’s job always starts before a shift and ends hours after the shift is over. When Ray Sarnacki was promoted to manager at an aerospace company, he found himself frustrated by the incessant travel, endless paperwork and crowded meeting schedule. He eventually left the job and found happiness in a position earning about one-fifth of his peak managerial salary.

✚✚ The challenge of supervising former peers. This issue can be one of the toughest for new managers. They frequently struggle to find the right approach, with some trying too hard to remain ‘one of the gang’, and others asserting their authority too harshly. In almost all cases, the transition from a peer-to-peer relationship to a manager-to-subordinate one is challenging and stressful.

✚✚ The headache of responsibility for other people. A lot of people get into management because they like the idea of having power, but the reality is that many managers feel overwhelmed by the responsibility of hiring, supervising and disciplining others. Laura Kelso, who today thrives on the fast pace and responsibility of being a manager, says that the first time she had to fire someone, she agonised for weeks over how to do it. New managers are often astonished at the amount of time it takes to handle employees’ problems. Kelly Cannell, who quit her job as a manager, puts it this way: ‘What’s the big deal [about managing people]? The big deal is that people are human … To be a good manager, you have to mentor them, listen to their problems, counsel them, and at the end of the day you still have your own work on your plate … Don’t take the responsibility lightly, because no matter what you think, managing people is not easy.’

✚✚ Being caught in the middle. Except for those in the top echelons, managers find themselves acting as a backstop, caught between upper management and the workforce. Even when middle managers disagree with the decisions of top managers, they are responsible for implementing them. For some people, the frustrations of management aren’t worth it. For others, management is a fulfilling and satisfying career

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choice and the emotional rewards can be great. One key to being happy as a manager may be carefully evaluating

whether you can answer yes to the question, ‘do I really want to be a manager?’

SOURCES: White, E. (21 November 2005). Learning to Be the Boss. The Wall Street Journal, B1; Sandberg, J. (27 July 2005). Down Over Moving Up: Some New Bosses Find They Hate Their Jobs. The Wall Street Journal, B1; Row, H. (February–March 1998). Is Management for Me? That Is the Question. Fast Company, 50–2; Schellhardt, T. D. (4 April 1997). Want to Be a Manager? Many People Say No, Calling Job Miserable. The Wall Street Journal, A1, A4; Murray, M. (25 July 2000). Managing your Career – the Midcareer Crisis: Am I in This Business to Become a Manager? The Wall Street Journal, B1.

W H E R E D O E S A M A NAG E R F I N D T H E T I M E ? With so many responsibilities and so many competing demands on their time, how do managers cope? The Wall Street Journal’s Lessons in Leadership video series asked CEOs of big companies how they managed their time, and found that many of them carve out time just to think about how to manage their time.48 Time is a manager’s most valuable resource, and one characteristic of successful managers is that they know how to use time effectively to accomplish the important things first and the less important things later.49 Time management refers to the use of techniques that enable you to get more done in less time and with better results, be more relaxed, and have more time to enjoy your work and your life. The Management in practice box below offers some tips for time management.

MANAGEMENT IN PRACTICE TIME MANAGEMENT TIPS FOR NEW MANAGERS One of the main challenges of life as a manager is the increased workload and the difficulty of finding the time to accomplish everything on one’s expanded list of duties and responsibilities. The following classic time management techniques can help you eliminate major time-wasters in your daily routines.

✚✚ Keep a to do list. If you don’t use any other system for keeping track of your responsibilities and commitments, at the very least you should maintain a to do list that identifies all the things you need to do during the day. Although the nature of management means that new responsibilities and shifting priorities occur frequently, it’s a fact that people accomplish more with a list than without one.

✚✚ Remember your ABCs. Using A, B and C to organise your activities is a highly effective system for prioritising tasks or activities on your to do list. ✚✚ A items are highly important and must be done, or you’ll face serious consequences.

✚✚ B items are a should do, but consequences will be minor if you don’t get them done. ✚✚ C’ items are things that would be nice to get done, but there are no consequences at all if you don’t accomplish them. ✚✚ D items are tasks that you can delegate to someone else.

✚✚ Do a daily review and look-ahead. Spend 10–15 minutes each evening reviewing the day and then thinking ahead to the next day. Reviewing what worked well and what didn’t will increase your awareness of your behaviour and reduce your bad habits the next day. Then, look ahead and plan what you want to accomplish the next day. Some experts propose that every minute spent in planning saves 10 minutes in execution.

✚✚ Do one thing at a time. Multitasking has become the motto of the early twenty-first century, but too much multitasking is a time waster. Research has shown that multitasking reduces rather than enhances productivity. The authors of one study suggest that an inability to focus on one thing at a time could reduce efficiency by 20 to 40 per cent. Even for those

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whose job requires numerous brief activities, the ability to concentrate fully on each one (sometimes called spotlighting)

saves time. Give each task your full attention, and you’ll get more done and get it done better, too.

SOURCES: Based on information in Pamela Dodd and Doug Sundheim, The 25 Best Time Management Tools & Techniques (Ann Arbor, MI: Peak Performance Press, Inc., 2005); Brian Tracy, Eat That Frog: 21 Great Ways to Stop Procrastinating and Get More Done in Less Time (San Francisco: Berrett-Koehler, 2002); Joshua S. Rubinstein, David E. Meyer and Jeffrey E. Evans. (August 2001). Executive Control of Cognitive Processes in Task Switching. Journal of Experimental Psychology: Human Perception and Performance, 27:4, 763–97; and Sue Shellenbarger. (27 February 2003). Multitasking Makes You Stupid: Studies Show Pitfalls of Doing Too Much at Once. The Wall Street Journal, D1.

M A NAG E R RO L E S Mintzberg’s observations and subsequent research indicate that diverse manager activities can be organised into 10 roles.50 A role is a set of expectations for a manager’s behaviour. EXHIBIT 1.8 describes activities associated with each of the roles. These roles are divided into three conceptual categories: informational

role A set of expectations for one’s behaviour.

EXHIBIT 1.8 Ten manager roles

Informational Monitor: Seek and receive information; scan web, periodicals, reports; maintain personal contacts Disseminator: Forward information to other organisation members; send memos and reports, make phone calls Spokesperson: Transmit information to outsiders through speeches, reports

Interpersonal Figurehead: Perform ceremonial and symbolic duties such as greeting visitors, signing legal documents Leader: Direct and motivate subordinates; train, counsel and communicate with subordinates Liaison: Maintain information links inside and outside the organisation; use email, phone, meetings

Decisional Entrepreneur: Initiate improvement projects; identify new ideas, delegate idea responsibility to others Disturbance Handler: Take corrective action during conflicts or crises; resolve disputes among subordinates Resource Allocator: Decide who gets resources; schedule, budget, set priorities Negotiator : Represent team or department’s interests; represent department during negotiation of budgets, union contracts, purchases

Sources: Adapted from Henry Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973), pp. 92–3; and Henry Mintzberg. (1971). Managerial Work: Analysis from Observation. Management Science, 18, B97–B110.

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(managing by information); interpersonal (managing through people); and decisional (managing through action). Each role represents activities that managers undertake to ultimately accomplish the functions of planning, organising, leading and controlling. Although it is necessary to separate the components of the manager’s job to understand the different roles and activities of a manager, it is important to remember that the real job of management isn’t practised as a set of independent parts; all the roles interact in the real world of management.

INFO RM ATIO NA L ROL E S Informational roles describe the activities used to maintain and develop an information network. General managers spend about 75 per cent of their time communicating with other people. The monitor role involves seeking current information from many sources. The manager acquires information from others and scans written materials to stay well informed. The disseminator and spokesperson roles are just the opposite; the manager transmits current information to others, both inside and outside the organisation, who can use it. Apple CEO Steve Jobs was a master of the spokesperson role when introducing new Apple products to the public, and employees and the media are watching to see if CEO Tim Cook can match his predecessor’s proficiency in this area. Cook has a distinctly different style from Jobs – less passionate and more controlled – but the comments about his first appearances as spokesperson for Apple have been generally positive.51 The pragmatic new CEO, who was hand-picked by Jobs, has encouraged greater collaboration and more team work within Apple and has increased the company’s charitable contributions. Yet he is known to be meticulous on details in meetings and can calmly terrify ill-prepared managers.52 By 2017, Apple has returned to its position as the world’s most highly valued company, respected for its product leadership, innovation and first class supply chain, under Mr Cook’s leadership. Indeed it has recently been revealed that Mr Cook was a key player in the earlier successes of Apple in the first place.53

TAKE A MOMENT Are you ready to step into a job as a new manager? Consider the hectic pace and varied activities managers perform. Are you prepared to make a personal transformation from individual performer to accomplishing work by engaging and coordinating other people? If you haven’t already completed the ‘Are you ready to be a manager?’ self-assessment at the beginning of this chapter, take it now to see whether your priorities align with the demands placed on a new manager’s job.

INT ERP ERSONA L RO LES Interpersonal roles pertain to relationships with others and are related to the human skills described earlier. The figurehead role involves handling ceremonial and symbolic activities for the department or organisation. The manager represents the organisation in his or her formal managerial capacity as the head of the unit. The presentation of employee awards by a branch manager for a bank is an example of the figurehead role. The leader role encompasses relationships with subordinates, including motivation, communication and influence. The liaison role pertains to the development of information sources both inside and outside the organisation. Consider the challenge of the leader and liaison roles for managers at National Foods Limited, Pakistan’s largest maker of spices and pickles. Managers in companies

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throughout Pakistan struggle with political instability, frequent power outages, government corruption and inefficiency, and increasing threats of terrorism, all of which makes the leader role even more challenging. ‘In the morning, I assess my workers’, says Sajjad Farooqi, a supervisor at National Foods. If Farooqi finds people who are too stressed out or haven’t slept the night before, he changes their shift or gives them easier work. Farooqi also pays a lot of attention to incentives because people are under so much pressure. As for the liaison role, managers have to develop information sources not only related to the business, but related to safety and security concerns.54

DECISIONA L RO LES Decisional roles pertain to those events about which the manager must make a choice and take action. These roles often require conceptual as well as human skills. The entrepreneur role involves the initiation of change. Managers are constantly thinking about the future and how to get there.55 The disturbance handler role involves resolving conflicts among subordinates or between the manager’s department and other departments. The resource allocator role pertains to decisions about how to assign people, time, equipment, money and other resources to attain desired outcomes. The manager must decide which projects receive budget allocations, which of several customer complaints receive priority, and even how to spend his or her own time. The founders and co-CEOs of Research in Motion (RIM), Mike Lazaridis and Jim Balsillie, producers of BlackBerry, were not very effective in fulfilling their decisional roles in the several years before the two resigned under pressure from angry shareholders and frustrated board members in early 2012. Rather than pushing for innovative new products and change at RIM, they kept pouring more resources into the BlackBerry, even as the iPhone and Android models devastated that product’s market share.56 The relative emphasis that a manager puts on these 10 roles depends on a number of factors, such as the manager’s position in the hierarchy, his or her natural skills and abilities, the type of organisation or the departmental goals to be achieved. EXHIBIT 1.9 illustrates the varying importance of the leader and liaison roles as reported in a survey of top-, middle- and lower-level managers. Note that the importance of the leader role typically declines, while the importance of the liaison role increases, as a manager moves up the organisational hierarchy. Other factors, such as changing environmental conditions, also may determine which roles are more important for a manager at any given time. Robert Dudley, who took over as CEO of troubled oil giant BP after Tony Hayward was forced out due to mishandling the Deepwater Horizon crisis, has found informational roles and decisional roles at the top of his list as he has personally worked to repair relationships with American government officials, work better with local communities, restore the company’s reputation, and take steps to prevent such a disastrous event from happening again.57 Managers must stay alert to needs both within and outside the organisation to determine which roles are most critical at various times. A top manager may regularly put more emphasis on the roles of spokesperson, figurehead and negotiator, but the emergence of new competitors may require more attention to the monitor role, or a severe decline in employee morale and direction may mean that the CEO has to put more emphasis on the leader role. A marketing manager may focus on interpersonal roles because of the importance of personal contacts in the marketing process, whereas a financial manager may be more likely to emphasise decisional roles such as resource allocator and negotiator. Despite these differences, all managers carry out informational, interpersonal and decisional roles to meet the needs of the organisation.

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EXHIBIT 1.9 Hierarchical levels and importance of leader and liaison roles

High

Med

Importance

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Leader role Liaison role

Low

Supervisory managers

Middle managers

Top managers

Source: Based on information from A. I. Kraut, P. R. Pedigo, D. D. McKenna and M. D. Dunnette. (1989). The Role of the Manager: What’s Really Important in Different Management Jobs. Academy of Management Executive, 3, 286–93.

R EMEMBE R THIS ◗◗

Becoming a new manager requires a shift in thinking from being an individual performer to playing an interdependent role of coordinating and developing others.

◗◗

Because of the interdependent nature of management, new managers often have less freedom and control than they expect to have.

◗◗ ◗◗

The job of a manager is highly diverse and fast-paced, so managers need good time management skills. Managers at every level perform 10 roles, which are grouped into informational roles, interpersonal roles and decisional roles.

MANAGING IN SMALL BUSINESSES AND NOT-FOR-PROFIT ORGANISATIONS

1.9

Small businesses are growing in importance. Hundreds of small businesses open every month, but the environment for small business today is highly complicated. One interesting finding is that managers in small businesses tend to emphasise roles differently from those of managers in large corporations. Managers in small companies often see their most important role as that of spokesperson because they must promote the small, growing company to the outside world. The entrepreneur role is also critical in small businesses because managers have to be innovative and help their organisations develop new ideas to remain competitive. At LivingSocial, for example, retiring founder and CEO Tim O’Shaughnessy dedicated a lot of his time to promoting the rapidly growing daily-deal site and talking

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with department heads about potential new products and services.58 Small business managers tend to rate lower on the leader role and on information-processing roles, compared with their counterparts in large corporations. Not-for-profit organisations also represent a major application of management talent.59 Organisations such as the Salvation Army, Nature Conservancy, Girl Guides, the Big Issue and sporting clubs all require excellent management. The functions of planning, organising, leading and controlling apply to not-for-profit organisations just as they do to business organisations, and managers in not-for-profit organisations use similar skills and perform similar activities. The primary difference is that managers in businesses direct their activities towards earning money for the company, whereas managers in not-for-profit organisations direct their efforts towards generating some kind of social impact. The characteristics and needs of not-for-profit organisations created by this distinction present unique challenges for managers.60 Financial resources for not-for-profit organisations typically come from government appropriations, grants and donations rather than from the sale of products or services to customers. In businesses, managers focus on improving the organisation’s products and services to increase sales revenues. In not-for-profit organisations, however, services are often provided to non-paying clients, and a major problem for many organisations is securing a steady stream of funds to continue operating. Not-for-profit managers, committed to serving clients with limited resources, must focus on keeping organisational costs as low as possible.61 Donors generally want their money to go directly to helping clients rather than for overhead costs. If not-for-profit managers can’t demonstrate a highly efficient use of resources, they might have a hard time securing additional donations or government appropriations. In addition, because not-for-profit organisations do not have a conventional profit-based bottom line, managers often struggle with the question of what constitutes results and effectiveness. It is easy to measure dollars and cents, but the metrics of success in not-for-profit organisations are much more ambiguous. Managers have to measure intangibles such as ‘make a positive difference in the lives of the disenfranchised’ or ‘increase appreciation for the arts’. This intangible nature also makes it more difficult to gauge the performance of employees and managers. An added complication is that managers often depend on volunteers and donors who cannot be supervised and controlled in the same way that a business manager deals with employees. Many people who move from the corporate world to a not-for-profit organisation are surprised to find that the work hours are often longer and the stress greater than in their previous management jobs.62 The roles defined by Mintzberg also apply to not-for-profit managers, but these may differ somewhat. We might expect managers in not-for-profit organisations to place more emphasis on the roles of spokesperson (to ‘sell’ the organisation to donors and the public), leader (to build a mission-driven community of employees and volunteers) and resource allocator (to distribute government resources or grant funds that are often assigned top-down). Managers in all organisations – large corporations, small businesses and not-for-profit organisations – carefully integrate and adjust the management functions and roles to meet challenges within their own circumstances and keep their organisations healthy.

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R EMEMBE R THIS ◗◗

Good management is just as important for small businesses and not-for-profit organisations as it is for large corporations.

◗◗

Managers in small businesses often see their most important roles as being a spokesperson for the business and acting as an entrepreneur.

◗◗

Managers in not-for-profit organisations direct their efforts towards generating some kind of social impact rather than towards making money for the organisation.

◗◗

Not-for-profit organisations don’t have a conventional bottom line, so managers often struggle with what constitutes effectiveness.

STATE-OF-THE-ART MANAGEMENT COMPETENCIES 1.10

In recent years, rapid environmental shifts have caused a fundamental transformation in what is required of effective managers. Technological advances and the rise of virtual work, global market forces, and shifting employee and customer expectations have led to a decline in organisational hierarchies and more empowered workers, which calls for a new approach to management that may be quite different from managing in the past.63 EXHIBIT 1.10 shows the shift from the traditional management approach to the new management competencies that are effective in today’s environment. Instead of being a controller, today’s effective manager is an enabler who helps people do and be their best. Managers help people get what they need, remove obstacles, provide learning opportunities and offer feedback, coaching and career guidance.

EXHIBIT 1.10 Stateof-the-art management competencies for today’s world

From Traditional Approach

To New Competencies

Management Principle Overseeing Work

From Controller

To Enabler

Accomplishing Tasks

From supervising individuals

To leading teams

Managing Relationships

From conflict and competition

To conversation and collaboration

Leading

From autocratic

To dispersed and empowering

Designing

From maintaining stability

To mobilising for change

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Instead of managing by controlling, today’s managers must display an empowering leadership style. Much work is done in teams rather than by individuals, so team-leadership skills are crucial. People in many organisations work at scattered locations, so managers can’t monitor behaviour continually. In addition, managers sometimes are coordinating the work of people who aren’t under their direct control, such as those in partner organisations, sometimes even working with competitors. Managing relationships based on authentic conversation and collaboration is essential for successful outcomes. In addition, today’s best managers are ‘future-facing’. That is, they design the organisation and culture for creativity, adaptation and innovation rather than maintaining the status quo. Today’s world is constantly changing, and success depends on innovation and continuous improvement. The shift to a new way of managing isn’t easy for traditional managers who are accustomed to making all the decisions, and knowing where their subordinates are and what they’re doing at every moment. Even more changes and challenges are on the horizon for organisations and managers. This is an exciting and challenging time to be entering the field of management. Throughout this book, you will learn much more about the new workplace, about the new and dynamic roles managers are playing in the twenty-first century, and about how you can be an effective manager in a complex, ever-changing world.

INNOVATIVE WAY In 2006, Australian Comfort merged with Clickcorp Pty Ltd enabling both companies to modernise and expand the production facilities and establish Chic Empire brand. This joint venture resulted in the exponential growth and popularity of Chic Empire ugg boots and accessories, exposing the brand to the global markets. Clickcorp, founded by entrepreneurs Igor Fenster and Alexander Tsintsiper in 2006, continues to maintain a strong commitment to manufacturing in Australia and employ Australians to produce an iconic Australian product. Today Clickcorp employs over 40 Australians and operates a manufacturing facility in Melbourne with Chic Empire sheep skin boots and products being exported to 27 countries worldwide. This includes human resources, financial controls and other elements of what growing companies require. This company has achieved an amazing statistic for an Australian-based manufacturing company – when it was a purely online retailer, 95 per cent of its sales were exported. To boost domestic sales, retail outlets, in addition to their flagship store in Melbourne’s CBD and

Source: Newspix/Aaron Francis

CLICKCORP: TAKING UGG TO THE WORLD

their factory outlet store in Clayton, Victora, are likely to be a major part of its future growth strategy. This company has shown that while it is not easily possible to be cost competitive from Australia in the world that comprises many low cost countries and companies, there are many profitable niches to be filled by high energy entrepreneurs. These business builders have started other niche online stores, brands and products.

Sources: Chic Empire (2016). Ugg boots made in Australia. http://www.chicempire.com.au/ (accessed 21 October 2016); L. D’Angelo Fisher. (4–10 November 2010). If the Ugg Fits. BRW, 15; Clickcorp website, http://www.clickcorp.com.au (accessed 20 March 2014).

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R EMEMBE R THIS ◗◗

Turbulent forces acting on the organisation from its external environment have caused a significant shift in the competencies required for effective managers.

◗◗

Traditional management competencies could include a command-and-control leadership style, a focus on individual tasks and standardising procedures to maintain stability.

◗◗

New management competencies include the ability to be an enabler rather than a controller, using an empowering leadership style, encouraging collaboration, leading teams and mobilising for change and innovation.

TURBULENT TIMES: MANAGING CRISES AND UNEXPECTED EVENTS 1.11

Many managers may dream of working in an organisation and a world in which life is relatively calm, orderly and predictable, but their reality is one of increasing turbulence and disorder. Today’s managers and organisations face various levels of crisis every day – everything from an organisation’s intranet or Internet servers unexpectedly going offline to claims of harassment or discrimination, to a factory fire or workplace accidents. However, these organisational crises have been compounded by crises on a more global level. These and other events have brought uncertainty and turbulence clearly to the forefront of everyone’s mind, and crisis management has become a critical skill for every manager. Dealing with the unexpected has always been part of the manager’s job, but our world has become so fast, interconnected and complex that unexpected events happen more frequently and often with greater and more painful consequences. All of the new management skills and competencies we have discussed are important to managers in such an environment. In addition, crisis management places further demands on today’s managers. Some of the tried and true thinking on crisis management suggests the importance of five leadership skills.64

1 2 3 4 5

Stay calm. Be visible. Put people before business. Tell the truth. Know when to get back to business.

STAY C A L M A leader’s emotions are contagious, so leaders have to stay calm, focused and optimistic about the future. Perhaps the most important part of a manager’s job in a crisis situation is to absorb people’s fears and uncertainties. Leaders have to suppress their own fears, doubts and pain to encourage others. Although they acknowledge the difficulties, they remain rock-steady and hopeful, which gives comfort, inspiration and hope to others.

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BE VISIBLE When people’s worlds have become ambiguous and uncertain, they need to feel that someone is in control.

PUT PEOPLE BE FORE BUSI NE SS The companies that weather a crisis best, whether the crisis is large or small, are those in which managers make people and human feelings their top priority.

TELL THE TRUTH Managers should get as much information from as many diverse sources as they can, do their best to determine the facts, and then be open and straightforward about what’s going on.

K NOW W H E N T O G E T B A C K T O B U S I N E S S Although managers should first deal with the physical and emotional needs of people, they also need to get back to business as soon as possible. The company has to keep going, and there’s a natural human tendency to want to rebuild and move forward. The rejuvenation of the business is a sign of hope and an inspiration to employees. Moments of crisis also present excellent opportunities for looking forward and using the emotional energy that has emerged to build a better company.

R EMEMBE R THIS ◗◗ ◗◗

Modern managers are enablers of others’ actions and capabilities as much as they are controllers. When major uncertainty occurs in an organisation, a structured approach can be brought to bear to deal with it, until normality is resumed.

AUSTRALIA’S MANAGERS: IMPROVING FROM A LOW BASE

1.12

Each year, the World Economic Forum and the Institute for Management Development in Europe rank countries in terms of their competitiveness. On the ‘management’ criterion, defined by the World Economic Forum as ‘the extent to which enterprises are managed in an innovative, profitable and responsible manner’, Australia ranked 18th out of 41 countries in 1994. This was behind such nations as Japan, Hong Kong, New Zealand, Malaysia, Chile, Norway, the United Kingdom, Germany, the Netherlands and the United States of America. By 2016, Australia’s position had hardly changed, at 21st, behind the top 10 global competitiveness leaders of Switzerland, Singapore, Finland, Sweden, Netherlands, Germany, the United States of America, United Kingdom, Hong Kong and Japan.65

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R EMEMBE R THIS

SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT – A CORE ISSUE FOR MANAGERS sustainable development Involves making balanced and equitable decisions so that financial, environmental and social outcomes are achieved in both the short and longer terms.

◗◗ ◗◗

Today’s managers and organisations face various levels of crisis every day.

◗◗

The five leadership skills required for crisis management are stay calm, be visible, put people before business, tell the truth and know when to get back to business.

◗◗

Australian managers are ranked 21st out of 41 countries by the World Economic Forum in an assessment of management competency.

◗◗

Australian manager strengths include their openness and honesty and their egalitarian, hard-working attitudes.

◗◗

Australian manager weaknesses include their lack of long-term vision and strategic perspective, as well as their poor ability to manage teams and empower others.

◗◗ ◗◗

Australian managers tend to be poorly qualified in comparison to managers from other major nations.

◗◗

Leading organisations in all industries have advanced their financial outcomes through incorporating sustainable development principles and practices.

◗◗

The ‘triple bottom line’ required an organisation to balance their financial, environmental and social obligations.

Daily uncertainty and turbulence has meant that crisis management has become a critical skill for every manager.

Advanced and progressive managers are balancing the short-term need to be profitable with longterm opportunities that drive efficiency, stakeholder relationships and marketplace advantages.

For managers today, the world in which they manage is becoming more complex. This will certainly hold true in the future. Although this complexity brings new challenges it also brings new opportunities. It used to be that an acceptable and standard approach to running a business was to simply maximise profitability while not breaking the law, and behaving acceptably in terms of community expectations. There is indeed nothing wrong with this approach; but having said that, it is also true that advanced and progressive managers are doing even more than that. They are balancing the short-term need to be profitable, with the long-term opportunities to invest in initiatives that drive efficiency, stakeholder relationships and marketplace advantages. These sustainable development practices can lead to improvements of all kinds, often expressed in terms of the triple bottom line of organisations, that being the financial bottom line that is traditional for all organisations, plus the environmental bottom line (meaning reducing the impact of the organisation’s activities on the environment) and the social/community bottom line (meaning the contribution and outcomes that the organisation creates in the communities and societies within which it operates). Companies that are progressive in this regard have implemented numerous initiatives aimed at achieving win-win outcomes on these bottom lines. Examples are: 1. using materials that can be effectively recycled, thus saving on the creation of new materials and hence saving resources 2. conducting energy and water audits, then reducing energy use, saving both money and the creation of unnecessary greenhouse gases 3. providing employees with flexible working conditions and health checks, gyms, etc., making their lives better and enhancing motivation and workplace productivity

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4. working proactively with suppliers and customers on issues such as reducing the amount of packaging used on products to save costs and improve environmental outcomes 5. providing information about nutrition and food content in the food production industries, so that consumers can make healthier choices 6. working closely with regional small businesses to develop local economies and quality of life factors, for example, in the case of resource companies where their mines and oil wells are close to residents. There is no limit to the opportunities for organisations to work closely and to engage and empower their stakeholders to find win-win outcomes on the triple bottom line. While many of these approaches and examples are not new, it is true that many organisations have not done much about them in the past, having been overly focused on short-term financial outcomes. Leading organisations in all industries, without exception, have seized the opportunities to advance their financial outcomes through incorporating these sustainable development principles and practices in their strategies, operations, measures, reward systems and ultimately into their culture and value systems. This is not a short-term trend that will be gone in just a few years – it is an opportunity that leading companies will use to their advantage, and those that ignore it or lag behind will suffer. Furthermore, working on advancing an organisation’s sustainable development outcomes will drive innovation. In this book we will connect the various traditional themes of management covered in each chapter to the emerging themes of sustainable development. In Chapter 4, which focuses on business ethics and corporate social responsibility, we give a more detailed account of the core elements of this important aspect and how managers will increasingly need to manage sustainably in the future.

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STUDY TOOLS

ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months access to the resources and study tools for this chapter.

Express COU RS EMATE EXPR E S S FO R MA NAGEMENT

S E A R C H M E ! M A NAG E M E N T

The CourseMate Express website contains:

Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Mangement is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words:

• revision quizzes • video cases • self-assessments • audio summaries • and more.

• Planning • Leading • Organising • Controlling Search tip: Search me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’

RESPONSE TO THE MANAGEMENT CHALLENGE

PETRONAS PETRONAS executives have a lot of pressure on them to deliver continually improved results, as the whole country of Malaysia is dependent on government’s revenue from this company to fund national development. Clearly there are some important things that managers in PETRONAS, and indeed every company, cannot exercise control over, such as natural disasters, political instability in foreign countries and, for PETRONAS, the global price of oil. However, these things can be taken into account as risk factors in planning business investments and operations. Further, the company can diversify its operations so that no single crisis, such as the continuing

problems in Sudan, will have too big an impact on it. Other effective elements of executive strategies in PETRONAS include:

◗◗ investments in new technologies, aimed at keeping this company up with the leaders in its industry, such as new technologies for deep-sea exploration

◗◗ driving the culture of the company so that staff at all levels will find PETRONAS an interesting, rewarding and motivating place to work

◗◗ leadership development, which it does well, to create longterm capability for new staff to develop to their fullest ability

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◗◗ large efforts in managing and controlling quality of processes and products, to drive high service levels and competitiveness in marketplaces

◗◗ planning long-term development strategies for the company, in terms of products, countries of operation and technologies, such as in renewable energy sources

◗◗ being a leader in its industry in Safety, Health and Environment (referred to in PETRONAS by the acronym SHE), in which staff and community wellbeing is seen as paramount in importance

◗◗ sustainable development and corporate responsibility to society, in which PETRONAS has always been a leader,

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engaging in what Malaysians refer to as nation-building activities. Through a combination of strategies in these areas above, PETRONAS continues to ‘earn its way’ in its local country, and in over 35 other countries where it has oil- and gas-related businesses. This company has taken a very enlightened approach to its relationships in overseas markets, which is often referred to as ‘energy received–energy returned’, referring to the partnership-like approach that leads it to mutual success with its international collaborators. Yet the challenges of a low oil price and the need to eventually diversify out of fossil fuels continues to be a big issue for this organisation and its leaders.

DISCUSSION QUESTIONS 1 How do you feel about having a manager’s responsibility in today’s world, which is characterised by uncertainty, ambiguity and sudden changes or threats from the environment? Describe some skills and qualities that are important to managers under these conditions. 2 Assume you are a project manager at a biotechnology company, working with managers from research, production and marketing on a major product modification. You notice that every email you receive from the marketing manager has been copied to senior management. At every company function, she spends time talking to the big shots. You are also aware that sometimes when you and the other project members are slaving away over the project, she is playing golf with senior managers. What is your evaluation of her behaviour? As project manager, what do you do? 3 Jeff Immelt of GE has said that the most valuable thing he learned in business school was that ‘there are 24 hours in a day, and you can use all of them’. Do you agree or disagree? What are some of the advantages to this approach to being a manager? What are some of the drawbacks? 4 Why do some organisations seem to have a new CEO every year or two, whereas others have top leaders who stay with the company for many years (for example, Jack Welch’s 20 years

as CEO at GE)? What factors about the manager or about the company might account for this difference? 5 Is efficiency or effectiveness more important to organisational performance? Can managers improve both simultaneously? 6 Suppose you are a bright, hard-working entry-level manager who fully intends to rise through the ranks. Your performance evaluation gives you high marks for your technical skills but low marks when it comes to people skills. Do you think people skills can be learned, or do you need to rethink your career path? If people skills can be learned, how would you go about it? 7 If managerial work is characterised by variety, fragmentation and brevity, how do managers perform basic management functions such as planning, which would seem to require reflection and analysis? 8 A university professor once told her students, ‘We can teach you the concepts of management, but you will only know if you are a good manager once you have tried it for a good few years’. Discuss this statement. 9 Discuss some of the ways organisations and jobs have changed over the past 10 years. What changes do you anticipate over the next 10 years? How might these changes affect the manager’s job and

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the skills a manager needs to be successful? Do you think managers should spend more time and effort controlling or enabling?

term? What is the fit between the concepts of sustainable development and innovation?

10 How might the teaching of a management course be designed to help people make the transition from individual performer to manager and to prepare them for the challenges they will face? Explain.

12 Which sector and organisation type will you most be suited to work in, and why? Would it be a start up, or a well established organisation, or a not-for-profit? Do you have a preferred industry and functional area or department, and what drives those preferences?

11 How does sustainable development as a concept guide managers to do more than just maximise financial outcomes in the short

13 Do you want to become a manager, or do you prefer to be an individual contributor to your employer? Why?

ETHICAL CHALLENGE

CAN MANAGEMENT AFFORD TO LOOK THE OTHER WAY?

John Graham had been with Shellington Pharmaceuticals for 18 years. After a tour of duty in the various plants, and seven years overseas, John was back at headquarters, looking forward to his new role as director of Asia–Pacific marketing. Two weeks into his new job, John received some unsettling news about one of the managers under his supervision. Over a casual lunch conversation, the director of human resources (HR), Rose Anastasiou, mentioned that John should expect a phone call about Roger Jacobs, manager of new product development. Jacobs had a history of being ‘pretty horrible’ to his employees, she said, and one disgruntled employee had asked to speak to someone in senior management. After lunch, John did some follow-up work. Jacobs’ performance reviews had been stellar, but his personnel file also contained a large number of notes documenting charges of Jacobs’ mistreatment of employees. The complaints ranged from ‘inappropriate and derogatory remarks’ to subsequently dropped charges of sexual harassment. What was more disturbing was that the number as well as the severity of complaints had increased with each of Jacobs’ 10 years with Shellington. When John questioned the company CEO about the issue, he was told: ‘Yeah, he’s had some problems, but you just can’t replace someone like him with such a great eye for new products. You’re a

bottom-line man; you understand why we let these things slide.’ Not sure how to handle the situation, John met briefly with Jacobs and reminded him to ‘keep the team’s morale up’. Just after the meeting, Rose called to let John know the problem she’d mentioned over lunch had been sorted out. However, she warned that another employee had now come forward demanding that her complaints be addressed by senior management. W H AT D O YO U D O ? 1 Ignore the problem. Jacobs’ contributions to new product development are too valuable to risk losing him, and the problems over the past 10 years have always worked themselves out anyway. There’s no sense starting something that could make you look bad. 2 Launch a full-scale investigation of employee complaints about Jacobs, and make Jacobs aware that the documented history over the past 10 years has put him in a precarious position. 3 Meet with Jacobs and the employee to try to resolve the current issue, then start working with Rose Anastasiou from HR and other senior managers to develop stronger policies regarding sexual harassment and treatment of employees, including clear-cut procedures for handling complaints.

SOURCE: Based on Wallace, D. (November–December 1992). A Talent for Mismanagement: What Would You Do? Business Ethics, 2, 3–4.

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GROUP CHALLENGE

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YOUR BEST AND WORST MANAGERS

Step 1. On your own, think of two managers that you have had – the best and the worst. The managers could be anyone who served as an authority figure over you, including an instructor, a boss at work, a manager of a student organisation, a leader of a student group, a coach, a volunteer in a not-for-profit organisation, and so on. Think carefully about the specific behaviours that made each manager the best or the worst and write down what that manager did. The best manager I ever had did the following: _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ The worst manager I ever had did the following: _____________________________________________________________

CASE FOR CRITICAL ANALYSIS

_____________________________________________________________ _____________________________________________________________ Step 2. Divide into groups of four to six members. Each person should share his or her experiences, one at a time. Write on a sheet or a whiteboard separate lists of best-manager and worst-manager behaviours. Step 3. Analyse the two lists. What themes or patterns characterise ‘best’ and ‘worst’ manager behaviours? What are the key differences between the two sets of behaviours? Step 4. What lessons does your group learn from its analysis? What advice would you give to managers to help them be more effective?

SHARPSTYLE SALONS

Jamie Westbrook takes pride in her position as salon manager for SharpStyle Salon, one of a chain of hairdressing salons under the Gold Group umbrella. She oversees a staff of 15 including hairdressers, a nail technician, receptionists and hairdressing apprentices. Jamie enjoys a reputation as a manager who works very hard and takes care of her people. Hairdressers want to work for her. Following the salon’s new-hire policy, Jamie began as a hairdressing apprentice and quickly became a top hairdresser in the company through a combination of skill, a large and loyal client base and long hours at work. In 2016, retiring manager Carla Weems hand-picked Jamie as her successor, and the board quickly approved. Initially, the salon, located in a suburban shopping centre, managed a strong, steady increase, holding its position as one of the company’s top performers. But an economic crisis hit the area hard, with increases in unemployment and mortgage woes among current and potential customers. As families sought ways to save, the luxury of regular visits to the hair salon was among the first logical budget cuts. The past year has reflected this economic reality, and Jamie’s salon saw a sharp decrease in profits. Jamie’s stomach is in knots as she arrives at the salon on Monday. Scheduled to fly interstate the next morning for a meeting at head office, she fears potential staffing cuts, but more important, she fears the loss of opportunity to secure her dream job, replacing the retiring

manager at Riverwood Shopping Centre, the top-performing salon located in an upscale area of the city. Distracted, Jamie walks past the receptionist, Marianne, who is busily answering the phones. Hanging up the phone, Marianne tells Jamie that Holly and Carol Jean, two popular hairdressers, called in sick, and Jamie now has to reschedule their clients. Jamie had denied their earlier request to travel out of town to attend a concert, and her irritation is obvious. She orders Marianne to call both women and instruct them that, when they return to work, they are each to bring a medical certificate. ‘They had better be sick!’ Jamie shouts as she enters her office, slamming the door more forcefully than she intended. Startled employees and early-morning customers heard the outburst, and, after a momentary pause, they resumed their activities and quiet conversation, surprised by the show of managerial anger. Jamie knows she has let Holly and Carol Jean get away with unwarranted absences before and worries that she will do it again. She needs every head of hair they can style to help the salon’s profit. Jamie takes a deep breath and sits at her desk, turning on the computer and checking emails, including one from the group manager reminding her to send the salon’s status report in advance of tomorrow’s meeting. She asks Marianne to have final figures for the report on her desk by 1.00 p.m.

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Picking up the phone, she calls Sharon, a manager at another SharpStyle salon. ‘I really lost my cool in front of everyone, but I’m not apologising,’ Jamie admits, adding that she wished she had the guts to fire both stylists. ‘But this is not the day for that drama. I’ve got that report hanging over my head. I have no idea how to make things look better than they are, but I have to come up with something. Things look pretty dismal.’ Sharon assures her that she did the best she could dealing with two ‘irresponsible’ employees. ‘What will you do if they show up tomorrow with no medical certificates?’ ‘I don’t know. I hope I scared them enough so that they’ll come in with something.’ ‘I know you’re worried about the report and the effect it might have on the Riverwood job,’ Sharon says. ‘But everyone knows you can’t control the economy and its effect on the business. Just focus on the positive. You’ll be fine.’ At 10.30 a.m., as Jamie struggles to put the best possible spin on the report, she is called to the receptionist desk to speak to an angry customer. ‘Another interruption,’ Jamie fumes to herself. Just then, the door opens and top stylist/assistant manager Victoria Boone sticks her head into the office. ‘I know you’re busy with the report. I’ll handle this,’ she says enthusiastically. ‘Thanks,’ Jamie replies. No sooner had she handed off the irate client to Victoria than she second-guessed the decision. In addition to her talents as a hairdresser,

ON THE JOB VIDEO CASE

Victoria had experience as the manager of a successful salon in another city before moving to the area. Recognising her organisational and people skills, Jamie promoted Victoria to assistant manager soon after her arrival. Now each ‘I’ll handle this’ remark by Victoria convinces Jamie that her assistant manager is positioning herself as a potential rival for the Riverwood job. Jamie appreciates her enthusiastic attitude, but she’s also trying to limit her opportunities to lead or appear too competent before staff, customers and company officials. Jamie finds herself wanting to hide Victoria’s competence, and she has condescendingly reminded management that Victoria is a ‘great help to me’. Now, thinking of Victoria’s cheerful ‘I’ll handle this,’ Jamie rises from her desk and marches to the door. ‘No,’ Jamie thinks, ‘I’ll take care of this personally’. QU E S T I O N S 1 What positive and negative managerial characteristics does Jamie possess? 2 How do these traits help or hinder her potential to get the top position at the Riverwood Shopping Centre salon? 3 How do you think Jamie should have handled each of the incidents with Marianne? Holly and Carol Jean? Victoria? 4 Is this an organisation that you would like to be a manager within? Why or why not?

CAMP BOW WOW: INNOVATIVE MANAGEMENT FOR A CHANGING WORLD

For a real-world application of the management theories described in this chapter, log on to CourseMate Express to watch the On the Job video and answer the following questions. QU E S T IO NS 1 List the three broad management skill categories and explain which skills are needed most for each of the Camp Bow Wow leaders highlighted in the video.

2 Which activities at Camp Bow Wow require high efficiency? 3 Which activities require high effectiveness? 4 List two activities that leaders at Camp Bow Wow perform daily, and identify which of the 10 managerial roles discussed in the chapter figure prominently for each.

1: THE CHANGING WORLD OF MANAGEMENT

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ENDNOTES 1 Macqueen, R. (2001). One Step Ahead On the field and in the boardroom, Random House: Sydney. 2 Hyden, S. Grantland (21 January 2013). The Winners’ History of Rock and Roll, Part 3: Bon Jovi. http://www.grantland.com/story/_/id/8860424 /the-winners-history-rock-rollpart-3-bon-jovi (accessed 15 August 2013); O’Malley Greenburg, Z. (15 June 2011). The World’s Highest-Paid Musicians 2011. Forbes, http://www.forbes.com/sites/zackomalley greenburg/2011/06/15/the-worlds-highest-paid-musicians/ (accessed 14 August 2013). 3 JBJ Soul Foundation (2016). ‘Our Mission.’ Available: http://www.jonbonjovisoulfoundation. org/our-mission/ (accessed 21 October 2016). 4 Quoted in Zach O’Malley Greenburg, Jon Bon Jovi: Still Rockin, and Making a Killing. 5 This example is based on John Jurgensen, ‘A Rocker Tunes Up,’ Wall Street Journal Online (7 February 2013), http://online.wsj.com/article/SB1000142412788732395190457828821383 4313862.html (accessed 14 August 2013); Greenburg, ‘Jon Bon Jovi: Still Rockin,and Making a Killing’ and Hyden, ‘The Winners’ History of Rock and Roll, Part 3: Bon Jovi.’ (The quote from Bon Jovi is from the Greenburg article.) 6 Rigby, D. and Bilodeau, B. (2005). The Bain 2005 Management Tool Survey. Strategy & Leadership, 33:4, 4–12; D. Rigby and B. Bilodeau. Management Tools and Trends 2011. Bain and Company, Inc., http://www.bain.com/publications/articles/Managementtoolstrends-2011.aspx (accessed 22 June 2012). 7 See Joshua Cooper Ramo. (2009). The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us and What We Can Do About It (New York: Little Brown); and Richard Florida. (2010). The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity (New York: Harper Collins). 8 Finer, J. (25 October 2001). To Cleanse a Poisoned Land. Far Eastern Economic Review, 42. 9 Wu, Tommy (2016, May). ‘Finance in Australia,’ IBISWorld Industry Report K6200. Available: http:/www.ibisworld.com.au/industry/default.asp?indid=1740 (accessed: 21 October 2016) 10 Kraar, L. (7 October 1991). Iron Butterflies. Fortune, 143–54. 11 What Do Managers Do? The Wall Street Journal Online, http://guides.wsj.com/management/ developing-a-leadership-style/what-do-managers-do/ (accessed 11 August 2010); article adapted from Alan Murray. (2010). The Wall Street Journal Essential Guide to Management (New York: Harper Business). 12 Linebaugh, K. (7 March 2012). The New GE Way: Go Deep, Not Wide. The Wall Street Journal, B1. 13 Semler, R. (1993). Maverick: The Success Story Behind the World’s Most Unusual Workplace (New York: Warner Books). 14 Stewart, C. S. (7 May 2012). Oprah Struggles to Build Her Network. The Wall Street Journal, A1. 15 Rose, L. (3 March 2015) Oprah Winfrey on Closing Harpo Studios, OWN Expansion, Broadway Plans, The Hollywood Reporter, http:/www.hollywoodreporter.com/news/oprahwinfrey-closing-harpo-studios-778784 (accessed 21 February 2017). 16 Bartlett, C. A. and Ghoshal, S. (January–February 1995). Changing the Role of Top Management: Beyond Structure to Processes. Harvard Business Review, 86–96. 17 Newton, A. and Castledine, G. (22 January 1999). Personal communication with executives Alan Newton and Geoff Castledine of Mars Corporation. 18 Howie, R. and Moore, J. (12 April 1995). Personal communication with Orica executives Ross Howie and Jess Moore. 19 Katz, R. L. (September–October 1974). Skills of an Effective Administrator. Harvard Business Review 52, 90–102. 20 Bryant, A. (13 March 2011). The Quest to Build a Better Boss. The New York Times, BU1. 21 Gentry, W. A., Harris, L. S., Baker, B. A. and Leslie, J. B. (2008). Managerial Skills: What Has Changed Since the Late 1980s? Leadership and Organization Development Journal, 29:2, 167–81. 22 Sacks, D. (November 2011). The Way I Work: Yammer. Inc.,122–4. 23 Longenecker, C. O., Neubert, M. J. and Fink, L. S. (2007). Causes and Consequences of Managerial Failure in Rapidly Changing Organizations. Business Horizons, 50, 145–55. 24 Sonne, P. (26 July 2010). The Gulf Oil Spill: Hayward Fell Short of Modern CEO Demands. The Wall Street Journal. 25 Christian, K. (7 March 2012). Woolworths is Trialling a Joint Venture to Open McCafe Outlets in Its New Masters Hardware Stores. www.news.com.au, http://www.news. com.au/business/breaking-news/woolworths-trials-mccafe-at-masters-stores/storye6frfkur-1226292493785; Speedy, B. (20 July 2013). Analysts Hammer Woolies’ Hardware Joint Venture. The Australian, http://www.theaustralian.com.au/business/companies/ analysts-hammer-woolies-hardware-joint-venture/story-fn91v9q3-1226682228553;

Speedy, B. (24 May 2013). Dulux Strips Masters of paints Due to its Cosy Link With Wattyl. The Australian, http://www.theaustralian.com.au/business/companies/dulux-stripsmasters-of-paints-due-to-its-cosy-link-with-wattyl/story-fn91v9q3-1226649522808 (accessed 22 July 2013). 26 Adapted from Longenecker, Neubert and Fink. Causes and Consequences of Managerial Failure in Rapidly Changing Organizations, Table 1, with permission from Elsevier. 27 A. I. Kraut, Pedigo, P. R., McKenna D. D. and Dunnette, M. D. (2005). The Role of the Manager: What’s Really Important in Different Management Jobs. Academy of Management Executive, 19:4, 122–9. 28 Bartlett, C. A. and Ghoshal, S. (May–June 1995). Changing the Role of Top Management: Beyond Systems to People. Harvard Business Review, 132–42; and S. Ghoshal and C. A. Bartlett. (January–February 1995). Changing the Role of Top Management: Beyond Structure to Processes. Harvard Business Review, 86–96. 29 Gratton, L. (January–February 2011). The End of the Middle Manager. Harvard Business Review, 36. 30 Osterman, P. (November–December 2009). Recognizing the Value of Middle Management. Ivey Business Journal, http://www.iveybusinessjournal.com/article.asp?intArticle_id=866; Quy Nguyen Huy. (September 2003). In Praise of Middle Managers. Harvard Business Review, 72–9; R. M. Kanter. (2003). On the Frontiers of Management (Boston: Harvard Business School Press). 31 Quoted in L. Haneberg. (Fall 2005). Reinventing Middle Management. Leader to Leader, 13–18. 32 Reported in R. Fisman. (16 October 2010). In Defence of Middle Management. The Washington Post, http://www.washingtonpost.com/wp-dyn/content/article/2010/10/16/ AR2010101604266_pf.html (accessed 13 June 2012). 33 Mintzberg, H. (1994). Rounding out the Manager’s Job. Sloan Management Review, 11–26; Mintzberg, H. (1973). The Nature of Managerial Work (New York: Harper & Row). 34 Kaplan, R. E. (Spring 1984). Trade Routes: The Manager’s Network of Relationships. Organizational Dynamics, 37–52; Stewart, R. (1984). The Nature of Management: A Problem for Management Education. Journal of Management Studies, 21, 323–30; Kotter, J. P. (November– December 1982). What Effective General Managers Really Do. Harvard Business Review, 156– 67; McCall, M. W. Jr, Morrison, A. M. and Hannan, R. L. (1978). Studies of Managerial Work: Results and Methods. Technical Report No. 9, Centre for Creative Leadership, Greensboro. 35 Konrad, A. M., Kashlak, R.,Yoshioka, I., Waryszak, R. and Toren, N. (December 2001). What Do Managers Like to Do? A Five-Country Study. Group and Organizational Management, 26:4, 401–33. 36 Slayter, M. E. (17 August 2005). New Managers Should Go Slow. The Ottawa Citizen, F2.40 37 For a review of the problems faced by first-time managers, see Linda A. Hill. (January 2007). Becoming the Boss. Harvard Business Review, 49–56; Loren B. Belker and Gary S. Topchik. (2005). The First-Time Manager: A Practical Guide to the Management of People, 5th ed. (New York: AMACOM); J. W. Lorsch and P. F. Mathias. (July–August 1987). When Professionals Have to Manage. Harvard Business Review, 78–83; R. A. Webber. (1991). Becoming a Courageous Manager: Overcoming Career Problems of New Managers (Englewood Cliffs, NJ: Prentice Hall); D. E. Dougherty. (1984). From Technical Professional to Corporate Manager: A Guide to Career Transition (New York: Wiley); J. Falvey. (March 1989). The Making of a Manager. Sales and Marketing Management, 42–83; M. K. Badawy. (1982). Developing Managerial Skills in Engineers and Scientists: Succeeding as a Technical Manager (New York: Van Nostrand Reinhold); and M. London. (1985). Developing Managers: A Guide to Motivating and Preparing People for Successful Managerial Careers (San Francisco, CA: Jossey-Bass). 38 Based on E. Rusli, N. Perlroth and N. Bilton. (14 May 2012). The Hoodie amid the Pinstripes: As Facebook IPO Nears, Is Its Chief up to Running a Public Company? International Herald Tribune, 17. 39 This discussion is based on Linda A. Hill. (2003). Becoming a Manager: How New Managers Master the Challenges of Leadership, 2nd ed. (Boston, MA: Harvard Business School Press), pp. 6–8; and Hill. Becoming the Boss. 40 See also the ‘Boss’s First Steps’ sidebar in White. Learning to Be the Boss; and Belker and Topchik. The First-Time Manager. 41 Quoted in E. Zimmerman. (15 January 2011). Are You Cut Out for Management? (Career Couch column), The New York Times, http://www.nytimes.com/2011/01/16/jobs/16career. html (accessed 14 June 2012). 42 Mintzberg, H. (2009). Managing (San Francisco: Berrett-Kohler Publishers), 17–41.

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43 Study reported in R. E. Silverman. (14 February 2012). Where’s The Boss? Trapped in a Meeting. The Wall Street Journal, http://online.wsj.com/article/SB10001424052970204642604 577215013504567548.html (accessed 14 June 2012). 44 Ibid. 45 Based on A. Halcrow. (June 1998). A Day in the Life of Kathy Davis: Just Another Day in HR. Workforce Management, 77:6, 56–62. 46 Mintzberg, H. (1973). The Nature of Managerial Work (New York: Harper & Row). 47 Hymowitz, C. (16 June 2009). Packed Calendars Rule. The Asian Wall Street Journal; and (March–April 2008). The 18-Hour Day. The Conference Board Review, 20. 48 (14 February 2012). Four CEOs’Tips on Managing Your Time. The Wall Street Journal, http:// online.wsj.com/ article/SB10001424052970204883304577221551714492724.html (accessed 14 June 2012). 49 A. Garrett. (July 2000). Buying Time to Do the Things That Really Matter. Management Today, 75; and R. S. Kaplan. (January 2007). What to Ask the Person in the Mirror. Harvard Business Review, 86–95. 50 Mintzberg, Managing; L. B. Kurke and H. E. Aldrich. (1983). Mintzberg Was Right! A Replication and Extension of The Nature of Managerial Work. Management Science, 29: 975–984; C. M. Pavett and A. W. Lau. (1983). Managerial Work: The Influence of Hierarchical Level and Functional Specialty. Academy of Management Journal, 26, 170–7; and C. P. Hales. (1986). What Do Managers Do? A Critical Review of the Evidence. Journal of Management Studies 23, 88–115. 51 Vascellaro, J. E. (29 May 2012). Apple Chief Executive Cook to Climb on a New Stage. The Wall Street Journal, B2; W. Mossberg and K. Swisher. (4 June 2012). All Things Digital (A Special Report) – Apple After Jobs. The Wall Street Journal, R3; and T. Wolverton. (29 May 2012). Apple CEO Tim Cook Isn’t Trying to Be the Next Steve Jobs. Oakland Tribune. 52 Yukari Iwantani Kane. (3 March 2014). The Job After Steve Jobs: Tim Cook and Apple. The Wall Street Journal, http://www.theaustralian.com.au/business/wall-street-journal/ the-job-after-steve-jobs-tim-cook-and-apple/story-fnay3ubk-1226843287325# (accessed 6 March 2014). 53 Weinberrger, M. (25 August 2016) The rise of Apple CEO Tim Cook, the most powerful business leader in the world. Business Insider Australia, http://www.businessinsider.com. au/the-rise-of-apple-ceo-tim-cook-2016-8#/#timothy-donald-cook-was-born-in-mobilealabama-on-november-1-1960-he-grew-up-in-nearby-robertsdale-where-he-went-to-highschool-1 (accessed 20 February 2017). 54 Mangi, N. (25 July–31 July 2011). Convoys and Patdowns: A Day at the Office in Pakistan. Bloomberg Businessweek, 11–13.

55 Jonas, H. S. III, Fry, R. E. and Srivastava, S. (August 1990). The Office of the CEO: Understanding the Executive Experience. Academy of Management Executive, 4, 36–48. 56 Connors, W. and Cummins, C. (23 January 2012). RIM CEOs Give up Top Posts in Shuffle. The Wall Street Journal Online, http://online.wsj.com/article/SB1000142405297020462420457 7177184275959856.html (accessed 9 July 2012); and S. Finkelstein. (27 December 2011). The Worst C.E.O.s of 2011. The New York Times. 57 Chazan, G. and Langley, M. (27 July 2010). Dudley Faces Daunting To-Do List. The Wall Street Journal Europe. 58 O’Shaughnessy, T. (March 2012). The Way I Work: LivingSocial. Inc., 104–8; Thomas Heath and Mohana Ravindranath. LivingSocial CEO Tim O’Shaughnessy Stepping Down. http:// www.washingtonpost.com/business/capitalbusiness/livingsocial-ceo-tim-oshaughnessystepping-down/2014/01/10/9f593fb0-7a12-11e3-b1c5-739e63e9c9a7_story.html. 59 Crawford, J. (May–June 2010). Profiling the Non-Profit Leader of Tomorrow. Ivey Business Journal, http://www.iveybusinessjournal.com/topics/leadership/profiling-the-non-profitleader-of-tomorrow (accessed 14 June 2012). 60 The following discussion is based on P. F. Drucker. (1992). Managing the Non-Profit Organization: Principles and Practices (New York: Harper Business); and Thomas Wolf. (1990). Managing a Nonprofit Organization (New York: Fireside/Simon & Schuster). 61 Letts, C. W., Ryan, W. P. and Grossman, A. (1999). High Performance Nonprofit Organizations (New York: Wiley & Sons), pp. 30–5. 62 Zimmerman, E. (6 April 2008). Your True Calling Could Suit a Nonprofit (interview, Career Couch column), The New York Times. 63 This discussion is based on ideas in S. Denning. (2011). Masterclass: The Reinvention of Management. Strategy & Leadership, 39:2, 9–17; J. Birkinshaw and J. Goddard. (Winter 2009). What Is Your Management Model? MIT Sloan Management Review, 81–90; P. McDonald. (October 2011). It’s Time for Management Version 2.0: Six Forces Redefining the Future of Modern Management. Futures, 797ff; J. C. Meister and K. Willyerrd. (July 2010). Leadership 2020: Start Preparing People Now. Leadership Excellence, 5. 64 Bartlett, C. A. and Ghoshal, S. (Fall 1997). The Myth of the Generic Manager: New Personal Competencies for New Management Roles. California Management Review, 40:1, 92–116. 65 World Economic Forum. (2012). The Global Competitiveness Report 2012–2013: Full Data Edition, http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf (accessed 20 February 2012).

APPENDIX TO CHAPTER 1 T HE E VOL U T ION O F M A N AGE M E N T T HIN K ING

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 understand how historical forces influence the practice of management

2 identify and explain major developments in the history of management thought

3 describe the major components of the classical and humanistic management perspectives

4 discuss the management science approach and its current use in organisations

5 explain the major concepts of systems thinking, the contingency view and total quality management

6 name contemporary management tools and some reasons that management trends change over time

7 describe the management changes brought about by the technologydriven workplace, including the role of social media programs and customer relationship management (CRM).

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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Cemex is faced with a situation similar to many companies. The methods and patterns that kept the organisation successful in the past no longer seem enough to keep it thriving in today’s turbulent environment. Unexpected market forces or other changes in the environment can devastate a company. Australian companies such as Aurora Energy, United Energy, Energex and Origin Energy face a crisis because of increasing deregulation and the growth of small, independent power producers. These include renewable energy suppliers such as Pacific Hydro, which uses wind and hydro-power sources.1 The airline industry is another sector that has had to cope with a lot of change. Consider the changes that have occurred in the business environment surrounding Qantas over the past two decades, which have caused its executives and board of directors to make some big changes in the company’s strategy and operations. First, after around 90 years of essentially stable and profitable growth, its long-time competitor, Ansett, went bankrupt in 2001. Up until this time, Ansett and Qantas had enjoyed a cosy, two-airline duopoly, dominating Australian skies. The demise of Ansett, followed by the growth of lowcost carriers such as Virgin Airlines, discussed below, led to a substantial drop in the price of airfares. In addition, around this time, worldwide crises in the travel industry were caused by a rise in terrorist acts and, in around 2003, the outbreak of severe acute respiratory syndrome (SARS). As a result, many of the world’s longstanding airlines went bankrupt. In 2000, Richard Branson made a serious and well-funded entry into the domestic Australian market with Virgin Airlines, causing Qantas to lower its prices dramatically. Deeply discounted domestic airfares were previously unheard of on such a sustained basis, as Virgin Airlines fought to consolidate its market share. On top of this, the world’s oil prices skyrocketed to over US$80 per barrel in 2010, driving up Qantas’ fuel costs. Airlines such as Singapore Airlines and Tiger are increasingly pressuring the local companies in local markets. Even Qantas’ reputation for safety was challenged in 2010 after a number of mechanical problems led to emergency landings and very worried passengers, followed by talk of whether it had cut its maintenance standards. A 2010 explosion in an engine of a brand new A380 Qantas plane received worldwide negative publicity. Further constraining Qantas’ capacity to change and respond to crises, from a management perspective, Qantas staff have always been highly unionised, and cooperation between management and unions has not always been as smooth as shareholders would like. When everything changes suddenly, managers face a seemingly impossible situation and may have to create a new kind of company, which can operate in the new environment – possibly one with which they have little experience or skill. Qantas had to substantially cut its costs, and create a new set of business units, such as Jetstar, to match the low-cost position of Virgin Australia. Qantas CEO, Alan Joyce, had to make many public statements to reduce customers’ fears related to its ‘close calls’ in 2010. In October 2011, Qantas had so much industrial turmoil that the CEO grounded the whole airline, and gave all Qantas stakeholders, including its many thousands of inconvenienced and sometimes outraged passengers, a sense of how much change was needed in the organisation. In 2014, unions, politicians, and the media all called for Joyce to step down when the airline posted a AU$2.8 billion loss. The company sacked 5000 employees, and its share price plummeted below $1. However, in 2016, Joyce emerged more hero than villain, with Qantas becoming one of the most profitable airlines in the world. Qantas’ share price topped more than AU$4 and in 2016 it posted a record profit of AU$1.53 billion. Qantas has faced more crises and changed more in its last 10 years than in its first 70 years of existence combined!2 Other airlines have faced similar threats to Qantas. Malaysian Airlines, for example, faces huge challenges as it tries to cope with the tragedies of losing two planes, passengers and crew in recent years.

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Among many challenges, this airline has to manage public perception of its safety, which is an important factor in how consumers choose an airline. Sometimes an entire industry can face a crisis. In 1984, the Australian government, through Industry Minister John Button, implemented a restructuring plan for the automotive industry. Its aim was to make the industry more efficient. The industry had been declining in relative competitiveness, while being highly protected by substantial import tariffs. The industry was also facing significant reductions in tariffs, from a high of more than 50 per cent in the mid 1980s. At the time, Australian cars were clearly inferior to both Japanese and European imports, and Australian factories had much lower productivity than the large-scale operations in the northern hemisphere. This was a significant challenge for the managers of the Australian Ford, Holden, Mitsubishi, Nissan and Toyota businesses. Nissan and then Mitsubishi closed their Australian assembly plants. Ford did so in 2016, and Toyota and General Motors Holden in late 2017. (See the Continuing case at the end of each Part for details on Toyota’s challenges in Australia.) The competitiveness of Australian-based component suppliers was also an issue. The survival and prosperity of those businesses were severely threatened when the government announced that tariffs would be reduced to approximately 15 per cent. The Australian automotive industry has been threatened by quality vehicles and low costs from other countries. The number of cars assembled in Australia was cut in half. Imports slowly but surely took over much of the market. Initial studies of Japanese car manufacturers showed that their focus on meeting customer needs, achieving quality and waste-free operations, and just-in-time manufacturing was leading them to continually improve the competitiveness of their offerings, which were already superior to Australian-built products. It was apparent that the Australian industry’s focus – creating a car industry to provide local strategic independence as well as job creation – came with a big price tag. Australian cars were low in quality, among the most expensive in the world, and the industry was generally in poor shape. The Australian companies’ first move was to study the way the Japanese companies had achieved so much progress while their own businesses fell behind. The same approach was taken in the Australian steel, paper, machinery, film and plastics industries, and many others. In the automotive industry, Australian companies improved their competitiveness substantially, but competitiveness is a relative thing and despite the local improvements the Australian car assembly industry has now ceased to exist. Through massive modernisation programs, adoption of management procedures known as ‘lean manufacturing’ and with investments in new technology, the component producers are now more competitive. Why should history matter to corporate managers in the Australian car industry? Some economic analysts were issuing warnings as early as the 1950s about the rapid rate at which the industry was declining in relative terms. Perhaps they could not have predicted all the things that were reshaping the world’s industry, such as the energy crisis, but studying historical trends could have helped Ford and Holden see the need to begin developing fuel-efficient, quality models and adopt new manufacturing methods much earlier. Although Australia’s domestic car market passed the one million car level for the first time in 2007 and reached and remained over 1.1 million units sold in 2012–14, domestic producers of cars and components are under ever-increasing pressure from global competitors who offer lower-cost products. Cars from India’s and China’s awakening automotive industries are arriving in Australia.

A1: THE EVOLUTION OF MANAGEMENT THINKING

What do managers at India’s Tata Group, US-based General Electric (GE) and Africa’s M-Pesa mobile money transfer service have in common? The authors of a recent book on innovation say they have all applied a concept called jugaad (pronounced joo-gaardh). Jugaad is a Hindi word that refers to creating something of benefit from limited resources. Benjamin Franklin, the authors say, is a great historical example because he faced scarcity firsthand, but improvised to create inventions that were for the benefit of the masses.3 Management – like most disciplines – loves buzzwords, and jugaad is one of the most recent to appear on the radar. Jugaad basically refers to an innovation mindset, used widely by Indian companies, that strives to meet customers’ immediate needs quickly and inexpensively. With research and development budgets strained in today’s economy, Western managers have quickly picked up on the approach, sometimes calling it frugal engineering.4 Will this be a buzzword that quickly fades from managers’ vocabularies, or will it become as ubiquitous in management circles as terms such as total quality or kaizen? Managers are always on the lookout for fresh ideas, innovative management approaches, and new tools and techniques. Management philosophies and organisational forms change over time to meet new needs. The Self-assessment at the beginning of this chapter describes two differing philosophies about how people should be managed, and you will learn more about these ideas in this chapter. If management is always changing, why does history matter to managers? The workplace of today is different from 50 years ago – indeed, from even 10 years ago – yet historical concepts form the backbone of management education.5 One reason is that a historical perspective provides managers with a broader way of thinking, a way of searching for patterns and determining whether they recur across time periods. It is a way of learning from others’ mistakes so as not to repeat them; learning from others’ successes so as to repeat them in the appropriate situation; and most of all, learning to understand why things happen to improve organisations in the future. Certain management practices that seem modern, such as open-book management or employee stock ownership, have actually been around for a long time. These techniques have repeatedly gained and lost popularity since the early twentieth century because of shifting historical forces.6 This chapter provides a historical overview of the ideas, theories and management philosophies that have contributed to making the workplace what it is today. The final section of the chapter looks at some recent trends and current approaches that build on this foundation of management understanding. This foundation illustrates that the value of studying management lies not in learning current facts and research, but in developing a perspective that will facilitate the broad, long-term view needed for management success.

R EMEMBE R THIS ◗◗

Management is a dynamic field, always changing in some ways, yet there are some concepts and techniques that have stood the test of time.

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There is a lot that can be learned from what has and has not worked in managing organisations in the past, to inform managerial strategies going forward.

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A1.1

social forces The aspects of a culture that guide and influence relationships among people – their values, needs and standards of behaviour.

political forces The influence of political and legal institutions on people and organisations.

economic forces Forces that affect the availability, production and distribution of a society’s resources among competing users.

MANAGEMENT AND ORGANISATION

A historical perspective does not mean merely arranging events in chronological order; it means developing an understanding of the impact of societal forces on organisations. Studying history is a way to achieve strategic thinking, see the big picture and improve conceptual skills. We will start by examining the way social, political and economic forces have influenced organisations and the practice of management.7 Social forces refer to those aspects of a culture that guide and influence relationships among people. What do people value? What do people need? What are the standards of behaviour among people? These forces shape what is known as the social contract, which refers to the unwritten, common rules and perceptions about relationships among people, and between employees and management. Expressions such as ‘a man is as good as his word’ and ‘a day’s work for a day’s pay’ convey such perceptions. An example of a social force is the changing attitudes, ideas and values of Generation Y employees (sometimes called Millennials).8 Political forces refer to the influence of political and legal institutions on people and organisations. One significant political force is the increased role of government in business after the collapse of companies in the financial services sector and major problems in the auto industry. Some managers expect increasing government regulation in the coming years.9 Political forces also include basic assumptions underlying the political system, such as the desirability of self-government, property rights, contract rights, the definition of justice, and the determination of innocence or guilt of a crime. Economic forces pertain to the availability, production and distribution of resources in a society. Governments, military agencies, churches, schools and business organisations in every society need resources to achieve their goals, and economic forces influence the allocation of scarce resources. The progress of globalisation, and major changes in European economic forces, brought on by large numbers of arriving refugees and Britain choosing to leave the European governing organisation, are examples of major structural changes that bring social and economic consequences. Both ‘Brexit’ and the 2017 presidency of Donald Trump in the United States are being interpreted by many observers as a turning point in the development of an increasingly borderless world of commerce, with expectations of a different balance between the move to open trade and that of national interests developing in the future. Management practices and perspectives vary in response to these social, political and economic forces in society. EXHIBIT A1.1 illustrates the evolution of significant management perspectives over time. The timeline reflects the dominant time period for each approach, but elements of each are still used in today’s organisations.10

T H E T H I NG S O F P ROD U CT I O N V E R S U S T H E H U M A N I T Y O F P ROD U CT I O N One observation from looking at the timeline in EXHIBIT A1.1 is that there has long been a struggle within management to balance ‘the things of production’ and ‘the humanity of production’.11 When forces either outside or within the organisation suggest a need for change to improve efficiency or effectiveness, managers have often responded with a technology or numbers-oriented solution that would make people little more than a cog in a big machine. For instance, as the United States shifted from a world of small towns and small businesses to an industrialised network of cities and factories in the late nineteenth century, people began looking at management as a set of scientific practices that could be measured, studied and improved with machine-like precision (the classical perspective).

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EXHIBIT A1.1 Management perspectives over time

Open (collaborative) Innovation The technology - driven workplace Total quality management Contingency view Systems thinking Management science perspective Humanistic perspective Classical perspective 1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

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2010

2020

Frederick Taylor wrote that ‘the best management is a true science, resting upon clearly defined laws, rules, and principles.’ By the 1920s, there was a minor rebellion against this emphasis on the quantifiable, with a call for more attention to human and social needs (the humanistic perspective). In the first issue of the Harvard Business Review (1922), Dean Wallace B. Donham wrote that the ‘development, strengthening, and multiplication of socially-minded business men is the central problem of business.’12 This dilemma – the scientific numbers-driven push for greater productivity and profitability, and the call for more humanistic, people-oriented management – has continued to the present day.

I S S O C I A L B U S I N E S S T H E A N S W E R? Social business, which refers to using social media technologies for interacting with and facilitating communication and collaboration among employees, customers, and other stakeholders, is one current answer to the historical struggle. Social media programs include company online community pages, wikis for virtual collaboration, social media websites such as Facebook or LinkedIn, video channels such as YouTube, microblogging platforms such as Twitter, and company online forums. For the first time, a new technology (thing of production) adds directly to the humanity of production. Social media technology can improve efficiency, increase productivity, and facilitate faster and smoother operations by improving communication and collaboration within and across organisations.13 Social media can also improve the human aspect of organisations by facilitating communication, collaboration, and knowledge-sharing to tap into employee capabilities and create a competitive advantage. In addition, social media technology is being used by companies to build trusting relationships with customers.14 An early leader in this realm was Morgan Stanley Wealth Management. As director of digital strategy, Lauren Boyman worked closely with the company’s sales manager and investment advisers to use Twitter and other social media for communicating with clients.15 Dell launched a social media command room to monitor what is being said about the company on social media platforms.16 Managers in other companies set up alerts on Google or Bing that let them know when something has been said on social

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media about them, their company, their products, and so forth.17 Just as important, social media can build stronger, more authentic relationships between managers and employees. Mark Reuss left General Motors (GM) in Australia to run GM’s operations in North America just after the company filed for bankruptcy in 2009 and was implementing plans to eliminate more than 2000 dealerships in the United States. Reuss chose to communicate with the dealer network through a ‘get to know you’ messaging part of Facebook rather than through emails or other corporate communications. The strategy helped build trust and credibility because Reuss made himself accessible and was willing to engage others authentically. ‘No matter what happened,’ Reuss said, ‘they knew that I was listening and that they had ... someone to talk to in the company and they could do it instantly. And if you look at how we got through that period and the dealers that we have and the trust that I have built ... it’s because of that conversation on Facebook.’18

R EMEMBE R THIS ◗◗

Managers are always on the lookout for new techniques and approaches to meet shifting organisational needs.

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Looking at history gives managers a broader perspective for interpreting and responding to current opportunities and problems.

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Management and organisations are shaped by forces in the larger society.

◗◗ ◗◗ ◗◗

Political forces relate to the influence of political and legal institutions on people and organisations.

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Social business, which refers to using social media technologies for interacting with and facilitating communication and collaboration among employees, customers,and other stakeholders, is one current answer to the historical struggle.

◗◗

Social media programs include company online community pages, wikis for virtual collaboration, social media websites such as Facebook or LinkedIn, video channels such as YouTube, microblogging platforms such as Twitter, and company online forums.

Social forces are aspects of a society that guide and influence relationships among people, such as their values, needs and standards of behaviour.

Economic forces affect the availability, production and distribution of a society’s resources. The struggle to balance the things of production with the humanity of production has continued from the nineteenth century to today.

A1.2 classical perspective A management perspective that emerged during the nineteenth and early twentieth centuries, which emphasised a rational, scientific approach to the study of management and sought to make organisations efficient operating machines.

CLASSICAL PERSPECTIVE

The practice of management can be traced to 3000 BCE, to the first government organisations developed by the Sumerians and Egyptians, but the formal study of management is relatively recent.19 The early study of management as we know it today began with what is now called the classical perspective, which emerged during the nineteenth and early twentieth centuries. The factory system that began to appear in the 1800s posed challenges that earlier organisations had not encountered. Problems arose in tooling the plants, organising managerial structure, training employees (many of them non-Englishspeaking immigrants), scheduling complex manufacturing operations, and dealing with increased labour dissatisfaction and resulting strikes. These myriad new problems and the development of large, complex

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organisations demanded a new approach to coordination and control, and a ‘new sub-species of economic man – the salaried manager’20 – was born. Between 1880 and 1920, the number of professional managers in the United States grew from 161 000 to more than 1 million, and similar growth occurred in other Western nations, such as Australia, the United Kingdom and New Zealand.21 These professional managers began developing and testing solutions to the mounting challenges of organising, coordinating and controlling large numbers of people and increasing worker productivity. Thus began the evolution of modern management with the classical perspective. This perspective contains three subfields, each with a slightly different emphasis: scientific management, bureaucratic organisations and administrative principles.22

S C I E N T I F I C M A NAG E M E N T Scientific management emphasises scientifically determined jobs and management practices as the way to improve efficiency and labour productivity. In the late 1800s, a young engineer, Frederick Winslow Taylor (1856–1915), proposed that workers ‘could be retooled like machines, their physical and mental gears recalibrated for better productivity’.23 Taylor insisted that improving productivity meant that management itself would have to change and, further, that the manner of change could be determined only by scientific study; hence, the label scientific management emerged. Taylor suggested that decisions based on rules of thumb and tradition be replaced with precise procedures developed after careful study of individual situations.24 Taylor’s approach is illustrated by the unloading of iron from rail cars and reloading finished steel for the Bethlehem Steel plant in 1898. Taylor calculated that, with correct movements, tools and sequencing, each man was capable of loading 47.5 tonnes per day instead of the typical 12.5 tonnes. He also worked out an incentive system that paid each man US$1.85 a day for meeting the new standard – an increase from the previous rate of US$1.15. Productivity at Bethlehem Steel shot up overnight. Although known as the ‘father of scientific management’, Taylor was not alone in this area. Henry Gantt, an associate of Taylor’s, developed the Gantt Chart – a bar graph that measures planned and completed work along each stage of production by time elapsed. Two other important pioneers in this area were the husband-and-wife team of Frank B. and Lillian M. Gilbreth. Frank B. Gilbreth (1868–1924) pioneered the time and motion study and arrived at many of his management techniques independently of Taylor. He stressed efficiency and was known for his quest for the ‘one best way’ to do work. Although Gilbreth is known for his early work with bricklayers, his work had a great impact on medical surgery by drastically reducing the time patients spent on the operating table. Surgeons were able to save countless lives through the application of time and motion studies. Lillian M. Gilbreth (1878–1972) was more interested in the human aspect of work. When her husband died at the age of 56, she had 12 children, aged between two and 19. The undaunted ‘first lady of management’ went right on with her work. She presented a paper in place of her late husband, continued their seminars and consulting, lectured, and eventually became a professor at Purdue University.25 She pioneered in the field of industrial psychology and made substantial contributions to human resource management.

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scientific management A subfield of the classical management perspective that emphasised scientifically determined changes in management practices as the solution to improving labour productivity.

Frederick Winslow Taylor (1856–1915): Taylor’s theory that labour productivity could be improved by scientifically determined management practices earned him the status of ‘father of scientific management’.

Lillian M. Gilbreth (1878−1972) and Frank B. Gilbreth (1868−1924), shown here using a ‘motion study’ device. The Gilbreths contributed to the principles of scientific management. His development of time and motion studies, and her work in industrial psychology, pioneered many of today’s management and human resources techniques.

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The basic ideas of scientific management are shown in

To use this approach, managers should develop standard methods for doing each job, select workers with the appropriate abilities, train workers in the standard methods, support workers and eliminate interruptions, and provide wage incentives.

EXHIBIT A1.2 Characteristics of scientific management

EXHIBIT A1.2.

GENERAL APPROACH

CONTRIBUTIONS

CRITICISMS

Developed standard method for performing each job.

Demonstrated the importance of compensation for performance.

Selected workers with appropriate abilities for each job.

Initiated the careful study of tasks and jobs.

Did not appreciate the social context of work and higher needs of workers.

Trained workers in standard methods.

Demonstrated the importance of personnel selection and training.

Supported workers by planning their work and eliminating interruptions.

Did not acknowledge variance among individuals. Tended to regard workers as uninformed and ignored their ideas and suggestions.

Provided wage incentives to workers for increased output.

The ideas of scientific management that began with Taylor dramatically increased productivity across all industries, and they are still important today. Indeed, the idea of engineering work for greater productivity has enjoyed a renaissance in the retail industry. Supermarket chains use computerised labour waste elimination systems based on scientific management principles. The system breaks down tasks such as greeting a customer, working the cash register, scanning items and so forth into quantifiable units, and devises standard times to complete each task. Executives say the computerised system has allowed them to staff stores more efficiently because people are routinely monitored by computer and are expected to meet strict standards.26 A Harvard Business Review article discussing innovations that shaped modern management puts scientific management at the top of its list of 12 influential innovations. Indeed, the ideas of creating a system for maximum efficiency and organising work for maximum productivity are deeply embedded in our organisations.27 However, because scientific management ignores the social context and workers’ needs, it can lead to increased conflict and clashes between managers and employees. Under such performance management systems, workers often feel exploited – a sharp contrast from the harmony and cooperation that Taylor and his followers had envisioned.

B U R E AU C R AT I C O R GA N I S AT I O N S bureaucratic organisation A subfield of the classical management perspective that emphasised management on an impersonal, rational basis through such elements as clearly defined authority and responsibility, formal record keeping, and separation of management and ownership.

A systematic approach developed in Europe that looked at the organisation as a whole is the bureaucratic organisation approach, a subfield within the classical perspective. Max Weber (1864–1920), a German theorist, introduced most of the concepts on bureaucratic organisations.28 During the late 1800s, many European organisations were managed on a ‘personal’, family-like basis. Employees were loyal to a single individual rather than to the organisation or its mission. The dysfunctional consequence of this management practice was that resources were used to realise individual desires rather than organisational goals. Employees in effect owned the organisation and used resources for their own gain rather than to serve customers. Weber envisioned organisations that would be managed on an impersonal, rational basis. This form of organisation was called a bureaucracy. EXHIBIT A1.3 summarises the six characteristics of bureaucracy as specified by Weber.

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EXHIBIT A1.3 Characteristics of Weberian bureaucracy

Division of labour, with clear definitions of authority and responsibility

Personnel selected and promoted based on technical qualifications

THE IDEAL BUREAUCRACY

Positions organised in a hierarchy of authority

Managers subject to rules and procedures that will ensure reliable, predictable behaviour

Administrative acts and decisions recorded in writing

Management separate from the ownership of the organisation

Source: Adapted from Max Weber, The Theory of Social and Economic Organizations, ed. and trans. A. M. Henderson and Talcott Parsons (New York: Free Press, 1947), pp. 328–37.

Weber believed that an organisation based on rational authority would be more efficient and adaptable to change because continuity is related to formal structure and positions rather than to a particular person, who may leave or die. To Weber, rationality in organisations meant employee selection and advancement based on competence rather than on ‘who you know’. The organisation relies on rules and written records for continuity. The manager depends not on his or her personality for successfully giving orders but on the legal power invested in the managerial position. The term bureaucracy has taken on a negative meaning in today’s organisations and is associated with endless rules and red tape. We have all been frustrated by waiting in long lines or following seemingly silly procedures. On the other hand, rules and other bureaucratic procedures provide a standard way of dealing with employees. Everyone gets equal treatment, and everyone knows what the rules are. This has enabled many organisations to become extremely efficient. Perhaps no large company has implemented this powerful idea as well as Toyota. In that business, all over the globe, standardised ways of working are invoked for all significant processes, and it has led to Toyota being the world’s most highly valued company

Max Weber (1864−1920): This German theorist’s concepts of bureaucratic organisation have contributed to the efficiency of many of today’s corporations.

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in its industry, by far. People all over that company essentially have two jobs, namely doing their primary work in a standardised way, but also engaging intensively in continuous improvement and problem solving-based innovation.

A D M I N I ST R AT I V E P R I N C I P L E S administrative principles A subfield of the classical management perspective that focused on the total organisation rather than the individual worker, delineating the management functions of planning, organising, commanding, coordinating and controlling.

Another major subfield within the classical perspective is known as the administrative principles approach. Whereas scientific management focused on the productivity of the individual worker, the administrative principles approach focused on the total organisation. The major contributor to this approach was Henri Fayol (1841–1925), a French mining engineer who worked his way up to become head of a large mining group known as Comambault. Pieces of Comambault survive today as part of ArcelorMittal, the world’s largest steel and mining company. In his later years, Fayol wrote down his concepts on administration, based largely on his own management experiences.29 In his most significant work, General and Industrial Management, Fayol discussed 14 general principles of management, several of which remain part of management philosophy today. For example:  nity of command. Each subordinate receives orders from one – and only one – superior. ◗◗ U ◗◗ Division of work. Managerial work and technical work are amenable to specialisation to produce more and better work with the same amount of effort.  nity of direction. Similar activities in an organisation should be grouped together under one manager. ◗◗ U ◗◗ Scalar chain. A chain of authority extends from the top to the bottom of the organisation and should include every employee. Fayol felt that these principles could be applied in any organisational setting. He also identified five basic functions or elements of management: planning, organising, commanding, coordinating and controlling. These functions underlie much of the general approach to today’s management theory.

R EMEMBE R THIS ◗◗

The study of modern management began in the late nineteenth century with the classical perspective, which took a rational, scientific approach to management and sought to turn organisations into efficient operating machines.

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Scientific management is a subfield of the classical perspective that emphasises scientifically determined changes in management practices as the solution to improving labour productivity.

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Scientific management is considered one of the most significant innovations influencing modern management.

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Another subfield of the classical perspective is the bureaucratic organisations approach, which emphasises management on an impersonal, rational basis through elements such as clearly defined authority and responsibility, formal record keeping, and separation of management and ownership.

◗◗

The administrative principles approach is a subfield of the classical perspective that focuses on the total organisation rather than the individual worker and delineates the management functions of planning, organising, commanding, coordinating and controlling.

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Henri Fayol, a major contributor to the administrative principles approach, outlined 14 general principles of management, several of which are a part of management philosophy today.

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The overall classical perspective as an approach to management was very powerful and gave organisations fundamental new skills for establishing high productivity and effective treatment of employees. Indeed, Western countries such as Australia and the United States surged ahead of the world in management techniques, and other countries, especially Japan, borrowed heavily from their ideas.

A1.3

HUMANISTIC PERSPECTIVE

The humanistic perspective on management emphasised the importance of understanding human behaviours, needs and attitudes in the workplace, as well as social interactions and group processes.30 There are three primary subfields based on the humanistic perspective: the human relations movement, the human resources perspective and the behavioural sciences approach.

E A R LY A DVO C AT E S

humanistic perspective A management perspective that emerged around the late nineteenth century that emphasised understanding human behaviour, needs and attitudes in the workplace.

Two early advocates of a more humanistic approach were Mary Parker Follett and Chester Barnard. Mary Parker Follett (1868–1933) was trained in philosophy and political science but she applied herself in many fields, including social psychology and management. She wrote of the importance of common superordinate goals for reducing conflict in organisations.31 Her work was popular with business-people of her day but was often overlooked by management scholars.32 Follett’s ideas served as a contrast to scientific management and are re-emerging as applicable for modern managers dealing with rapid changes in today’s global environment. Her approach to leadership stressed the importance of people rather than engineering techniques. She offered the pithy admonition, ‘Don’t hug your blueprints’, and analysed the dynamics of management– organisation interactions. Follett addressed issues that are still timely today, such as ethics, power and leading in a way that encourages employees to give their best. The concepts of empowerment, facilitating rather than controlling employees, and allowing employees to act depending on the authority of the situation opened new areas for theoretical study by Chester Barnard and others.33 Chester I. Barnard (1886–1961) studied economics at Harvard but failed to receive a degree because he did not take a course in laboratory science. He went to work in the statistical department of AT&T, and in 1927 he became president of New Jersey Bell. One of Barnard’s significant contributions was the concept of the informal organisation. Informal organisation occurs in all formal organisations and includes cliques, informal networks and naturally occurring social groupings. Barnard argued that organisations are not machines and stressed that informal relationships are powerful forces that can help Mary Parker Follett (1868−1933): Follett was a major contributor to the humanistic the organisation if properly managed. Another significant contribution was the acceptance principles approach to management. Her theory of authority, which states that people have free will and can choose whether to emphasis on worker participation and shared goals among managers was embraced by follow management orders. People typically follow orders because they perceive positive many businesspeople of the day, and has recently been rediscovered by corporate benefit to themselves, but they do have a choice. Managers should treat employees America. properly because their acceptance of authority may be critical to organisation success in important situations.34

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T H E H U M A N R E L AT I O N S M OV E M E N T Australia and New Zealand have always espoused the spirit of human equality, at least as much as any other nation, and possibly more. However, this spirit has not always been translated into practice human relations when it comes to power sharing between managers and workers. The human relations movement movement was based on the idea that truly effective control comes from within the individual worker rather A movement in than from strict, authoritarian control.35 This school of thought recognised and directly responded management thinking and practice that emphasised to social pressures for enlightened treatment of employees. The early work on industrial psychology satisfaction of employees’ and personnel selection received little attention because of the prominence of scientific management. basic needs as the key to increased worker Then a series of studies at a Chicago electric company, which came to be known as the Hawthorne productivity. Studies, changed all that. Hawthorne Studies Beginning in about 1895, a struggle developed between manufacturers of gas and electric lighting A series of experiments on worker productivity, begun fixtures for control of the residential and industrial market.36 By 1909, electric lighting had begun in 1924 at the Hawthorne to win, but the increasingly efficient electric fixtures used less total power. The electric companies plant of Western Electric Company in Illinois, began a campaign to convince industrial users that they needed more light to get more productivity. attributed employees’ When advertising did not work, the industry began experimental tests to demonstrate their argument. increased output to managers’ better treatment Managers were sceptical about the results, so the Committee on Industrial Lighting (CIL) was set up of them during the study. to run the tests. To add to the tests’ credibility, Thomas Edison was made honorary chairman of the CIL. At one test location – the Hawthorne plant of the Western Electric Company – some interesting events occurred. The major part of this work involved four experimental and three control groups. In all, five different ‘tests’ were conducted. These pointed to the importance of factors other than illumination in affecting productivity. To more carefully examine these factors, numerous other experiments were conducted.37 The results of the most famous study, the first Relay Assembly Test Room (RATR) experiment, were extremely controversial. Under the guidance of two Harvard professors, Elton Mayo and Fritz Roethlisberger, the RATR studies lasted for six years (10 May 1927 to 4 May 1933) and involved 24 separate experimental periods. So many factors were changed and so many unforeseen factors were uncontrolled that scholars disagree on the factors that truly contributed to the general increase in performance over that period. Most early interpretations, however, agreed on one thing: money was not the cause of the increased output.38 However, recent re-analyses of the experiments have revealed that a number of factors were different for the workers involved, and some suggest that money may well have been the single most important factor.39 An interview with one of the original participants revealed that just getting into the experimental group had meant a huge increase in income.40 The new data clearly shows that money mattered a great deal at Hawthorne. In addition, worker productivity increased partly as a result of the increased feelings of This 1914 photograph shows the initiation of importance and group pride that employees felt by virtue of being selected for this a new arrival at a Nebraska planting camp. This initiation was not part of the formal rules; important project.41 One unintended contribution of the experiments was a rethinking it illustrates the significance of the informal organisation described by Barnard – social of field research practices. Researchers and scholars realised that the researcher can values and behaviour were powerful forces influence the outcome of an experiment by being too closely involved with research that could help or hurt the organisation, depending on how they were managed. subjects. This phenomenon has come to be known as the Hawthorne effect in research

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methodology. Subjects behaved differently because of the active participation of researchers in the Hawthorne experiments.42 From a historical perspective, whether the studies were academically sound is less important than the fact that they stimulated an increased interest in looking at employees as more than extensions of production machinery. The interpretation that employees’ output increased when managers treated them in a positive manner started a revolution in worker treatment for improving organisational productivity. Despite flawed methodology or inaccurate conclusions, the findings provided the impetus for the human relations movement. This approach shaped management theory and practice for well over a quarter of a century, and the belief that human relations is the best area of focus for increasing productivity persists today.

T H E H U M A N R E S OU R C E S P E R S P E CT I V E The human relations movement initially espoused a ‘dairy farm’ view of management – contented cows give more milk, and so satisfied workers will give more work. Gradually, views with deeper content began to emerge. The human resources perspective maintained an interest in worker participation and considerate leadership but shifted the emphasis to consider the daily tasks that people perform. The human resources perspective combines prescriptions for design of job tasks with theories of motivation.43 In the human resources view, jobs should be designed so that tasks are not perceived as dehumanising or demeaning but instead allow workers to use their full potential. Two of the best-known contributors to the human resources perspective were Abraham Maslow and Douglas McGregor. Abraham Maslow (1908–1970), a practising psychologist, observed that his patients’ problems usually stemmed from an inability to satisfy their needs. From this, he generalised his work and suggested a hierarchy of needs. Maslow’s hierarchy started with physiological needs and progressed to safety, belongingness, esteem and, finally, self-actualisation needs. Douglas McGregor (1906–1964) had become frustrated with the early simplistic human relations notions while president of Antioch College in Ohio. He challenged both the classical perspective and the early human relations assumptions about human behaviour. Based on his experiences as a manager and consultant, his training as a psychologist and the work of Maslow, McGregor formulated his Theory X and Theory Y, which are explained in EXHIBIT A1.4.44 McGregor believed that the classical perspective was based on Theory X assumptions about workers. He also felt that a slightly modified version of Theory X would fit early human relations ideas. In other words, human relations ideas did not go far enough. McGregor proposed Theory Y as a more realistic view of workers for guiding management thinking.

TAKE A MOMENT If you haven’t already completed the self-assessment at the start of this chapter that pertains to old- and new-style management, take it now. How will your management assumptions about people fit into an organisation today?

human resources perspective A management perspective that suggests jobs should be designed to meet higherlevel needs by allowing workers to use their full potential.

See Chapter 11 for a more detailed discussion of Maslow’s ideas.

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EXHIBIT A1.4 Theory X and Theory Y

ASSUMPTIONS OF THEORY X

ASSUMPTIONS OF THEORY Y

The average human being has an inherent dislike of work and will avoid it if possible.

The expenditure of physical and mental effort in work is as natural as play or rest. The average human being does not inherently dislike work.

Because of this, most people must be coerced, controlled, directed or threatened with punishment to get them to put adequate effort towards the achievement of organisational objectives.

External control and the threat of punishment are not the only means for bringing about effort towards organisational objectives. A person will exercise self-direction and self-control in the service of objectives to which he or she is committed.

The average human being prefers to be directed, wishes to avoid responsibility, has relatively little ambition and wants security above all.

The average human being learns, under proper conditions, not only to accept but to seek responsibility. The capacity to exercise a relatively high degree of imagination, ingenuity and creativity in the solution of organisational problems is widely, not narrowly, distributed in the population. Under the conditions of modern industrial life, the intellectual potentialities of the average human being are only partially used.

Source: D. McGregor, The Human Side of Enterprise, New York, McGraw-Hill, 1960. Reproduced by permission of McGraw-Hill; Graph page 71. Reprinted by permission of International Creative Management, Inc. Copyright © 1990 by Richard Pascale, pp. 33–48.

The point of Theory Y is that organisations can take advantage of the imagination and intellect of all their employees. Employees will exercise self-control and contribute to organisational goals when given the opportunity. A few organisations today still use Theory X management, but many are trying Theory Y techniques. The Danish company, Oticon Holding A/S, brings out the creativity and enthusiasm of its employees by operating from Theory Y assumptions.

T H E B E H AV I OU R A L S C I E N C E S A P P ROA C H behavioural sciences approach A subfield of the humanistic management perspective that applies social science in an organisational context, drawing from economics, psychology, sociology and other disciplines.

See Chapter 8 for a more detailed discussion of the techniques and concepts of organisational development

The behavioural sciences approach uses scientific methods and draws from sociology, psychology, anthropology, economics and other disciplines to develop theories about human behaviour and interaction in an organisational setting. This approach can be seen in practically every organisation. One specific set of management techniques based in the behavioural sciences approach is organisation development. In the 1970s, organisational development evolved as a separate field that applied the behavioural sciences to improve the organisation’s health and effectiveness through its ability to cope with change, improve internal relationships and increase problem-solving capabilities.45 The techniques and concepts of organisational development, which will be discussed in detail in Chapter 8 , have since been broadened and expanded to address the increasing complexity of organisations and the environment, and it is still a vital approach for managers. Other concepts that grew out of the behavioural sciences approach include matrix organisations, self-managed teams, ideas about corporate culture, and management by wandering around. Indeed, the behavioural sciences approach has influenced the majority of tools, techniques and approaches that managers have applied to organisations since the 1970s. All the remaining chapters of this book contain research findings and management applications that can be attributed to the behavioural sciences approach.

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R EMEMBE R THIS ◗◗

The humanistic perspective emphasised understanding human behaviour, needs and attitudes in the workplace.

◗◗

Mary Parker Follett and Chester Barnard were early advocates of a more humanistic approach to management. Follett emphasised worker participation and empowerment, shared goals and facilitating rather than controlling employees. Barnard’s contributions include the acceptance theory of authority.

◗◗

The human relations movement stresses the satisfaction of employees’ basic needs as the key to increased productivity.

◗◗ ◗◗

The Hawthorne studies were important in shaping ideas concerning how managers should treat workers.

◗◗

The behavioural sciences approach draws from psychology, sociology and other social sciences to develop theories about human behaviour and interaction in an organisational setting.

◗◗

Many current management ideas and practices can be traced to the behavioural sciences approach.

The human resources perspective suggests that jobs should be designed to meet people’s higher-level needs by allowing employees to use their full potential.

A1.4

MANAGEMENT SCIENCE

The Second World War caused many management changes. The massive and complicated problems associated with mass-scale global warfare presented managerial decision makers with the need for more sophisticated tools than ever before. The management science perspective emerged to treat those problems. This view is distinguished for its application of mathematics, statistics and other quantitative techniques to management decision making and problem solving. During the war, groups of mathematicians, physicists and other scientists were formed to solve military problems. Because those problems frequently involved moving massive amounts of materials and large numbers of people quickly and efficiently, the techniques had obvious applications to large-scale business firms.46 These management science techniques were enhanced with the development and perfection of the computer. Coupled with the growing body of statistical techniques, computers made it possible for managers to collect, store and process large volumes of data for quantitative decision making, and the quantitative approach is widely used today by managers in a variety of industries. The Walt Disney Company used quantitative techniques to develop FASTPASS, a sophisticated computerised system that spares parents the ordeal of standing in long lines for the most popular rides. Disney theme parks have machines that issue coupons with a return time calculated on the number of people standing in the actual line, the number who have already obtained passes and each ride’s capacity. The next generation of technology, xPass, allows visitors to book times for rides before they even leave home.47 Let’s look at three subsets of management science. Operations research grew directly out of Second World War groups (called operational research teams in the United Kingdom and operations research teams in the United States).48 It consists of mathematical model building and other applications of quantitative techniques to managerial problems. Operations management refers to the field of management that specialises in the physical production of goods or services. Operations management specialists use quantitative techniques to solve manufacturing

management science perspective A management perspective that emerged after the Second World War and applied mathematics, statistics and other quantitative techniques to managerial problems.

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problems. Some of the commonly used methods are forecasting, inventory modelling, linear and nonlinear programming, queuing theory, scheduling, simulation and break-even analysis. Management information systems and information technology are the most recent subfields of the management science perspective. These systems are designed to provide relevant information to managers in a timely and cost-efficient manner. The advent of the high-speed digital computer opened up the full potential of this area for management. This field is now rapidly developing into the domain of ‘big data’, in which organisations can identify trends, behaviours and preferences of consumers and others with very fine precision. Many of today’s organisations have departments of management science specialists to help solve quantitatively based problems. When Coles Group revamped its approach to use an integrated logistics system across its major businesses, it was applying a quantitative approach to management to determine the best system design. When Telstra analysed its very large and complex telecommunications network to plan how best to further develop it, it was employing management science tools. One specific technique used in many organisations is queuing theory. Queuing theory uses mathematics to calculate how to provide services that will minimise the waiting time of customers. It has been used to analyse the traffic flow through the CityLink road network in Melbourne, the Harbour Bridge in Auckland and the Harbour Tunnel in Sydney. Queuing theory was used to develop the single waiting line for tellers used in many banks. However, quantitative analysis did not stop managers in the United States and Europe from making thousands of bank loans to people and companies that proved to be unable to pay them back, which led to the global financial crisis (GFC). Scott Patterson, a Wall Street Journal reporter and author of The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, suggests that the financial crisis, which began in 2008, occurred partly as a result of the quantitative analysts’ failure to observe market fundamentals, pay attention to human factors and heed their own intuition.49

R EMEMBE R THIS ◗◗

Management science became popular based on its successful application in solving military problems during the Second World War.

◗◗

Management science, also called the quantitative perspective, uses mathematics, statistical techniques and computer technology to facilitate management decision making, particularly for complex problems.

◗◗

Three subsets of management science are operations research, operations management and information technology.

A1.5

RECENT HISTORICAL TRENDS

Of the approaches that we have discussed so far, the humanistic perspective has remained most prevalent from the 1950s until today. This is despite recent heavy use of management science techniques by some managers. The post-Second World War period saw the rise of new concepts, along with a continued strong interest in the human aspect of managing, such as team and group dynamics and other ideas that relate to the humanistic perspective. Three new concepts that appeared were systems thinking, the contingency view and total quality management.

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S Y ST E M S T H I N K I NG Systems thinking is the ability to see both the distinct elements of a system or situation, and the complex

and changing interaction among those elements. A system is a set of interrelated parts that function as a whole to achieve a common purpose.50 Subsystems are parts of a system, such as an organisation, that depend on one another. Changes in one part of the system (the organisation) affect other parts. Managers need to understand the synergy of the whole organisation, rather than just the separate elements, and to learn to reinforce or change whole system patterns.51 Synergy means that the whole is greater than the sum of its parts. The organisation must be managed as a coordinated whole. Managers who understand subsystem interdependence and synergy are reluctant to make changes that do not recognise subsystem impact on the whole organisation. Many people have been trained to solve problems by breaking a complex system, such as an organisation, into discrete parts and working to make each part perform as well as possible. However, the success of each piece does not add up to the success of the whole. In fact, sometimes changing one part to make it better actually makes the whole system function less effectively. For example, a small city embarked on a road-building program to solve traffic congestion without wholesystems thinking. With new roads available, more people began moving to the suburbs. Rather than reduce congestion, the solution actually increased traffic congestion, delays and pollution by enabling suburban sprawl.52 It is the relationship among the parts that form a whole system – whether a community, a car, a not-for-profit agency, a human being or a business organisation – that matters. Systems thinking enables managers to look for patterns of movement over time and focus on the qualities of rhythm, flow, direction, shape and networks of relationships that accomplish the performance of the whole. When managers can see the structures that underlie complex situations, they can facilitate improvement. But doing that requires a focus on the big picture. An important element of systems thinking is to discern circles of causality. Peter Senge, author of The Fifth Discipline, argues that reality is made up of circles rather than straight lines.53 For example, EXHIBIT A1.5 shows circles of influence for increasing a retail business’s profits. The events in the circle on the left are caused by the decision to increase advertising; hence the retail business adds to the advertising budget to aggressively promote its products. The advertising promotions increase sales, which increase profits, which provide money to further increase the advertising budget.

Sales

Advertising budget

Stocking up

Delay

Profits

Added cost

system A set of interrelated parts that function as a whole to achieve a common purpose. subsystems Parts of a system that depend on one another for their functioning. synergy The concept that the whole is greater than the sum of its parts.

EXHIBIT A1.5 Systems thinking and circles of causality

Build warehouse Decision to advertise

systems thinking An extension of the humanistic perspective that describes organisations as open systems that are characterised by entropy, synergy and subsystem interdependence.

Hire people

Source: Based on concepts presented in Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday/Currency, 1990).

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But another circle of causality is being influenced as well. The decision by marketing managers will have consequences for the operations department. As sales and profits increase, operations will be forced to stock up with greater inventory. Additional inventory will create a need for additional warehouse space. Building a new warehouse will cause a delay in stocking up. After the warehouse is built, new people will be hired, all of which adds to company costs, which will have a negative impact on profits. Thus, understanding all the consequences of their decisions via circles of causality enables company leaders to plan and allocate resources to warehousing, as well as to advertising, to ensure stable increases in sales and profits. Without understanding system causality, senior managers would fail to understand why increasing advertising budgets could cause inventory delays and temporarily reduce profits.

CO N T I NG E N C Y V I E W contingency view An extension of the humanistic perspective in which the successful resolution of organisational problems is thought to depend on managers’ identification of key variables (or contingencies) in the situation at hand.

EXHIBIT A1.6 The contingency view of management

A second, later, extension to management thinking is the contingency view. The classical perspective assumed a universalist view. Management concepts were thought to be universal; whatever worked in terms of management style, bureaucratic structure and so on in one organisation would work in any other one. In business education, however, an alternative view exists. In this case view, each situation is believed to be unique. Principles are not universal, and one learns about management by experiencing a large number of case problem situations. Managers face the task of determining what methods will work in every new situation. To integrate these views, the contingency view emerged, as illustrated in EXHIBIT A1.6.54 Here, neither of the other views is seen as entirely correct. Instead, certain contingencies, or variables, exist for helping managers identify and understand situations. The contingency view tells us that what works in one setting might not work in another. Contingency means that one thing depends on other things and a manager’s response to a situation depends on identifying key contingencies in an organisational situation. Important contingencies that managers must understand include the industry in which the organisation operates, technology, the environment and international cultures. The organisational structure that is effective for an Internet company, such as Google, would not be successful for a large car manufacturer, such as Ford. A management-by-objectives system that works well in a manufacturing organisation might not be right for a school system. When managers learn to identify important patterns and characteristics of their organisations, they can fit solutions to those characteristics. Case view ‘Every situation is unique.’

Universalist view

‘There is one best way.’

Contingency view Organisational phenomena exist in logical patterns. Managers devise and apply similar responses to common types of problems.

T O TA L QUA L I T Y M A NAG E M E N T The theme of quality is another concept that permeates current management thinking. The quality movement is strongly associated with Japanese companies, but these ideas emerged partly as a result of American influence after the Second World War. The ideas of W. Edwards Deming, known as the ‘father

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of the quality movement’, were initially scoffed at in the United States, but the Japanese embraced his theories and modified them to help rebuild their industries into world powers.55 Japanese companies achieved a significant departure from the American model by gradually shifting from an inspectionoriented approach to quality control, towards an approach that emphasised employee involvement in the prevention of quality problems.56 During the 1980s and into the 1990s, total quality management, which focuses on managing the total organisation to deliver better quality to customers, moved to the forefront in helping United States managers deal with global competition. The approach infuses high-quality values throughout every activity within a company, with frontline workers intimately involved in the process. Four significant elements of quality management are employee involvement, focus on the customer, benchmarking and continuous improvement (often referred to as kaizen). Employee involvement means that achieving better quality requires company-wide participation in quality control. All employees are focused on the customer; companies find out what customers want and try to meet their needs and expectations. Benchmarking refers to a process whereby companies find out how others do something better than they do and then try to imitate or improve on it. Continuous improvement is the implementation of small, incremental improvements in all areas of the organisation on an ongoing basis. Total quality management is not a quick fix, but companies such as BHP Billiton, IAG (Insurance Australia), GE, the Walt Disney Company, Ford, and Toyota achieved astonishing results in efficiency, quality and customer satisfaction through this approach.57 It is still an important part of organisational life, and managers consider benchmarking in particular a highly effective and satisfying management technique.58 Some of today’s companies pursue highly ambitious quality goals to demonstrate their commitment to improving quality. For example, Six Sigma, popularised by Motorola and GE, specifies a goal of no more than 3.4 defects per million parts. However, the term also refers to a broad quality control approach that emphasises a disciplined and relentless pursuit of higher quality and lower costs.

R EMEMBE R THIS ◗◗

Systems thinking means looking, not just at discrete parts of an organisational situation, but also at the continually changing interactions among the parts.

◗◗

When managers think systemically and understand subsystem interdependence and synergy, they can get a better handle on managing in a complex environment.

◗◗

The concept of synergy says that the whole is greater than the sum of its parts. The organisation must be managed as a whole.

◗◗

The contingency view tells managers that what works in one organisational situation might not work in others. Managers can identify important contingencies or variables that help guide their decisions regarding the organisation.

◗◗

The quality movement is associated with Japanese companies, but it emerged partly as a result of American influence after the Second World War.

◗◗ ◗◗

Total quality management focuses on managing the total organisation to deliver quality to customers. Four significant elements of this are employee involvement, focus on the customer, benchmarking and continuous improvement.

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total quality management A concept that focuses on managing the total organisation to deliver quality to customers. Four significant elements of this are employee involvement, focus on the customer, benchmarking and continuous improvement.

See Chapter 14 for a more detailed discussion of quality management.

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INNOVATIVE MANAGEMENT THINKING FOR A CHANGING WORLD

A1.6

All of the ideas and approaches discussed so far in this chapter go into the mix that makes up modern management. Dozens of ideas and techniques in current use can trace their roots to these historical perspectives.59 In addition, innovative concepts continue to emerge to address new management challenges. Smart managers heed the past but know that they and their organisations have to change with the times. General Motors (GM) was the ‘ideal’ organisational model in a post-Second World War environment, but by 2009 it had collapsed into bankruptcy and sought billions of dollars in government aid because managers failed to pay attention as the world changed around them.60 GM managers assumed that the pre-eminence of their company would shelter it from change, and they stuck far too long with strategy, culture and management approaches that were out of tune with the shifting environment.

CO N T E M P O R A R Y M A NAG E M E N T T O O L S Recall from the beginning of this chapter our discussion of jugaad, an approach to innovation management used in India that many managers in other countries are trying. Management fads and fashions come and go, but managers are always looking for new techniques and approaches that more adequately respond to customer needs and the demands of the environment. A recent survey of European managers reflects that managers pay attention to currently fashionable management concepts. EXHIBIT A1.7 lists the percentage of managers reporting that they were aware of these selected management trends that have been popular over the past decade.61

EXHIBIT A1.7 Awareness of management trends

CONCEPT

AWARENESS PERCENTAGE

E-business

99.41

Decentralisation

99.12

Customer relationship management

97.50

Virtual organisation

91.19

Empowerment

83.41

Re-engineering

76.65

Managers especially tend to look for fresh ideas to help them cope during difficult times. For instance, recent challenges such as the GFC (and accompanying public suspicion and scepticism), environmental and organisational crises and lingering anxieties over war and terrorism have left today’s executives searching for any management tool – new or old – that can help them get the most out of limited resources. The Management in practice box below lists a wide variety of ideas and techniques used by today’s managers. Management idea life cycles have been shrinking as the pace of change has increased. A study by the University of Louisiana at Lafayette found that, from the 1950s to the 1970s, it typically took more

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than a decade for interest in a popular management idea to peak. Now, the interval has shrunk to fewer than three years, and some trends come and go even faster.62

MANAGEMENT IN PRACTICE MANAGEMENT TOOLS AND TRENDS Over the history of management, many fashions and fads have appeared. Critics argue that new techniques may not represent permanent solutions. Others feel that managers must adopt new techniques for continuous improvement in a fast-changing world. In 1993, Bain & Company initiated a large research project to interview and survey thousands of corporate executives about the 25 most popular management tools and techniques. The most recent results and usage rates are shown. How many of the tools do you know?

✚✚ Popularity. In the most recent

Benchmarking Strategic planning Mission and vision statements Customer relationship management Outsourcing Balanced scorecard Change management programs Core competencies Strategic alliances Customer segmentation Supply chain management Total quality management Knowledge management Business process re-engineering Mergers and acquisitions Satisfaction and loyalty management Scenario and contingency planning Enterprise risk management Social media programs Shared services centres Downsizing Open innovation Price optimisation models Decision rights tools Rapid prototyping

survey, benchmarking held onto the top spot as the most popular tool, reflecting managers’ concern with efficiency and cost-cutting in a difficult economy. Mergers and acquisitions have decreased in popularity, with only 35 per cent of managers using this technique. Three tools that ranked high in both use and satisfaction were strategic planning, mission and vision statements, and customer segmentation, tools that can guide managers’ thinking on strategic issues during times of rapid change.

✚✚ Global trends. For the first time, firms in emerging markets reported using more tools than those in developed markets. More than half of emerging market executives reported using the balanced scorecard. North American managers decreased

67% 65% 63% 58% 55% 47% 46% 46% 45% 42% 39% 38% 38% 38% 35% 32% 30% 30% 29% 28% 25% 21% 21% 17% 11% 0

20

40

Significantly above overall mean

Mean

Significantly below overall mean

60

80

100

Usage

their use of outsourcing and were the largest users of social media programs. Managers in Latin American companies used more tools than any other region, but they were the lightest users of downsizing and customer relationship management. Asian companies were the greatest users of knowledge management. Benchmarking and change management programs were top tools for managers in Europe, where acute economic uncertainty continues.

SOURCE: Darrell Rigby and Barbara Bilodeau, Management Tools and Trends 2011. Copyright © 2011, Bain and Company, Inc., http://www.bain.com/publications/articles/Management-tools-trends-2011.aspx. Reprinted by permission.

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M A NAG I NG T H E T E C H NO L O GY- D R I V E N WO R K P L AC E The physical world that Frederick Taylor and other proponents of scientific management measured determines less and less of what is valued in organisations and society. Our lives and organisations have been engulfed by information technology. Ideas, information and relationships are becoming more important than production machinery, physical products and structured jobs. Many employees perform much of their work on computers and may work in virtual teams, connected electronically to colleagues around the world. Even in factories that produce physical goods, machines have taken over much of the routine and uniform work, freeing workers to use more of their minds and abilities. Managers and employees in today’s companies focus on opportunities rather than efficiencies, which requires that they be flexible, creative and unconstrained by rigid rules and structured tasks.

T H E S H I F T I NG WO R L D O F E - B U S I N E S S Today, much business takes place by digital processes over a computer network rather than in physical space. E-business refers to the work an organisation does by using electronic linkages (including the Internet) with customers, partners, suppliers, employees or other key constituents. E-commerce is a narrower term referring specifically to business exchanges or transactions that occur electronically. E-commerce replaces or enhances the exchange of money and products with the exchange of data and information from one computer to another. Companies such as Dell, Amazon.com, Red Balloon, Village cinemas and Coles Online are engaged in what is referred to as business-to-consumer e-commerce (B2C) because they sell products and services to consumers over the Internet. Although this is probably the most visible expression of e-commerce to the public, the fastest-growing area of e-commerce is business-to-business e-commerce (B2B), which refers to electronic transactions between organisations. Large organisations such as Coles and Woolworths, Toyota and Ford Motor Company buy and sell billions of dollars worth of goods and services a year via either public or private Internet linkages. Some companies have taken e-commerce to very high levels to achieve amazing performance. Dell Computer pioneered the use of end-to-end digital supply chain networks to keep in touch with customers, take orders, buy components from suppliers, coordinate with manufacturing partners and ship customised products directly to consumers. These advances mean managers not only need to be technologically savvy, but they also become responsible for managing a web of relationships that reaches far beyond the boundaries of the physical organisation, building flexible e-links between a company and its employees, suppliers, partners and customers. The third area of e-commerce, consumer-to-consumer (C2C), is made possible when an Internet-based business acts as an intermediary between and among consumers. One of the best-known examples of C2C e-commerce is web-based auctions such as those made possible by eBay. Internet auctions have created a large electronic marketplace where consumers can buy and sell directly with one another, often handling practically the entire transaction via the web. New electronic technologies also shape the organisation and how it is managed. A century ago, Frederick Taylor described the kind of worker needed in the iron industry: ‘Now, one of the first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental makeup the ox than any other type’.63 The philosophy of scientific management was that managers structured and controlled jobs so carefully that thinking on the part of employees wasn’t required – indeed, it was usually

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discouraged. How different things are today! Many organisations depend on employees’ minds more than their physical bodies. In companies where the power of an idea determines success, managers’ primary goal is to tap into the creativity and knowledge of every employee.

B I G DATA A NA LY T I C S The newest business technology is big data analytics. This refers to technologies, skills, and processes for searching and examining massive, complex sets of data that traditional data processing applications cannot handle, to uncover hidden patterns and correlations.64 Facebook, for example, uses the personal data that you put on your page and tracks and monitors your online behaviour, then searches through all that data to identify and suggest potential ‘friends’.65 Amazon.com collects large amounts of data on customers, including what books they buy, what else they look at, how they navigate through the website, and how much they are influenced by promotions and reviews. The company uses algorithms that predict and suggest what books a customer might be interested in reading next. The predictions get better every time a customer responds to or ignores a recommendation.66 Another example of the power of big data analytics comes from the world of online dating websites such as eHarmony and Match.com. These sift through huge amounts of data to compare millions of people across hundreds of different variables and make matches for users in a matter of minutes, sending new matches out on a daily basis. The professional networking site, LinkedIn, recently announced a similar idea with its recruiting feature, ‘People you may want to hire’. The company analyses its huge data mines and provides a list of perfect candidates for a company’s job openings.67 However, big data is not just for online companies. Big data analytics can be thought of as a direct descendant of Frederick Winslow Taylor’s scientific management and the most recent iteration of the quantitative approach to management.68 Walmart collects more than 2.5 petabytes of data (a petabyte is about a million gigabytes, or the equivalent of about 20 million filing cabinets of written data) every hour from customer transactions and uses the data to make better decisions.69 The gaming corporation Caesars Entertainment analyses customer data to fine-tune customer segments and build effective loyalty programs for its casinos and resorts. Researchers at the Johns Hopkins School of Medicine found that they could use data from Google Flu Trends (which Google uses to collect and aggregate flu-related search terms) to predict surges in flu-related emergency room visits a week before warnings came from the Centers for Disease Control.70

big data analytics Technologies, skills, and processes for searching and examining massive, complex sets of data that traditional data processing applications cannot handle, to uncover hidden patterns and correlations.

K NOW L E D G E M A NAG E M E N T For many of the world’s leading companies, only 10 to 20 per cent of their market value is accounted for by the value of their ‘hard’ assets. Much of the rest of a firm’s value is its knowledge. Peter Drucker coined the term ‘knowledge work’ more than 40 years ago,71 but it is only in recent years that managers have genuinely recognised knowledge as an important organisational resource that should be managed just as they manage cash flow or raw materials. Knowledge management refers to the efforts to systematically find, organise and make available a company’s intellectual capital, and to foster a culture of continuous learning and knowledge sharing so that a company’s activities build on what is already known.72 Information technology plays an important role by enabling the storage and dissemination of data and information across the organisation, but technology is only one part of a larger management system.73 A complete knowledge management system includes not only the technology for capturing and storing knowledge for easy access, but also new management values that support risk taking, learning

knowledge management The efforts to systematically find, organise and make available a company’s intellectual capital, and to foster a culture of continuous learning and knowledge sharing so that a company’s activities build on what is already known.

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and collaboration. Rather than seeing employees as factors of production and looking for ways to use human and material resources for greatest efficiency, today’s most successful managers value people for their ability to think, create, share knowledge and build relationships.

TAKE A MOMENT As a new manager in today’s workplace, how would you develop your employees’ abilities to think independently, build relationships and share knowledge? Be prepared to learn to use technology as a tool to tap into the insight and creativity of each person in the organisation.

customer relationship management (CRM) Systems that help companies keep in close touch with customers, collect and manage customer data, and collaborate with customers to provide the most valuable products and services. outsourcing Contracting out to another company of a function or activity that could be, or was previously, produced in-house.

One segment of knowledge management is the use of sophisticated customer relationship management (CRM) systems. These collect and manage large amounts of data about customers and make

them available to employees, enabling better decision making and superior customer service. The use of CRM has virtually exploded over the past several years. In Bain & Company’s 2011 management tool survey, for example, 58 per cent of companies reported using CRM, up from only 35 per cent of companies in 2000, one of the largest and fastest usage increases ever revealed by the survey.74 Information technology has also contributed to the rapid growth of outsourcing, which means contracting out selected functions or activities to other organisations that can do the work more cost effectively. Today’s companies are outsourcing to free up cash for investment in long-term research and innovation. Outsourcing – along with other trends such as supply chain management, customer relationship management, telecommuting and virtual teamwork – requires that managers decide exactly what they can do competitively and what they should be getting other firms to do via a series of supply and partnering relationships.

S U P P LY C H A I N M A NAG E M E N T Supply chain management refers to managing the sequence of suppliers and purchasers, covering all stages of processing, from obtaining raw materials to distributing finished goods to consumers.75 EXHIBIT A1.8 illustrates a basic supply chain model. A supply chain is a network of multiple businesses and

EXHIBIT A1.8 Supply chain for a retail organisation

Suppliers

Manufacturers

Distributors

Retailers

Flow of products Source: Adapted from an exhibit from the Global Supply Chain Games Project, Delft University and the University of Maryland, R. H. Smith School of Business, www.gscg.org:8080/opencms/export/sites/default/gscg/images/supplychain_ simple.gif (accessed 6 February 2008).

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individuals that are connected through the flow of products or services.76 Many organisations manage the supply chain with sophisticated electronic technology. In India, for example, Walmart managers have invested in an efficient supply chain that electronically links farmers and small manufacturers directly to the stores, maximising value for both ends.77 However, today’s global supply chains create many challenges for managers. Several garment factory fires in Bangladesh in 2012, and the collapse of another apparel plant in 2013 that killed 1100 workers, put the spotlight on poor working conditions in that country. The problem for retailers such as Woolworths, H&M, Target and other big companies, is that similar poor working conditions exist in other low-wage countries such as Pakistan, Cambodia, Indonesia and Vietnam, which produce most of the world’s clothing. Australian, European and United States retailers have announced plans aimed at improving safety in overseas factories, but the challenge of monitoring contractors and subcontractors in low-wage countries is a massive one. Even when an organisation such as H&M thinks that it is hiring a responsible supplier, that company might subcontract or obtain materials from less responsible ones.78

S O C I A L M E D I A P RO G R A M S Companies use social media programs to interact electronically with employees, customers, partners and other stakeholders. Although only 29 per cent of managers surveyed by Bain & Company said their companies used social media programs in 2010, more than half said they planned to use them that year.79 Social media programs include company online community pages, social media sites such as Facebook or LinkedIn, microblogging platforms such as Twitter and China’s Weibo, and company online forums. One frequent, and controversial, use of social media has been to look into the backgrounds and activities of job candidates. A survey by CareerBuilder found that 37 per cent of hiring managers said they had used social media sites to see if job applicants present themselves professionally, to learn more about an applicant’s qualifications or to see if the candidate would be a good fit with the organisational culture.80 Other uses of social media programs include generating awareness about company products and services, sharing ideas and seeking feedback from customers and partners, strengthening relationships among employees and selling products. One concern for many managers is how to measure the effectiveness of social media programs.

M A NAG I NG T H E P E O P L E - D R I V E N WO R K P L A C E Organisations are undergoing tremendous changes. Some are related to new technology, whereas others are brought about primarily because of shifting needs of people. One concern of executives is the demands of younger employees for changes in workplace cultures and practices. Two responses to these issues are the bossless workplace and a renewed emphasis on employee engagement.

TH E BO SSLESS WORKPLA C E As described at the beginning of this chapter, a few bossless work environments have existed for decades, but this has become a real trend in recent years. For one thing, how and where work gets done has shifted in major ways, because many people can work from home or other locations outside an office with ease. At Symantec, for example, most employees used to work in cubicles, but now many of them work from home or other remote locations scattered all over the world.81 When everyone has access to the information they need and the training to make good decisions, having layers of managers just eats up costs and slows down response time.82

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Many bossless companies, such as Valve Software (web platform for video games), Netflix (video streaming and rentals), and Atlassian (a global enterprise software founded and built in Australia), operate in technology-related industries. However, companies as diverse as GE Aviation (aviation manufacturing), W. L. Gore & Associates (best known for Gore-Tex fabrics), Whole Foods Market (supermarkets), and Semco (diversified manufacturing, described previously), have succeeded for years with bossless structures. In a bossless work environment, nobody gives orders, and nobody takes them. Accountability is to the customer and the team, rather than to a manager. There can be many advantages to a bossless work environment, including increased flexibility, greater employee initiative and commitment, and better and faster decision making.83 However, bossless work environments also present new challenges. Costs may be lower because of reduced overhead, but money has to be invested in ongoing training and development for employees so that they can work effectively within a bossless system. The culture also has to engage employees and support the non-hierarchical environment. Employee engagement is essential for a successful bossless workplace.

EM P LOYEE ENGA GEM E NT Employee engagement means that people are emotionally involved in their jobs and are satisfied with their work conditions, contribute enthusiastically to meeting team and organisational goals, and feel a sense of belonging and commitment to the organisation and its mission.84 To engage employees, managers unite people around a compelling purpose that encourages them to give their best. Young Generation Y employees (sometimes called Millennials), the most educated generation in the history of the Western world, grew up technologically adept and globally conscious. Unlike many workers in the past, they typically are not hesitant to question their superiors and challenge the status quo. They want a flexible, collaborative work environment that is challenging and supportive, with access to cutting-edge technology, opportunities to learn and further their careers and personal goals, and the power to make substantive decisions in the workplace. Meeting the shifting needs of this generation is one reason that organisations put employee engagement surveys near the top of the list of tools and techniques they are using (the technique ranked number one in North America).85 Meanwhile, smart managers are looking ahead to the next generation, alternatively called the Pluralist Generation, Generation Z, or the Re-Generation (Re-Gens). Re-Gens, born Research has shown that organisations can deliberately create a culture that around 1995, will soon be flooding into the workforce, bringing engages employees and encourages greater job satisfaction. At international their own changes and challenges to the practice and evolution of shipping company Deutsche Post DHL Group (DHL), for example, the company thanks employees for their contributions through thank you management. Some observers predict that a sense of meaning and notes, monetary rewards, and more. Other engagement tactics include communicating honestly with employees, supporting career development commitment, especially environmental responsibility, will be high and enabling employees to serve their communities. on their list of priorities.86

Source: Alamy Stock Photo/TAR-TASS Photo Agency/Emil Matveyev

engagement An emotional and mental state in which employees enjoy their work, contribute enthusiastically to meeting goals, and feel a sense of belonging and commitment to the organisation.

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R EMEMBE R THIS ◗◗

Modern management is a lively mix of ideas and techniques from varied historical perspectives, but new concepts continue to emerge.

◗◗ ◗◗ ◗◗

Managers tend to look for innovative ideas and approaches, particularly during turbulent times.

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Customer relationship management (CRM) systems use information technology to keep in close touch with customers, collect and manage large amounts of customer data, and provide superior customer value.

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Social media programs include online community pages, social media sites such as Facebook and LinkedIn, microblogging platforms such as Twitter, and company online forums that enable managers to interact electronically with employees, customers, partners and other stakeholders.

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Sustainable development refers to the way in which organisations engage with and satisfy a wide variety of stakeholders with whom they interact.

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Two ideas related to a people-driven workplace are the bossless work environment and employee engagement.

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Engagement means that people are involved in their jobs and are satisfied with their work conditions, contribute enthusiastically to meeting team and organisational goals, and feel a sense of belonging and commitment to the organisation and its mission.

◗◗

Managers are looking ahead to the next generation of employees, sometimes called Re-Gens, to try to predict what changes and challenges they may bring to the evolution of management thinking.

◗◗

These new approaches require managers to think in fresh ways about managing their relationships with employees, customers and business partners.

Many of today’s popular techniques are related to the transition to a technology-driven workplace. A complete knowledge management system includes technology for capturing and storing knowledge for easy access, as well as management values that support risk taking, learning and collaborating.

Sustainable development is a relatively new term that refers to the way in which organisations engage with and satisfy a wide variety of stakeholders. This includes its shareholders, employees, suppliers, the environment (meaning the air, water, land resources and other aspects of keeping the planet in good shape for future generations in the long term) and the communities in which they operate. Executives are now recognising the requirement to satisfy not just shareholders, who principally demand profits, but also a wide variety of stakeholder groups, who place a range of demands on the company and its managers. To survive and prosper, firms must not pollute the environment, they must adhere to tightening safety and labour/employment standards, and they must act responsibly in balancing the needs of shareholders with other stakeholders, both in the present and the longer term. This means that life for managers has become even more complex and challenging as they pursue a broad set of objectives and try to satisfy many disparate requirements. In a nutshell, the things that employees want from a company are not necessarily the same things that environmentalists want, nor local communities, customers, government regulators, shareholders and so on.87 When one considers the history of the modern organisation, it is true that stakeholder relationships have not always been positive and seen as an opportunity to ‘Do well by doing good’. Employers and many managers often treated staff badly in the past, rather than seeing and treating them as partners in an organisation’s success. Furthermore, suppliers were often treated as adversaries, while customers were even treated with disdain, as a source of problems and complaints, or as a necessary evil. Government was seen as a bureaucratic constraint, making rules to make life difficult for business.

SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT AND MANAGEMENT THINKING

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Leading organisations have left all this behind. They have become proactive in their relationships with stakeholders. They realise it is better to invite all stakeholders in to the organisation, rather than hold them at arm’s length. They even share decision-making power with them. They engage in joint product development with suppliers and customers, negotiating working conditions with staff to ensure best outcomes for staff and the organisation, and they work with governments to ensure that issues such as workplace safety, environmental outcomes and many other facets of work can lead to better outcomes on the overall triple bottom line (financial, environmental and societal outcomes). These leading organisations use sustainable development practices and opportunities to drive innovation, as a source and motivation for change. As companies become more and more pervasive as institutions in our societies, this relatively new approach to management, of long-term sustainability, asks organisations to assume a higher level of overall responsibility in society, rather than the previous approach of taking what it can in order to profit. And society is lifting its standards and expectations of organisations: we now expect them to not pollute the environment more than the bare minimum, to treat employees well and to care for the local communities that give them a licence to operate. And when companies do the wrong thing, they are increasingly punished by societies, consumers and governments. The motivation and opportunities exist for organisational managers to do more than ever: to not only work to achieve short-term efficiency, quality, innovation, customer satisfaction and employee satisfaction, but also to drive win–win results across a broader range of outcomes than ever before, and to do this on a long-term, sustainable basis. The field of management just keeps evolving, and this modern manifestation of it promises to make managerial work increasingly interesting and challenging. Compare a modern progressive, advanced company such as Google, which gives US$5000 to its employees if they buy a fuel-efficient car and provides free unlimited food and many other benefits to staff at work, to the approach taken by generations of managers and business owners one hundred years ago, who often treated their workers as necessary evils.

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DISCUSSION QUESTIONS 1 How would you feel about working in a bossless organisation? What might be your role as a ‘manager’ in such an environment? Do you think this is a trend that will continue to grow or fade away? Why? 2 Big data analytics programs (analysing massive data sets to make decisions) use gigantic computing power to quantify trends that would be beyond the grasp of human observers. As the use of this quantitative analysis increases, do you think it may decrease the ‘humanity of production’ in organisations? Why? 3 How do you think management practices might change in response to increasing government regulation in the banking and healthcare industries? What other recent political, social or economic forces can you identify that might affect your job as a manager? 4 The Bain survey of management tools and trends, which was cited earlier in this chapter, found that the use of social media programs

is growing, but that as a tool, social media also has one of the lowest satisfaction ratings. How would you explain this? 5 Can you think of potential drawbacks to retailers using labourwaste elimination systems based on scientific management principles, as described in the text? Despite being around 100 years old, do you believe scientific management characteristics will ever cease to be a part of organisational life? Discuss. 6 A management lecturer once said that for successful management, studying the present was most important, studying the past was next and studying the future was least important. Do you agree? Why? 7 As organisations become more technology-driven, which do you think will become more important: the management of the human element of the organisation, or the management of technology? Discuss.

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8 Why do you think Mary Parker Follett’s ideas tended to be popular with businesspeople of her day, but were ignored by management scholars? Why are her ideas appreciated more today? 9 Explain the basic idea underlying the contingency view. How would you go about identifying key contingencies facing an organisation? 10 Why can an event such as the Hawthorne studies be a major turning point in the history of management, even if the results of the studies are later shown to be in error? Discuss.

11 How would you apply systems thinking to a problem such as poor performance in your current academic studies? Or to a problem with a romantic partner or family member? Try to identify all the elements and their interdependencies. 12 Do you think management theory will ever be as precise as theories in the fields of finance, accounting or experimental psychology? Why or why not?

ENDNOTES 1 Pacific Hydro, http//:www.pacifichydro.com.au. 2 Smith, M. (9 August 2016). How Qantas CEO Alan Joyce became the turnaround king. ABC News, http://www.afr.com/brand/boss/true-leaders-2016-alan-joyce-qantas-ceo20160711-gq37e9 (accessed 24 October 2016); Ong, T. and Letts, S. (24 August 2016). Qantas posts record profit of $1b, first dividend in seven years. ABC News, http://www. abc.net.au/news/2016-08-24/qantas-posts-underlying-profit-of-$1.5b,-announces-sharebuyback/7779398 (accessed 20 February 2017). 3 (6 June 2012). Q&A: Why the West Needs ‘Jugaad’ Creativity (an interview with Navi Radjou, Jaideep Prabhu, and Simone Ahuja), The Wall Street Journal India Online, http://blogs.wsj. com/indiarealtime/2012/06/06/qa-why-the-west-needs-jugaad-creativity (accessed 19 June 2012); and Navi Radjou, Jaideep Prabhu and Simone Ahuja. (2012). Jugaad Innovation: Think Frugal, Be Flexible, Generate Break-through Growth (San Francisco: Jossey-Bass). 4 Saraf, D. (13 July 2009). India’s Indigenous Genius: Jugaad. The Wall Street Journal Online, http://online.wsj.com/article/SB124745880685131765.html (accessed 19 June 2012); N. Kumar and P. Puranam. (March–April 2012). Frugal Engineering: An Emerging Innovation Paradigm. Ivey Business Journal, www.iveybusinessjournal.com/topics/innovation/frugalengineering-an-emerging-innovation-paradigm (accessed 19 June 2012). 5 El Namaki, M. S. S. (March–April 2012). Does the Thinking of Yesterday’s Management Gurus Imperil Today’s Companies?’, Ivey Business Journal, http//:www.iveybusinessjournal. com/topics/strategy/does-the-thinking-of-yesterdays-management-gurus-imperil-todayscompanies (accessed 19 June 2012). 6 Abrahamson, E. (January 1996). Management Fashion. Academy of Management Review 21:1, 254–85. Also see ‘75 Years of Management Ideas and Practice’, a supplement to the Harvard Business Review (September–October 1997), for a broad overview of historical trends in management thinking. 7 Munk, N. (16 March 1998). The New Organization Man. Fortune, 62–74. 8 Based on T. Henneman. (2 April 2012). Talkin’ About Their Generations: The Workforce of the ’50s and Today. Workforce, http://www.workforce.com/article/20120402/ WORKFORCE90/120319965/talkin-about-their-generations-the-workforce-of-the-50sand-today (accessed 19 June 2012); and Stephanie Armour. (6 November 2005). ‘Generation Y: They’ve Arrived at Work with a New Attitude’, USA Today, www.usatoday.com/money/ workplace/2005-11-06-gen-y_x.htm (accessed 10 November 2005). 9 McGregor, E. (23 and 30 March 2009). There Is No More Normal. Business-Week, 30–4. 10 Tell, R. and Kleiner, B. (March–April 2009). Organizational Change Can Rescue Industry. Industrial Management, 20–4. 11 This discussion is based on Walter Kiechel III, ‘The Management Century’, Harvard Business Review (November 2012): 62–75. 12 These quotes are from Kiechel, ‘The Management Century’. 13 Jacques Bughin, Michael Chui, and James Manyika, ‘Capturing Business Value with Social Technologies’, McKinsey Quarterly (November 2012), http://www.mckinsey.com/insights/ high_tech_telecoms_internet/capturing_business_value_with_social_technologies (accessed 27 September 2013).

14 Roland Deiser and Sylvain Newton, ‘Six Social-Media Skills Every Leader Needs’, McKinsey Quarterly, Issue 1 (February 2013), http://www.mckinsey.com/insights/ high_tech_telecoms_internet/six_social-media_skills_every_leader_needs (accessed 21 August 2013). 15 David Kiron, Douglas Palmer, and Robert Berkman, ‘The Executive’s Role in Social Business’, MIT Sloan Management Review (Summer 2013): 83–89. 16 Ibid. 17 Leslie Gaines-Ross, ‘Get Social: A Mandate for New CEOs’, MIT Sloan Management Review (7 March 2013), http://sloanreview.mit.edu/article/get-social-a-mandate-for-new-ceos/ (accessed 21 August 2013). 18 Ibid. 19 Wren, D. A. (1987). Management History: Issues and Ideas for Teaching and Research. Journal of Management, 13, 339–50. 20 Business historian Alfred D. Chandler, Jr., quoted in J. Useem. (20th Anniversary Issue, 1999). Entrepreneur of the Century. Inc., 159–74. 21 Useem. Entrepreneur of the Century. 22 The following is based on Wren, Evolution of Management Thought, Chapters 4 and 5; and C. S. George, Jr. (1968). The History of Management Thought (Englewood Cliffs, NJ: PrenticeHall), Chapter 4. 23 Crossen, C. (6 November 2006). Early Industry Expert Soon Realized a Staff Has Its Own Efficiency. The Wall Street Journal. 24 Farnham, A. (21 July 1997). The Man Who Changed Work Forever. Fortune, 114; C. D. Wrege and A. M. Stoka. (October 1978). Cooke Creates a Classic: The Story Behind F. W. Taylor’s Principles of Scientific Management. Academy of Management Review, 736–49; R. Kanigel. (1997). The One Best Way: Frederick Winslow Taylor and the Enigma of Efficiency (New York: Viking); and ‘The X and Y Factors: What Goes Around Comes Around’, special section in (21–27 January 2006). The New Organisation: A Survey of the Company. The Economist, 17–18. 25 George, The History of Management Thought; Wren, D. A. (1979). The Evolution of Management Thought, 2nd edn (New York: Wiley). 26 O’Connell, V. (17 November 2008). Stores Count Seconds to Trim Labor Costs. The Wall Street Journal; and V. O’Connell. (10 September 2008). Retailers Reprogram Workers in Efficiency Push. The Wall Street Journal. 27 Hamel, G. (February 2006). The Why, What, and How of Management Innovation. Harvard Business Review, 72–84; Peter Coy. (20 and 27 August 2007). Cog or CoWorker? BusinessWeek, 58–60. 28 Weber, M. (1927). General Economic History (F. H. Knight, trans.) (London: Allen & Unwin); Weber, M. (1930). The Protestant Ethic and the Spirit of Capitalism (T. Parsons, trans.) (New York: Scribner); Weber, M. (1947). The Theory of Social and Economic Organizations (A. M. Henderson & T. Parsons, ed. and trans.) (New York: Free Press). 29 Fayol, H. (1930). Industrial and General Administration, trans. J. A. Coubrough (Geneva: International Management Institute); H. Fayol. (1949). General and Industrial Management,

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trans. C. Storrs (London: Pitman and Sons); and W. J. Arnold et al. (vol. I, 1965; vol. II, 1966). BusinessWeek, Milestones in Management (New York: McGraw-Hill). 30 Bounds, G. M., Dobbins, G. H. and Fowler, O. S. (1995). Management: A Total Quality Perspective (Cincinnati, OH: South-Western Publishing), pp. 52–3. 31 Follett M. P. (1918). The New State: Group Organization: The Solution of Popular Government (London: Longmans, Green); and M. P. Follett. (1924). Creative Experience (London: Longmans, Green). 32 Metcalf, H. C. and Urwick, L. eds. (1940). Dynamic Administration: The Collected Papers of Mary Parker Follett (New York: Harper & Row); Arnold et al. Milestones in Management. 33 Follett. The New State; Metcalf and Urwick. (1941). Dynamic Administration (London: Sir Isaac Pitman). 34 Wolf, William B. (1968). How to Understand Management: An Introduction to Chester I. Barnard (Los Angeles: Lucas Brothers); and D. D. Van Fleet. (Spring 1982). The Need-Hierarchy and Theories of Authority. Human Relations, 9, 111–18. 35 Tausky, C. (1978). Work Organizations: Major Theoretical Perspectives. Itasca: F. E. Peacock, 42. 36 Wrege, C. D. (August 1976). Solving Mayo’s Mystery: The First Complete Account of the Origin of the Hawthorne Studies –The Forgotten Contributions of Charles E. Snow and Homer Hibarger. Paper presented to the Management History Division of the Academy of Management. 37 Greenwood, R. G., Bolton, A. A. and Greenwood, R. A. (Fall–Winter 1983). Hawthorne a HalfCentury Later: Relay Assembly Participants Remember. Journal of Management, 9, 217–31. 38 Roethlisberger, F. J., Dickson, W. J. and Wright, H. A. (1939). Management and the Worker (Cambridge, MA: Harvard University Press). 39 Parson, H. M. (1974). What Happened at Hawthorne? Science, 183, 922–32. Adair, J. G. (1984). The Hawthorne Effect: A Reconsideration of the Methodological Artifact. Journal of Applied Psychology, 69:2, 334–45. 40 Greenwood et al. Hawthorne a Half-Century Later: Relay Assembly Participants Remember. 41 Roethlisberger and Dickson. Management and the Worker. 42 Aldag, R. J. and Stearns, T. M. (1991). Management, 2nd ed. (Cincinnati, OH: South-Western Publishing), pp. 47–8. 43 Tausky, C. (1978). Work Organizations: Major Theoretical Perspectives. Itasca: F. E. Peacock, 55. 44 McGregor, D. (1960). The Human Side of Enterprise (New York: McGraw-Hill), pp. 16–18. 45 French, W. L. and Bell, C. H. Jr. A History of Organizational Development. In W. L. French, C. H. Bell Jr. and R. A. Zawacki. (2000). Organization Development and Transformation: Managing Effective Change (Burr Ridge, IL: Irwin McGraw-Hill), pp. 20–42. 46 Mansel G. Blackford and K. Austin Kerr, Business Enterprise in American History (Boston: Houghton Mifflin, 1986), Chapters 10 and 11; and Alex Groner and the editors of American Heritage and BusinessWeek, The American Heritage History of American Business and Industry (New York: American Heritage Publishing, 1972), Chapter 9. 47 Barnes, B. (28 December 2010). Disney Technology Tackles a Theme-Park Headache: Lines. The New York Times, B1; and (9 March 2012). Disney Cracks Down on FastPass Enforcement. Tampa Bay Times, B2. 48 Austin, L. M. and Burns, J. R. (1985). Management Science (New York: Macmillan). 49 Patterson, S. (2010). The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It (New York: Crown Business); and H. Hurt III. (21 February 2010). In Practice, Stock Formulas Weren’t Perfect. The New York Times. 50 Bertalanffy, Ludwig von et al. (December 1951). General Systems Theory: A New Approach to Unity of Science. Human Biology, 23, 302–61; and K. E. Boulding. (April 1956). General Systems Theory—The Skeleton of Science. Management Science, 2,197–208. 51 This section is based on P. M. Senge. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday); J. D. Sterman. (Summer 2001). Systems Dynamics Modeling: Tools for Learning in a Complex World. California Management Review, 43:4, 8–25; A. Gabor. (Summer 2010). Seeing Your Company as a System. Strategy 1 Business, http://www.strategy-business.com/article/10210?gko=20cca (accessed 20 June 2012); and R. Zemke. (February 2001). Systems Thinking. Training, 40–6. 52 This example is cited in Sterman. Systems Dynamics Modeling. 53 In P. M. Senge. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday/Currency). 54 Luthans, F. (June 1973). The Contingency Theory of Management: A Path Out of the Jungle. Business Horizons, 16, 62–72; and F. E. Kast and J. E. Rosenzweig. (1973). Contingency Views of Organization and Management (Chicago: Science Research Associates). 55 Greengard, S. (January 1997). 25 Visionaries Who Shaped Today’s Workplace. Workforce, 50–9; and A. Harrington. (22 November 1999). The Big Ideas. Fortune, 152–4. 56 Guillen, M. F. (Fall 1994). The Age of Eclecticism: Current Organizational Trends and the Evolution of Managerial Models. Sloan Management Review, 75–86.

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57 Main, J. (19 October 1992). How to Steal the Best Ideas Around. Fortune, 102–6; Ingelsson, P. (2012). Can selecting the right values help TQM implementation? A case study about organisational homogeneity at the Walt Disney Company. Total Quality Management & Business Excellence. Vol. 23, Iss. 1, pp. 1–11; Toyota Motor Corporation (2012). Changes and innovations (include the creative idea suggestion system), http://www.toyota-global. com/company/history_of_toyota/75years/data/company_information/management_ and_finances/management/tqm/change.html (accessed 24 October 2016); Gabor, A. (13 June 2001). Management: Ford embraces Six Sigma. Available: http://www.nytimes. com/2001/06/13/business/management-ford-embraces-six-sigma.html?_r=0 (accessed 24 October 2016). 58 Rigby, D. and Bilodeau, B. (2009). Management Tools and Trends 2009. Bain & Company Inc., http://www.bain.com/management_tools/home.asp (accessed 10 March 2010). 59 Davenport, T. H. and Prusak, L. with J. Wilson. (2003). What’s the Big Idea? Creating and Capitalizing on the Best Management Thinking (Boston, MA: Harvard Business School Press); T. Kinni. (March–April 2003). Have We Run out of Big Ideas? Across the Board, 16–21, Hamel. The Why, What, and How of Management Innovation; and J. Thompson Heames and M. Harvey. (2006). The Evolution of the Concept of the Executive from the 20th-Century Manager to the 21st-Century Global Leader. Journal of Leadership and Organizational Studies, 13:2, 29–41. 60 Hurst, D. (May–June 2012). The New Ecology of Leadership: Revisiting the Foundations of Management. Ivey Business Journal, 1–5; M. Murphy. (29 January 2010). The Race to Failure (a review of Crash Course by Paul Ingrassia, Random House 2010), The Wall Street Journal, A13. 61 Van Rossem, A. and Van Veen, K. (2011). Managers’ Awareness of Fashionable Management Concepts: An Empirical Study. European Management Journal, 29, 206–16. 62 Study reported in P. Dvorak. (26 June 2006). Why Management Trends Quickly Fade Away (Theory and Practice column). The Wall Street Journal. 63 Colvin, G. (6 March 2000). Managing in the Info Era. Fortune, F-5–F-9. 64 Darrell K. Rigby, Management Tools 2013: An Executive’s Guide (Bain & Company 2013), http://www.bain.com/Images/MANAGEMENT_TOOLS_2013_An_Executives_guide.pdf (accessed 27 August 2013); Margaret Rouse, ‘Big Data Analytics,’ TechTarget.com (January 10, 2012), http://searchbusinessanalytics.techtarget.com/definition/big-data-analytics (accessed 27 August 2013); and David Kiron, Renee Boucher Ferguson, and Pamela Kirk Prentice,“From Value to Vision: Reimagining the Possible with Data Analytics,” MIT Sloan Management Review Special Report (5 March 2013), http://sloanreview.mit.edu/reports/ analytics-innovation/ (accessed 27 August 2013). 65 Steve Lohr,‘Sure, Big Data Is Great. But So Is Intuition’, The New York Times, 29 December 2012. 66 Andrew McAfee and Erik Brynjolfsson, ‘Big Data: The Management Revolution,’ Harvard Business Review (October 2012): 61–68. 67 Spandas Lui, ‘eHarmony Translates Big Data into Love and Cash,’ ZDNet.com (6 November 2012) http://www.zdnet.com/eharmony-translates-big-data-into-love-andcash-7000006884/ (accessed 27 August 2013); and Jeff Russell, ‘LinkedIn’s eHarmony-Style Recruiting: Big Data Meets HR,’ HR.com (16 April 2013), http://www.hr.com/en/app/ blog/2013/04/linkedin%E2%80%99s-eharmony-style-recruiting-big-data-meet_hfl6zpzd. html (accessed 27 August 2013). 68 Lohr, Sure, Big Data Is Great. 69 McAfee and Brynjolfsson, Big Data: The Management Revolution. 70 Examples reported in Thomas H. Davenport and Jeanne G. Harris, Competing on Analytics: The New Science of Winning (Boston, MA: Harvard Business School Press, 2007); and McAfee and Brynjolfsson, Big Data: The Management Revolution. 71 Drucker, P. (1993). Post-Capitalist Society (Oxford: Butterworth Heinemann), p. 5. 72 Mayo, A. (22 January 1998). MemoryBankers. People Management, 34–8. Miller, W. (January 1999). Building the Ultimate Resource. Management Review, 42–5. Datz, T. (15 April 1999). How to Speak Geek. CIO Enterprise, 2, 46–52. 73 Wah, L. (April 1999). Behind the Buzz. Management Review, 17–26. 74 Rigby, D. and Bilodeau, B. (2005). The Bain 2005 Management Tool Survey. Strategy & Leadership, 33:4, 4–12. 75 This definition is based on Steven A. Melnyk and David R. Denzler, Operations Management: A Value-Driven Approach (Burr Ridge, IL: Richard D. Irwin, 1996): p. 613. 76 The Global Supply Chain Games project, www.gscg.org (accessed 16 July 2008). 77 Eric Bellman and Cecilie Rohwedder, ‘Western Grocer Modernizes Passage to India’s Markets,’ The Wall Street Journal, 28 November 2007. 78 Steven Greenhouse and Stephanie Clifford, ‘U.S. Retailers Offer Safety Plan for Bangladeshi Factories’ The New York Times (10 July 2013), http://www.nytimes. com/2013/07/11/business/global/us-retailers-offer-safety-plan-for-bangladeshifactories.html?pagewanted=all&_r=0 (accessed 21 August 2013); and Kate O’Keeffe

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and Sun Narin, ‘H&M Clothes Made in Collapsed Cambodian Factory,’ The Wall Street Journal (21 May 2013), http://online.wsj.com/article/SB1000142412788732478700457849 7091806922254.html (accessed 21 August 2013). 79 Rigby and Bilodeau. Management Tools and Trends 2011. Bain and Company, Inc., http://www. bain.com/publications/articles/Managementtools-trends-2011.aspx (accessed 22 June 2012). 80 18 April 2012). Survey: 37% Use Social Media to Check Candidates. Workforce. http://www. workforce.com/article/20120418/NEWS01/120419964 (accessed 22 June 2012). 81 Roxane Divol and Thomas Fleming, The Evolution of Work: One Company’s Story, McKinsey Quarterly, Issue 4 (2012): 111–115. 82 Tom Ashbrook, The Bossless Office, On Point with Tom Ashbrook (20 June 2013), http:// onpoint.wbur.org. 83 Hamel, First, Let’s Fire All the Managers. 84 This definition is based on Mercer Human Resource Consulting’s Employee Engagement Model, as described in Paul Sanchez and Dan McCauley, Measuring and Managing

PART 1 CONTINUING CASE

Engagement in a Cross-Cultural Workforce: New Insights for Global Companies, Global Business and Organizational Excellence (November–December 2006): 41–50. 85 Rigby and Bilodeau, Management Tools and Trends 2013. 86 Max Mihelich, Another Generation Rises: Looking Beyond the Millennials, Workforce (12 April 2013), http://www.workforce.com/articles/108-another-generation-rises-lookingbeyond-the-millennials (accessed 22 August 2013). 87 Matson, E. (October–November 1997). You Can Teach This Old Company New Tricks. Fast Company, 44–6. 88 Toyota (2017) Guiding principles at Toyota, http://www.toyota-global.com/company/vision_ philosophy/guiding_principles.html (accessed 2 February 2017). 89 Toyota (2017) Toyota Way 2001, http://www.toyota-global.com/company/history_ of_toyota/75years/data/conditions/philosophy/toyotaway2001.html (accessed 2 February 2017).

INNOVATIVE MANAGEMENT FOR A CHANGING WORLD

By 2014, Toyota had become a very successful global automaker with 53 overseas manufacturing companies in 28 countries and regions, and vehicles sold in more than 170 countries and regions. Toyota was seen by many industries and researchers as a benchmark of ‘world’s best practice’ in operational excellence, which in Toyota was referred to as the Toyota Production System (TPS). More generally, Toyota built on the core values created by its founders and had implemented its ‘Toyota Way’ philosophy since 2001, based on two pillars of respect for people and continuous improvement, driving customer value creation and constantly pursuing perfection. These approaches have raised Toyota to a point where its vehicles were viewed by many customers as being high in their ‘value proposition’, based on reliability and durability, especially at the competitive price points that were offered to customers. Yet in Australia, Toyota faced some significant challenges. Its Australian business was established in 1963, created a proud history of being the biggest selling brand in the Australian market. It was well ahead of all competitors, based mainly on the locally produced Camry and all its other imported vehicles, such as RAV4, Corolla, Landcruiser, Hilux, Prius and others. Investments had been made in new model development, new technology such as the new hybrid synergy drive for Camry. However, with the changing business environment, the ongoing viability of its Australian manufacturing operations was being questioned. The local market was small, and local costs of manufacturing were high compared with many other countries. Australia was a place that had supplied Camry vehicles to Toyota’s Middle East markets for nearly 20 years, with about two thirds of the production volume from the Altona, Melbourne manufacturing facility being exported there. These 60 000 or so exported vehicles could be

sourced from other Toyota plants if necessary. Australia was one of the very first plants that Toyota had established outside Japan, and Toyota had a corporate sense of loyalty to its Australian operations, where it had cut its teeth in some ways of managing manufacturing operations outside Japan, in a Western culture, some decades ago. Further, Toyota globally had corporately been expanding overseas year on year, continuously for some 50 years, apart from during the 2008–10 global financial crisis (when all automotive companies experienced economic difficulties), and was completely unused to reducing or shutting down operations or country level plants or business units, but rather was very well versed in growing, upgrading and investing in these. The challenges facing Toyota of high local costs and a small domestic market also faced the other two companies operating in Australia, Ford and General Motors Holden (GMH). When in 2013/4, first Ford and then GMH announced the closing of their Australian operations as of 2016 and 2017 respectively, Toyota followed, because the whole supply chain and industry could not be sustained in Australia when it was ‘feeding’ only one assembly plant operation. So in February 2014, Toyota announced their decision to close manufacturing operations at their Altona manufacturing facility. Toyota’s global president, Akio Toyoda, visited the Melbourne plant to make the plant closure announcement, which was a solemn, sad and momentous occasion for Toyota’s long serving employees, many of whom had been part of the company for over 30 years and had expected to be there until retirement. This introduced a new challenge to Toyota executives and managers at all levels in Australia, of how to manage the operations, motivation, quality and continuous improvement in a business unit that was going to close and ultimately make over 2500 people redundant.

A1: THE EVOLUTION OF MANAGEMENT THINKING

Despite Toyota’s proud history, this was a new type of challenge for the company and its philosophies. The company’s guiding principles, first published in 1935, were still proudly posted on its corporate website (as translated from Japanese): • ‘Always be faithful to your duties, thereby contributing to the Company and to the overall good. • ‘Always be studious and creative, striving to stay ahead of the times. • ‘Always be practical and avoid frivolousness. • ‘Always strive to build a homelike atmosphere at work that is warm and friendly. • ‘Always have respect for spiritual matters, and remember to be grateful at all times.’88 Further, the more recently articulated Toyota Way, from 2001, was expressed as: The Toyota Way is supported by two main pillars: ‘Continuous Improvement’ and ‘Respect for People’. We are never satisfied with where we are and always work to improve our business by putting forward new ideas and working to the best of our abilities. We respect all Toyota stakeholders, and believe the success of our business is created by individual effort and good teamwork.89 (See EXHIBIT A1.9.)

Challenge Kaizen Genchi genbutsu Continuous improvement

Respect for people

Respect Teamwork EXHIBIT A1.9 Toyota company philosophy Source: Toyota Way 2001, http://www.toyota-global.com/company/history_of_ toyota/75years/data/conditions/philosophy/toyotaway2001.html)

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The big new challenges for Toyota in Australia would be that the company had been truly excellent at implementing these high ideals during periods of growth, but new circumstances were upon them, and these would mean applying the Toyota Way in this new and challenging context. QU E S T I O N S 1 Toyota gave itself, its customers, dealers, suppliers and employees nearly four years to implement the manufacturing closure in Australia. What were the main specific challenges the company would face in that period? 2 Once the company announced the Australian manufacturing closure, it set a local goal, of ‘Last car equals best global car’. What would this imply, could it be accomplished, and how? 3 If you were a shop floor team member (factory worker) at Toyota in Melbourne, and like many of them, you had worked there for more than two decades, what emotional response would you have had to the closure announcement, and what support would you expect from the company and its executives? 4 For the many suppliers to the automotive industry in Australia, who make so many different parts, from seats to plastic components (e.g. Toyota had nearly 50 per cent of the parts sourced by local suppliers) losing their three end-use customers (Ford, GMH and Toyota) must have been a major disruptive shock. Even with some three to four years of notice of the closures, what would you have done if you were running a family owned business that supplied parts to the local automotive industry, once the closures were announced in 2014? 5 Toyota in Australia has always cared very much for its reputation in the market place and in the minds of its customers. One of its sayings was ‘Employee first equals customer first’. Interpret the likely meaning of this statement, and consider how it will play out given the new circumstances of the Toyota Australia planned 2017 manufacturing shutdown.

PART T WO T HE E N V I RON M E N T O F M A N AGE M E N T

Chapter 2 The environment and corporate culture Chapter 3 Managing in a global environment Chapter 4 Ethics, social responsibility and sustainable development

The environment surrounding a sporting contest plays a significant part in determining the outcome. In Test cricket, the nature of the pitch determines whether spin bowlers or fast bowlers are favoured for selection. In most football codes, the direction and strength of the wind can make a difference, and this certainly is also the case in sailing. In Davis Cup tennis contests, the playing surface chosen by the home team and the partisan home crowd are important parts of the environment that affect the outcome. In golf, the weather conditions, speed of the greens, pin placement and other factors are the environment that must be accounted for by competitors. Similarly, in business and management, the environment affects the outcome. When organisations are considering starting a business in a new country, the prevailing work culture plays a significant part in determining the outcome. So do the state of the market, the intensity of competition in an industry and economic circumstances, such as interest rates and unemployment rates. Each of these factors has an impact on the strategies and tactics managers must employ. What ethical standards are being applied in the industry and country of

operation? What are the local idiosyncrasies in a foreign market, and how do customer preferences differ from those in the home market? These factors are dynamic, never static. In both sport and business, the environment in which we work and compete is forever changing. A change of wind can dramatically change a sailing competition or a football match, and these are difficult to predict in advance. In business, consider the massive changes going on in Europe such as Britain’s vote to leave the European Union, large influxes of refugees, and terror events. These situations bring changes to the environment in which organisations and their managers must work, and can also change consumer behaviour. The election of Donald Trump as President of the United States – which surprised many people – will impact on business conditions in the United States. Because of the changes to international trade conditions advocated in his election policies, many organisations around the world will feel the effects, should those promises become reality. In Part 2, you will study the environment of management, including the trend towards globalisation and the importance of managerial ethics and social responsibility.

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L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define an organisational ecosystem and how the general and task environments affect an organisation’s ability to thrive

2 explain the strategies that managers use to help organisations adapt to an uncertain or turbulent environment

3 define corporate culture and give organisational examples

4 explain organisational symbols, stories, heroes, slogans and ceremonies and their relationship to corporate culture

5 describe the four types of cultures and how corporate culture relates to the environment

6 define a cultural leader and explain the tools that a cultural leader uses to create a high-performance culture.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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MANAGEMENT CHALLENGE

MICROSOFT: COPING WITH CHANGE Many people think of Microsoft and software as being almost synonymous, the same way people once thought of Xerox and photocopying. But Xerox learned the hard way that a dominant position is not guaranteed. To avoid the same fate at Microsoft, managers warned the company’s founder and chairman Bill Gates that Microsoft’s PC software business was in danger of becoming increasingly defunct. For years, Microsoft exerted significant control over what appears on the PC desktop and which software programs the majority of customers use, but that control is changing. Most people, especially home users, set up a new PC by clicking through a series of introductory screens and selecting the software and services they want. Microsoft historically controlled this set-up sequence and the software that comes installed on the computer. Now, though, PC makers are taking back control, selling desktop space to competing software and service providers and giving end users broader choices of software during setup. Google, for example, negotiated to have its software preinstalled on millions of Dell PCs. Hewlett-Packard gives users the option to sign up for a variety of programs and services from

companies other than Microsoft. Because Microsoft has long garnered its largest source of revenue and profit from PC software, it’s a shift that could spell big trouble. Google continues to move its Android software and operating systems into more prominent positions on devices ranging from mobile phones to tablets and other computers. Apple has also made significant headway, passing Microsoft in its market capitalisation value after being much the smaller company for the near 40 years that these companies have competed. As more telecommunications and computing moves onto mobile platforms, questions still hang over Microsoft, which was once industry-dominant under Bill Gates, but under Steve Ballmer, was not as successful. Current CEO Satya Nadella is facing many challenges and changes. Sources: Guth, R. A. and Delaney, K. J. (7 February 2006). Default Lines; Pressuring Microsoft, PC Makers Team Up with Software Rivals. The Wall Street Journal, A1, A25.

QU E S T I O N If you were a manager at Microsoft, how might you have been more prepared for this shift in the way PC makers do business with software companies? What steps would you take to help Microsoft maintain its status in the software industry as it faces new threats from competitors in the environment?

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NEW MANAGER SELF-ASSESSMENT ARE YOU FIT FOR MANAGERIAL UNCERTAINTY? Do you approach uncertainty with an open mind? Think back to how you thought or behaved during a time of uncertainty when you were in a formal or informal leadership position. Please answer whether each of the following items was mostly true or mostly false in that circumstance. MOSTLY TRUE MOSTLY FALSE

1 Enjoyed hearing about new ideas even when working towards a deadline. 2 Welcomed unusual viewpoints of others even if we were working under pressure. 3 Made it a point to attend industry trade shows and company events. 4 Specifically encouraged others to express opposing ideas and arguments. 5 Asked ‘dumb’ questions. 6 Always offered comments on the meaning of data or issues. 7 Expressed a controversial opinion to bosses and peers. 8 Suggested ways of improving my own and others’ ways of doing things. Note: The self-assessment questions are based on ideas from R. L. Daft and R. M. Lengel, Fusion Leadership (San Francisco: Berrett Koehler, 2000): Chapter 4; B. Bass and B. Avolio, Multifactor Leadership Questionnaire, 2nd ed. (Menlo Park, CA: Mind Garden, Inc., 2004); and Karl E. Weick and Kathleen M. Sutcliffe, Managing the Unexpected: Assuring High Performance in an Age of Complexity (San Francisco: Jossey-Bass, 2001).

Scoring and Interpretation: give yourself one point for each item you marked as mostly true. If you scored less than five you might want to start your career as a manager in a stable environment rather than unstable environment. A score of five or above suggests a higher level of mindfulness and a better fit for a new manager in an organisation with an uncertain environment. In an organisation in a highly uncertain environment everything seems to be changing. In that case, an important quality for a new manager is mindfulness, which includes the qualities of being open-minded and an independent thinker. In a stable environment, a manager with a closed mind may perform okay because much work can be done in the same old way. In an uncertain environment, even a new manager needs to facilitate new thinking, new ideas and new ways of working. A high score on the preceding items suggests higher mindfulness and a better fit with an uncertain environment.

In high technology industries, environmental conditions are volatile. Telstra, Telecom NZ and Microsoft are currently in a situation similar to the one Xerox faced in the early 1990s. Xerox was dominant in its industry for many years, but managers missed cues from the environment and got blindsided by rivals Canon and Ricoh when they began selling comparable copy machines at lower prices. Moreover, Xerox failed to keep pace with changing methods of document management and had no new products to fill the gaps in the declining copy business. Consequently, the company struggled for more than a decade to find its footing in a vastly changed world. CEO Anne Mulcahy

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used her management skills to mastermind a hot turnaround at Xerox and get the company moving forward again.1 Similarly to Xerox, Microsoft has held a dominant position for nearly 40 years, but the environment is shifting dramatically and Microsoft will have to change significantly to remain competitive. The acquisition of Nokia’s phone division by Microsoft (who paid US$7.85 billion for the business in 2013) was an indication that Microsoft was aware of the need to adapt to changes in the business environment. In 2015, Microsoft Mobile was restructured which included a US$7.6 billion write down on the acquisition of Nokia’s mobile device business, layoffs of up to 8000 workers, a plan to downsize its first-party smartphone business to release fewer devices per year, the retiring of the Nokia brand name and the introduction of the Lumia brand name, and pulling out of underperforming markets.2 In 2016, Microsoft sold the Nokia division to FIH Mobile (a division of Foxconn and HMD).3 In this instance Microsoft was looking to create a competitive response to Apple and Samsung’s smartphone dominance.4 The environment for Australia’s telecommunications company, Telstra, has changed dramatically since the mid-1990s because of increased competition, rapid advances in technology and growing demands from customers for enhanced networking services. Organisations around the world are waging war on a new level because of increased competition and advancing technology. In Thailand, Sony and Matsushita are battling for the consumer electronics market. As outlined above, Microsoft is facing challenges that may threaten the company’s pre-eminence in the software industry. Today, no company can rest on its laurels. The environment surprises many organisations. Mattel was shaken when it learned that a Chinese subcontractor used lead paint while manufacturing its toys. Because of the potential health hazard, Mattel recalled nearly 850 000 of its most popular toys – months before its holiday selling season. Not only did the recall frighten consumers, but it sparked a global debate about the safety of Chinese-made products. Mattel managers moved swiftly to reassure nervous parents of its high safety standards in its Chinese factories. In addition, then CEO Robert Eckert explained the recall to consumers on the company’s website and announced the steps Mattel was taking to prevent further recalls being necessary.5 Mattel’s prompt response, teamed with its long-standing history of successful manufacturing in China, led many independent analysts and watchdog groups to say that it may be the best role model for how to operate prudently in China. ‘Mattel realised very early that they were always going to be in the crosshairs of sensitivities about child labour and product safety, and they knew they had to play it straight. Mattel was in China before China was cool, and they learned to do business there in a good way,’ says M. Eric Johnson, a Dartmouth management professor.6 Most managers don’t pop on a crash helmet and fire-resistant suit to guide an organisation through tumultuous change. But when Toyota Motor Corporation’s president, Akio Toyoda, faced a series of calamities during his first few years as president, he tapped into his skills as a certified test car driver – high endurance, precise steering and strong mental focus – to lead Toyota to a surprising rebound. In 2011, Toyota toppled from its number one position as the world’s largest automaker to third, behind General Motors and Volkswagen, after suffering the effects of a global recession, the recall of 8 million vehicles and the impacts of the tsunami in Japan. Within the organisation, storms were also brewing. Toyota’s tortuous bureaucracy slowed decision-making and response times, and the company seemed to have lost touch with its customers. Toyota’s growth had been underpinned by the values of quality, dependability,

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See Appendix to Chapter 1 for a discussion on the classical, behavioural and management science schools and the internal aspects of organisations over which managers have direct control.

and reliability, but customers also wanted style and design, and they were flocking to Hyundai, which had seized design leadership.7 By 2016, Toyota had bounced back to its number one global market position, with over 10 million vehicles sold per year, ahead of its largest rivals, Volkswagen and General Motors.8 These environmental factors – both external and internal – served as wake-up calls for a company that had grown complacent. Akio Toyoda’s response was to upend the corporate culture and create a more responsive organisation – one that could navigate with ease through even subtle environmental shifts. Government actions, regulations and red tape can also affect an organisation’s environment and provoke a crisis. State and federal governments in Australia directly control the funding and rules of operation of major industries such as education and healthcare. With the privatisation of most utilities in Australia, some people question the effectiveness of regulations and regulators when water quality problems in Sydney and gas supply problems in Melbourne cause inconvenience and disruption. Although few organisations experience a crisis as serious as a gas leak causing a major explosion, unexpected events that can seriously harm performance occur in the environment of every organisation. During the massive global financial crisis (GFC) of 2008–10, companies such as ANZ, BHP Billiton and Westpac underwent major internal changes – restructuring, discarding product lines and trimming workforces. Without these major changes, the companies would no longer fit the reality of the changed external environment. General Motors, which for decades was dominant in the United States and indeed global automotive markets, fell from having a massive 52 per cent market share at its peak to declaring provisional bankruptcy in 2009, and was bailed out by the US government. Yet as of 2016, the company’s first female Chairman and CEO, Mary Barra, is doing a solid job in returning General Motors to a position of substantial profitability, by revamping its vehicle offerings and growing its business activities in the world’s fastest growing large market, China. The environment surprises many managers and leaves them unable to adapt their companies to new competition, shifting consumer interests or new technologies. The study of management traditionally focused on factors within the organisation – a closed systems view – such as leading, motivating and controlling employees. The classical, behavioural and management science schools described in Appendix to Chapter 1 looked at internal aspects of organisations over which managers have direct control. These views are accurate but incomplete. To be effective, managers must monitor and respond to the environment – in other words, they must adopt an open systems view. The events that have the greatest impact on an organisation typically originate in the external environment. In addition, globalisation and worldwide societal turbulence affect companies in new ways, making the international environment of growing concern to managers everywhere. This chapter explores in detail components of the external environment and the way they affect the organisation. We will also examine a major part of the organisation’s internal environment – corporate culture. Corporate culture is shaped by the external environment and is an important part of the context within which managers do their jobs.

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R EMEMBE R THIS ◗◗

Every organisation is impacted on by forces and constraints that the external environment imposes upon the organisation.

◗◗

The environment is far from a static or constant set of forces and can change in ways that are difficult to predict.

2.1

THE EXTERNAL ENVIRONMENT

The world is undergoing tremendous and far-reaching change. The environmental changes that shook Toyota’s leadership position in the auto industry – a global recession, natural disasters and changing customer needs – were part of its external organisational environment. The external organisational environment includes all elements existing outside the boundary of the organisation that have the potential to affect the organisation.9 The environment includes competitors, resources, technology and economic conditions that influence the organisation. It does not include events so far removed from the organisation that their impact is not perceived. The organisation’s external environment can be conceptualised further as having two components: general and task environments, as illustrated in EXHIBIT 2.1.10 The general environment affects organisations indirectly. It includes social, economic, political, international, natural and technological factors that influence all organisations about equally. Changes in federal regulations or an economic recession are part of the organisation’s general environment. These events do not directly change day-to-day operations, but they do affect all organisations eventually. The task environment is closer to the organisation and includes the sectors that conduct day-to-day transactions with the organisation and directly influence its basic operations and performance. It is generally considered to include competitors, suppliers, customers and the labour market. A new view of the environment argues that organisations are now evolving into business ecosystems. An organisational ecosystem is a system formed by the interaction among a community of organisations in the environment. An ecosystem includes organisations in all the sectors of the task and general environments that provide the resource and information transactions, flows and linkages necessary for an organisation to thrive.11 For example, Apple’s ecosystem includes hundreds of suppliers and millions of customers for the products that it produces across several industries, including consumer electronics, Internet services, mobile phones, personal computers and entertainment.12 The organisation also has an internal environment, which includes the elements within the organisation’s boundaries. The internal environment is composed of current employees, management and especially corporate culture, which defines employee behaviour in the internal environment and how well the organisation will adapt to the external environment. EXHIBIT 2.1 illustrates the relationship among the general, task and internal environments. As an open system, the organisation draws resources from the external environment and releases goods

organisational environment All elements existing outside the organisation’s boundaries that have the potential to affect the organisation.

general environment The layer of the external environment that affects the organisation indirectly. task environment The layer of the external environment that directly influences the organisation’s operations and performance. organisational ecosystem Includes organisations in all the sectors of the task and general environments that provide the resource and information transactions, flows and linkages necessary for an organisation to thrive. internal environment Includes elements within the organisation’s boundaries, such as employees, management and corporate culture.

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EXHIBIT 2.1 Dimensions of the organisation’s general, task and international environments

General environment Technological

Task environment Natural

Customers

Competitors

Suppliers

Internal environment Employees Culture Management

Labour market

Sociocultural

Economic

Legal/political

International

and services back to it. We will now discuss the two components of the external environment in more detail. Then we will discuss corporate culture, the key element in the internal environment. Other aspects of the internal environment, such as structure and technology, will be covered in later chapters of this book.

G E N E R A L E N V I RO N M E N T The general environment is the outer layer of the environment – the dimensions that influence the organisation over time, but often are not involved in day-to-day transactions with it. The dimensions of the general environment include international, technological, sociocultural, economic, legal-political and natural.

INTERNATIO NA L

international dimension The portion of the external environment that represents events originating in foreign countries, as well as opportunities for local organisations in other countries.

In his book The World Is Flat, Thomas Friedman challenges managers to view global markets as a level playing field where geographical divisions are irrelevant.13 A flat world, Friedman argues, creates opportunities for companies to expand into global markets and build a global supply chain. As managers plan for expansion into global markets, they have to consider the international dimension of the external environment, which includes events originating in foreign countries, as well as new opportunities for domestic companies in other countries. The international environment provides new competitors, customers, and suppliers and shapes social, technological and economic trends as well. As geographic boundaries dissolve and opportunities in developing economies like China increase, more companies are finding advantages in the global marketplace. For example, Coca-Cola’s CEO Muhtar Kent predicts that the China division will double its sales of Coke products, helping meet Kent’s goal of doubling Coke’s overall business by 2020. ‘China will be Coke’s largest market,’ Kent promises. ‘I can’t give you a time, but it will happen.’14 With more companies establishing a competitive presence in China, managers working in that country recognise that their competitive success begins with their ability to build personal relationships and emotional bonds with their Chinese contacts. This chapter’s Management in practice on page 92 offers tips for creating successful business relationships in China.

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Indeed, in many industries, companies will have to compete on a global basis or disappear. Highquality, low-priced cars from Japan and Korea, for instance, have permanently changed the Australian car industry, which will close completely in 2017. Many companies have parts supplied from countries such as Malaysia and China because of low-priced labour. A drop in the Australian dollar’s foreign exchange rate lowers the price of Australian products overseas, increasing export competitiveness, but also makes imported products and components more expensive. When the Australian dollar got up to US$1.10 in May 2011, the opposite happened, making Australian goods and services expensive in global terms. Industries from automotive to tourism and education were challenged by the high currency. With the Australian dollar recently dropping well below US80c, these industry dynamics have changed again, influencing every company that trades or has international competitors. Today, every organisation must think internationally. Managers who are used to thinking only about the domestic environment must learn new rules to cope with goods, services and ideas circulating around the globe. A better machine built in Adelaide, Perth or Brisbane will find buyers from Europe, the United States and Asia. Moreover, competitors in a global village can come from anywhere. A company that does not export will still run into international competitors in its own marketplace, including some from developing nations. The world is also a source of supply as well as a market. For example, new products such as the latest mobile phones are made from materials and ideas from around the world. Companies find it more difficult to raise prices now than at virtually any time since the Second World War. Many companies have had to cut prices to remain competitive in the new global economy. Economic problems in other parts of the world now have a tremendous impact on local companies. The most dramatic change in the international environment in recent years is the shift of economic power to China and India. Together, these countries have the population, brainpower, and dynamism to transform the twenty-first century global economy. If things continue on the current track, analysts predict that India will overtake Germany as the world’s third-largest economy within three decades, and that China would overtake the United States as number one by mid-century. In China, per capita income has tripled in a generation, and leaders are building the infrastructure for decades of expansion, as reflected in the country’s hunger for raw materials. In 2010, China represented roughly 53 per cent of global cement consumption, 47 per cent of coal and 45 per cent of crude steel.15 No one can predict the future, but it is clear that however things in India and China turn out, Australian, New Zealand and other Western firms have no choice but to pay attention. Chapter 3 describes the way today’s businesses are operating in an increasingly borderless world and examines in detail how managing in a global environment differs from the management of domestic operations. Perhaps the hardest lesson for managers to learn is that they do not know best. Australian decision makers often know little about issues and competition in foreign countries. Arrogance is a short cut to failure. To counter this, many organisations increasingly employ people from a variety of national backgrounds, and send managers overseas to gather current information on markets and issues. Even small companies, such as bed linen manufacturer Dryen Australia, must use significant resources to send staff to trade shows in Europe, material suppliers in China and to look at recent product development trends in the United States. Large organisations such as Amcor, Google, Rio Tinto and PwC have a constant stream of people travelling between Australia and their overseas operations.

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See Chapter 3 for a description of the way today’s businesses are operating in an increasingly borderless world and examines in detail how managing in a global environment differs from the management of domestic operations.

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MANAGEMENT IN PRACTICE CREATING GUANXI IN CHINA With its low labour costs and huge potential market, China is luring thousands of companies from the United States in search of growth opportunities. Yet the University of New Haven’s Usha C. V. Haley recently found that only one-third of multinationals doing business in China have actually turned a profit. One reason many Western businesses fall short of expectations, experts agree, is that they fail to grasp the centuries-old concept of guanxi that lies at the heart of Chinese culture. At its simplest level, guanxi is a supportive, mutually beneficial connection between two people. Eventually, those personal relationships are linked together into a network, and it is through networks like this that business gets done. Anyone considering doing business in China should keep in mind the following basic rules:

✚✚ Business is always personal. It is impossible to translate, ‘Don’t take it so personally – it’s only business’ into Chinese. Western managers tend to believe that if they conclude a successful transaction, a good business relationship will follow. The development of a personal relationship is an added bonus, but it is not really necessary when it comes to getting things done. In the Chinese business world, however, a personal relationship must be in place before managers even consider entering a business transaction. Western managers doing business in China should cultivate personal relationships – both during and outside business hours. Accept any and all social invitations – for drinks, a meal, or even a potentially embarrassing visit to a karaoke bar, which some Chinese businessmen consider an important part of solidifying good business relationships.

✚✚ Don’t skip the small talk. Getting right down to business and bypassing the small talk during a meeting might feel like an

efficient use of time to a western manager. To the Chinese, however, this approach neglects the all-important work of forging an emotional bond. Be aware that the real purpose of your initial meetings with potential business partners is to begin building a relationship, so keep your patience if the deal that you are planning to discuss never even comes up – there’s always tomorrow.

✚✚ Remember that relationships are not short-term. The work of establishing and nurturing guanxi relationships in China is never done. Western managers must put aside their usual focus on short-term results and recognise that it takes a long time for foreigners to be accepted into a guanxi network. Often, foreign companies must prove their trustworthiness and reliability over time. For example, firms that weathered the political instability that culminated in the 1989 student protests in Tiananmen Square found it much easier to do business afterward.

✚✚ Make contact frequently. Some experts recommend hiring ethnic Chinese staff members and then letting them do the heavy lifting of relationship building. Others emphasise that Westerners themselves should put plenty of time and energy into forging links with Chinese contacts; those efforts will pay off because the contacts can smooth the way by tapping into their own guanxi networks. Whatever the strategy, contact should be frequent and personal. In addition, be sure to keep careful track of the contacts that you make. In China, any and all relationships are bound to be important at some point in time.

✚✚ Do not openly criticise business partners, customers or suppliers, as this means an unacceptable ‘loss of face’.

SOURCES: Australian Trade and Investment Commission. (2017). Doing Business – Export markets – China, http://www.austrade.gov.au/Australian/Export/Export-markets/ Countries/China/Doing-business (accessed 19 February 2017); Dammon Loyalka, M. (4 January 2006). Before You Set Up Shop in China. Part of the ‘Doing Business in China’ special report, BusinessWeek Online, http://www.businessweek.com/smallbiz/content/jan2006/sb20060104_466114.htm (accessed 6 January 2006); Los Angeles Chinese Learning Center. Chinese Business Culture. http://chinese-school.netfirms.com/guanxi.html; Beijing British Embassy. Golden Hints for Doing Business in China. http://chineseschool.netfirms.com/goldenhints.html; and Emily Flitter. (9 June 2008). Faux Pas: With Karaoke, a Deal in China for a Song. The Wall Street Journal Online, http://online.wsj. com/article/SB121268021240548769.html (accessed 24 September 2012).

technological dimension The dimension of the general environment that includes scientific and technological advancements in the industry and society at large.

T EC HNOLO GIC A L The technological dimension includes scientific and technological advancements in a specific industry as well as in society at large. Amazing breakthroughs are occurring in fields such as Internet technologies and biotechnology, coming together into ‘telemedicine’, with applications accelerating the progress of medical treatments, preventions and cures. Whole diseases are being wiped out.

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Automation of tasks in all sorts of businesses continues to accelerate. We are not too far away from having self-driving cars. By mapping individuals’ human genomes, medical treatments can now be customised to each human’s specific needs. Genetic engineering is allowing for drought- and diseaseresistant crops to be developed. Stem cell technologies advance medical treatments for diseases that were previously not treatable. Telecommunications technologies are bringing benefits to consumers as never before. Twenty years ago, many organisations didn’t even use desktop computers. Today, computer networks, Internet access, handheld devices, videoconferencing capabilities, mobile phones and laptops are the minimum tools for doing business. A new generation of handhelds allows users to check their corporate email, daily calendars, business contacts and even customer orders from any location with a wireless network. Mobile phones can now switch seamlessly between mobile networks and corporate wi-fi connections. Some companies hand out wireless key fobs with continually updated security codes that enable employees to log onto their corporate networks and securely view data or write emails from any personal computer with a broadband connection.16 Many industries have been transformed by the Internet. For example, many people now choose and purchase hotel accommodation and many other goods and services over the Internet. Price competition has hurt the hotels’ profitability, and websites such as wotif.com.au, hotels.com, zuji.com and lastminute. com.au offer to find great deals for consumers on plane tickets, hotels, rental cars etc., essentially acting as travel agents that are available ‘24/7’ from our own homes. Consider too the fate of Australian bookstore chain Angus and Robertson. The liquidators were called in on 17 February 2011. The main reason was that massive changes in the business environment, namely a huge consumer shift to reading and purchasing books online, has left this traditional way of doing business behind, meaning that it is uncompetitive and unprofitable. Both local and international companies such as Amazon, Booktopia, Book Depository and others have very substantially disrupted this industry. This shift also included Whitcoulls newsagencies in New Zealand (which returned to New Zealand ownership when it was sold to Farmers, a mid-market department store chain) and all local Borders stores. This occurred just a day after the massive company US-based Borders filed for bankruptcy, for similar reasons. Ironically, as it was online book retailers like Book Depository and Amazon that essentially killed Angus & Robertson’s bricks and mortar stores, the company now exists as an online bookstore called Angus & Robertson Bookworld, following a merger of the Bookworld and Angus & Robertson online stores. Amazon has broadened its range of services way beyond its original offering as an online book seller, and is now selling thousands of other categories of goods and services. The company is globalising, with stated intentions to take on other retailers in the next few years, including those in Australia.17 Other technological advances will also affect organisations and managers. The decoding of the human genome could lead to revolutionary medical advances. Cloning technology and stem cell research are raising both scientific and ethical concerns. Nanotechnology, which refers to manipulating matter at its tiniest scale, is moving from the research lab to the marketplace. General Electric is researching how nanoceramics can make turbines more efficient. Medical researchers are looking at the potential for portable labs that offer instant analysis for everything from diabetes to HIV. Nanoparticles could some day give us golf balls designed to fly straight, army fatigues that resist chemical weapons, dent-resistant cars and super-charged fuel cells that could replace fossil-fuel engines. Some 1200 nanotechnology start-ups have emerged around the world, and smart managers at established organisations such as 3M, Dow Chemical, Samsung, NASA, Intel, Johnson & Johnson and IBM are investing research dollars in this technological breakthrough.18

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SO C IOC ULT URA L sociocultural dimension The dimension of the general environment representing the demographic characteristics, norms, customs and values of the population within which the organisation operates.

The sociocultural dimension of the general environment represents the demographic characteristics as well as the norms, customs and values of the general population. Important sociocultural characteristics are geographical distribution and population density, age and education levels. Today’s demographic profiles are the foundation of tomorrow’s workforce and consumers. Forecasters see increased globalisation of consumer markets and the labour supply, with increasing diversity within organisations and consumer markets.19 Consider the following key demographic trends.

◗◗ Multiculturalism is increasingly important in the Australian and New Zealand populations and workforces.

◗◗ The population and the workforce continue to age with the baby boomers, and there is a shortage of skilled workers, such as engineers.

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Australia will continue to receive high numbers of immigrants, largely from Asia. Low-carbohydrate diets have changed food consumption patterns. New religious groups with particular behavioural norms attract significant masses of people. Married couple households have halved as a proportion of the total in the past decade, with the increase being mostly single fathers and single mothers with children.

◗◗ Couples with children total just 20 per cent, with the number projected to drop further. Some 30 per cent of homes are inhabited by someone who lives alone.

◗◗ New generations of Gen Y and Gen Z employees want different things in their employment relationships from the retiring baby boomers, meaning that organisations are changing their cultures and ways of working to suit. How people want to consume has also changed, and will continue to change. A new generation of technologically savvy consumers, often called the Connected Generation or Generation C, has intimately woven technology into every aspect of their lives. Their primary digital devices (PDDs) shape the way they communicate, shop, travel and study. Generation C (typically defined as people born after 1990) will make up 40 per cent of the population by 2020 and will constitute the largest cohort of consumers worldwide.20 How we do many things, from listening to music and being entertained generally, to our shopping and banking, has moved substantially onto our phones! Additionally, as the population continues to age, organisations are rushing to create senior-friendly products and services. Organisations realise that it makes good business sense to create products and services for this ageing population; in 2011, Australians aged 65 years and over accounted for 14 per cent of the population21 and this proportion is increasing. The situation is similar in many parts of the globe. It is estimated that by 2050, more than 30 per cent of the population will be aged 65 and over in South Korea, Italy, Japan, Greece and Singapore. Australia, France and the United Kingdom will all be faced with 25 per cent of their population being over 65 and the United States will have 20 per cent. Issues regarding how to satisfy the increasing medical needs of these ageing populations and who will pay for these needs are questions that both government and business are starting to grapple with.22 economic dimension The dimension of the general environment representing the overall economic health of the country or region in which the organisation functions.

EC O NOM IC The economic dimension represents the general economic health of the country or region in which the organisation operates. Consumer purchasing power, the unemployment rate and interest rates are part of an organisation’s economic environment. Because organisations today are operating in a global

environment, the economic dimension has become exceedingly complex and creates even more uncertainty for managers. The economies of countries are more closely tied together than ever before. Economic problems in the United States in recent years, for example, have had a significant impact on both local companies as well as the share market in virtually every country. One significant trend in the economic environment is the frequency of mergers and acquisitions. Industries of all types are consolidating and rationalising ownership and control. For example in recent years, mergers and acquisitions have occurred between Tattersalls and Tabcorp, Bayer and Monsanto, and Dow and Dupont, where these large businesses found a strategic business logic for creating value through joining forces. Two gigantic insurance companies in Australia, National Mutual and AMP, demutualised. Rather than remaining as mutual societies, owned by their policyholders, they transformed themselves and became publicly listed and traded companies owned by shareholders. National Mutual was immediately acquired by a multinational company, AXA, and AMP launched a banking operation and acquired another major insurance company, GIO, which itself had previously been converted from government ownership to the private sector. AMP then discovered that GIO brought with it huge losses on its books, due to catastrophes that it had insured or reinsured around the world. Procter & Gamble and Gillette became one giant company in a merger that began in 2005 and took some years to fully bed down. During the 2008–10 GFC, many financial industry companies merged, restructured or just disappeared through bankruptcy.

In the last decade children have had greater purchasing power than at any time in the past, and this trend is expected to continue, with children becoming important market segments and consumers of mobile phone services and fast foods.

INNOVATIVE WAY SHOPPING ONLINE, EVEN FOR CARS Anyone who has ever bought a new car remembers what an ordeal it can be fending off overly aggressive salespeople, haggling over price and sometimes driving away with the uncomfortable feeling that you have been had. The strain of car shopping, combined with a decrease in leisure time and a demand for convenience, have more and more people turning to the Internet to shop for their dream car. A 2015 Google/TNS Auto Shopper Study found that 70 per cent of people who used YouTube as part of their car buying process were influenced by what they watched, a higher percentage than TV, newspapers or magazines. Fifty per cent of car shoppers will use their smartphones when

they are in the actual car dealership to search for better deals, reviews, etc. In Australia today, www.carsales.com.au has become a highly prominent search and sales channel for consumers in both new and used car markets. A 2016 analysis by IBISWorld into Australian and New Zealand online shopping habits found some dramatic and interesting changes in consumer shopping trends during the past 15 years. Customers now research and compare prices for items and check reviewer feedback online before making purchases. Although online retail sales account for a small proportion of total expenditure on consumer goods, industry growth has significantly outpaced traditional

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retailers, with revenue expected to rise by an annualised 16.2 per cent over the five years through 2016–17. The continued popularity of online retail is expected to boost industry revenue by 14.9 per cent in 2016–17, to total AU$18.0 billion. Sales growth has been supported by rising consumer confidence in online shopping, the large variety of good-value items available and further growth in Internet use across the population. The range of products and services available for purchase from online retailers, like clothing, footwear, and personal accessories (20.6 per cent), groceries and liquor (17.2 per cent), computers, software, and electronic goods (16.9 per cent), recreational goods (12.4 per cent), homewares and domestic appliances (9.4 per cent), printed material, music, and movies (9.3 per cent),

cosmetics, fragrances and toiletries (1.8 per cent), and other goods (12.4 per cent), has grown robustly over the past decade. Australian vehicle customers can compare prices, check the value of their trade-in and ask for bids from online car-buying services such as http://www.carpoint. com.au, http://www.carsales.com.au, http://www. carsguide.com.au, and http://www.redbook.com.au. Ford, Toyota, Mitsubishi, Honda and GMH also are running websites to link online shoppers with dealers. See http://www.ford.com.au, http://www.holden.com. au, http://www.toyota.com.au, and http://www.honda. com.au. Consumers can now choose their optional colours and features online, seeing full specifications, reviews and then shop very efficiently for the best price.

Sources: Magner, L. (2016, July). Online Shopping in Australia. IBISWorld Industry Report X0004. http://www.ibisworld.com.au/industry/ default.aspx?indid=1837 (accessed 20 October 2016); Pricewaterhouse Coopers PwC. Australian and New Zealand Online Shopping Market and Digital Insights July 2012. http://pwc.com.au/industry/retail-consumer/assets/Digital-Media-Online-Shopping-Jul12.pdf (accessed 3 November 2013).

LEGA L–POLITIC A L legal–political dimension The dimension of the general environment that includes federal, state and local government regulations, and political activities designed to control organisation behaviour.

The legal–political dimension includes government regulations at the local, state and federal levels, as well as political activities designed to influence organisation behaviour. The Australian political system encourages capitalism, and the government tries not to over-regulate business. However, government laws do specify some rules of the game. Federal and state governments affect organisations with a vast range of legislation and regulation, including occupational health and safety, environmental protection, fair trade and competition practices, consumer protection legislation, product safety requirements, import and export restrictions, labour laws, and information and labelling requirements. Although regulation is designed to solve problems, complying with it often creates problems for organisations. For example, Australian unfair dismissal laws aimed at protecting the rights of employees against unscrupulous employers have been criticised as being ‘anti-business’ because they restrict the ability of employers to fire poor performers. The Australian government has also been criticised for its slowness in testing and approving new pharmaceuticals and for insisting on conducting its own trials rather than accepting selected foreign results, which means that some medical treatments are not available to Australian consumers as quickly as they could be.23

pressure group An interest group that works within the legal– political framework to influence organisations to behave in certain ways.

Managers must recognise a variety of pressure groups that work within the legal/political framework to influence organisations to behave in socially responsible ways. Car manufacturers, toy makers and airlines have been targeted by influential consumer advocacy groups. Tobacco companies today are certainly feeling the far-reaching power of anti-smoking groups. Local community groups in New Zealand and Australian suburbia and country towns have lobbied against bank branch closures and McDonald’s openings. Greenpeace has managed to force significant changes in the whaling, tuna fishing and seal fur industries.24

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NATURA L ENV IRO NM ENT In response to pressure from environmental advocates, organisations have become increasingly sensitive to the earth’s diminishing natural resources and the environmental impact of their products. As a result, the natural dimension of the external environment is growing in importance. The natural dimension includes all elements that occur naturally on earth, including plants, animals, rocks and natural resources such as air, water and climate. The natural dimension is different from other sectors of the general environment because it has no voice of its own. Influence on managers to meet needs in the natural environment may come from other sectors, such as government regulation, consumer concerns, pressure from the media, competitors’ actions or even employees. For example, environmental groups advocate various action and policy goals that include reduction and clean up of man-made pollution, development of renewable energy resources and sustainable use of scarce resources such as water, land and air. More recently, there has been a strong concern about climate change such as global warming caused by greenhouse gases, most notably carbon dioxide. Concern about the environment has prompted companies to take these actions:

◗◗ Eliminating non-biodegradable plastic bags from the environment. Australia’s Target stores banned plastic bags in June 2009. Target customers not bringing their own bags can purchase compostable bags from 10c each, or reusable bags starting from $1. This change meant a saving of roughly 100 million plastic bags per year.25 But pressure from consumers led Target to bring plastic bags back a few years later. They have been banned in other countries and states, yet it is clearly a case of managers having to balance desires of multiple stakeholders.

◗◗ Improving efficiency of plants and factories. Nissan’s Sunderland (United Kingdom) factory will use eight wind turbines to generate six per cent of the plant’s energy requirement, cutting carbon dioxide emissions by 4000 tonnes per year. Toyota recycles 100 000 tonnes of wastewater a year in its reverse osmosis facility in its Burnaston (United Kingdom) plant.26 Environmental groups advocate various action and policy goals that include reduction and cleanup of pollution, development of renewable energy resources, reduction of greenhouse gases such as carbon dioxide, and sustainable use of scarce resources such as water, land, and air. The oil spill in the Gulf of Mexico in 2010 brought environmental issues to the forefront. Months after a BP-Transocean rig at the Deepwater Horizon oil well exploded, hundreds of thousands of gallons of oil were still flowing into open water each day, adding to the millions of gallons already contaminating the water and beaches along the coast in Louisiana, Mississippi, Alabama and Florida, and threatening the region’s fish, birds, turtles and vegetation. ‘One of the last pristine, most biologically diverse coastal habitats in the country is about to get wiped out,’ said Felicia Coleman, who directs the Florida State University Coastal and Marine Laboratory. ‘And there’s not much we can do about it.’27 The effects of the devastating spill are likely to continue for many years.

TA S K E N V I RO N M E N T As described earlier, the task environment includes those sectors that have a direct working relationship with the organisation, among them customers, competitors, suppliers and the labour market.

CU STOMERS Those people and organisations in the environment who acquire goods or services from the organisation are customers. As recipients of the organisation’s output, customers are important because they determine

customers People and organisations in the environment who acquire goods or services from the organisation.

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the organisation’s success. Patients are the customers of hospitals, students the customers of schools and travellers the customers of airlines. Many companies have designed special programs and advertising campaigns to court their older customers, who are, with the ageing of the baby boomers, becoming a larger percentage of their market. To survive in competition with mass merchandisers such as Target and Kmart, small retailers have been forced to come up with new ways to win and keep customers. Some small grocery and convenience stores have moved to seven-day, 24-hour operations to stay competitive with the bigger companies that have advantages of scale. Many companies are searching for ways to reach the coveted teen and youth market by tying marketing messages into online social networks such as Facebook and Instagram. With high school and university students representing a large spending market, it is serious business for managers at companies such as Apple, Coca-Cola and Walt Disney. Apple sponsors an Apple-lovers group on Facebook.com, giving away iPod Shuffles in weekly contests. Customers today have greater power because of the Internet, which presents threats as well as opportunities for managers. Today’s customers can directly affect the organisation’s reputation and sales, for example, through gripe sites such as http://untied.com, where United Airlines employees and disgruntled fliers rail against the air carrier. ‘In this new information environment,’ says Kyle Shannon, former CEO of e-commerce consultancy designory.com (formerly Agency.com), ‘you’ve got to assume everyone knows everything’.28

C O MPET ITORS competitors Other organisations in the same industry or type of business that provide goods or services to the same set of customers.

Specific competitive issues characterise each industry. Other organisations in the same industry or type of business that provide goods or services to the same set of customers are referred to as competitors. Each industry is characterised by specific competitive issues. The recording industry differs from the steel industry and the pharmaceutical industry. Competition in the steel industry, especially from international producers, has caused some companies to go bankrupt. Companies in the pharmaceutical industry are highly profitable because it is difficult for new firms to enter it. The two major supermarket chains in Australia, Coles and Woolworths, have both significantly expanded their home branded product ranges as a new way of trying to achieve competitive advantage. This chapter’s Management in practice box reveals the extent to which some of today’s most competitive companies are cooperating to achieve common goals.

SUP P LIERS Suppliers provide the raw materials that the organisation uses to produce its output. A chocolate

manufacturer, for example, may use suppliers from around the globe for ingredients such as cocoa beans, sugar and cream. A supply chain is a network of multiple businesses and individuals that are connected through the flow of products or services. Every organisation survives and prospers, or otherwise, depending on the competitiveness and effectiveness of its supply chain partners. It is not unusual for manufacturing companies to pass on as much as 60 per cent of their revenue to their suppliers who provide the vital inputs and ingredients within their products. For Toyota, the supply chain includes over 500 global parts suppliers organised by a production strategy called just-in-time (JIT).29 JIT improves an organisation’s return on investment, quality and efficiency because much less money is invested in idle inventory. ‘Instead of months’ worth of inventory, there are now days and even hours of inventory,’ says Jim Lawton, head of supply management solutions at consultant Dun & Bradstreet. Lawton points out that there is a downside, however – one that became dramatically clear after a March 2011 earthquake in Japan, ‘If supply is disrupted, as in this situation, there’s nowhere to get product.’30

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The crisis in Japan revealed the fragility of today’s JIT supply chains. A powerful earthquake triggered a massive tsunami and caused the second-worst nuclear disaster in history, at the Fukushima power plant along the Pacific coastline. Japanese parts suppliers for the global automotive industry were shut down, disrupting production at automotive factories around the world. ‘Even a missing $5 part can stop an assembly line,’ said a Morgan Stanley representative.31 Because of this natural disaster, Toyota’s production was down 800 000 vehicles – 10 per cent of its annual output. Most organisations aren’t willing to boost inventory to minimise the risk of supply-chain disruptions. Boosting inventory even slightly to provide a cushion against disruptions can cost big companies millions of dollars. ‘I don’t see any of us moving away from a very disciplined supply chain management,’ says Ford Motor Company finance chief Lewis Booth.32

CASE STUDY Carol White was not a businesswoman in any sense of the word. She was a nurse and mother who had gone through a marriage breakdown, when she fell in love with a property in rural Victoria, and bought it. ‘I needed income and flexibility to look after my sons, so I set about researching production options,’ explains Carol. ‘I loved the Swiss-Italian heritage and culture, and had seen lavender grown commercially in France. My fate was sealed.’ Since then, she has developed the property into a thriving business offering products and services, such as a venue for weddings and seminars, a cafe and accommodation for the public. The outcome is Lavandula Swiss Italian Farm, named after the botanic name for lavender, which now grows lavender, olives and grapes, all harvested and processed for use on the property. With an attractive website, http://www.lavndula.com.au, this business has grown to employ 14 local people from the Daylesford area, and attract many customers through the year, annually selling, for example, some 40 000 bunches of locally grown herbs, amongst its large range of services and products. So how did Carol acquire the skills and capabilities to grow and run a substantial business? She attests to her general organisational skills in running a household and being a nurse as providing a good basis for it, supplemented

with a variety of small business courses that she undertook and a lot of learning from networking with other local businesspeople. ‘I was a single woman in a man’s farming world when I started this business,’ says Carol. ‘But boutique farming offers wonderful opportunities to be individual, build a lifestyle and become an entity on your own. I value-add on-site and am delighted with the results.’ Carol has built a vision based on knowing that women in particular like lavender-based services and property. She started with some lavender seeds and an attractive Carol White and Lavandula property, and has acquired the business and management Farm skills needed along the way. Her support from other local businesses has been of great help; however, her challenge has been to find the right staff to buy into the vision and operate the business without her constant hands-on supervision. This business, and this entrepreneurial businesswoman, show that even without a long and strong corporate experience base, a niche operation can be incrementally built based on an attractive proposition to a focused market, and a lot of hard work. This business has recently grown and broadened its range of services, including both product and services such as festivals, wedding services and food products.

Sources: Lindhe, J. (4–10 November 2010). Lavender Lessons. BRW, 42; Small Business Festival Victoria (2016). 'Bringing a bit of Europe to Australia. The story of Lavandula Swiss Italian Farm.' Available: http://www.business.vic.gov.au/events-workshops-and-mentoring/victorias-small-business-festival/ festival-interviews/bringing-a-bit-of-europe-to-australia (accessed: 24 October 2016).

Source: Fairfax Syndication/Sandy Scheltema

GROWING A BUSINESS FROM SCRATCH – LAVENDER!

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INNOVATIVE WAY COSTCO’S WINNING FORMULA Costco Wholesale Corporation, a no-frills, self-service warehouse club, operates an international chain of membership warehouses offering a limited selection of products at reduced prices. Costco’s business model focuses on maintaining its image as a pricing authority, consistently providing the most competitive prices. ‘Everything we do is to provide goods and services to the customer at a lower price,’ said Jim Sinegal, CEO and founder. Costco warehouses are designed to operate efficiently and to communicate value to members. The warehouse decor – high ceilings, metal roofs, exposed trusses – keeps costs low and contributes to the perception that Costco is for serious shoppers seeking serious bargains. Other strategies for keeping prices low include offering only 3600 unique products at a time and negotiating low prices with suppliers. Only about a quarter of sales come from outside the United States, but store sales in overseas markets – including Australia – have been growing about four times faster than those in the United States. Costco plans to expand its

customer base by delving further into the Asian markets, where consumer spending and growth is higher than mature United States and European markets. Costco’s complex environment is illustrated in EXHIBIT 2.2. Costco’s biggest competitive advantage is its workforce. ‘Costco compensates employees very well, well above the industry in terms of wages and benefits,’ says R. J. Hottovey, a retail analyst at Morningstar. ‘When retailers are cutting health benefits, Costco employees don’t have to worry about that,’ he says. The happiness and morale of employees is often overlooked in the retail industry, but not at Costco. Thanks to its good treatment of workers, Costco has one of the lowest turnovers in the retail industry (only six per cent), and it earns US$530 000 of revenue per employee. Costco has successfully opened stores in Australia and is planning more than the eight major stores it had in 2016, due to the great success it has achieved in Melbourne and Sydney. Costco has entered the petrol retailing market in Australia in three states.

Sources: Edelson, S. (30 January 2012). Costco Keeps Formula as It Expands. Women’s Wear Daily, 19, 1; Cheng, A. (2 April 2010). Costco Cracks Taiwan Market. The Wall Street Journal, B5; and Form 10-K for Costco Wholesale Corporation. Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations, Costco Annual Report, http://www.sec.gov/Archives/edgar/data/909832/000119312511271844/d203874d10k. htm#toc203874_9 (accessed 10 July 2012).

LA BO UR MA RKET labour market The people available for hire by the organisation.

The labour market represents people in the environment who can be hired to work for the organisation. Every organisation needs a supply of trained, qualified personnel. Unions, employee associations and the availability of certain classes of employees can influence the organisation’s labour market. Labour market forces affecting organisations right now include (1) the growing need for computer-literate knowledge workers; (2) the necessity for continuous investment in human resources through recruitment, education and training to meet the competitive demands of the borderless world; and (3) the effects of international trading blocs, automation, outsourcing and shifting facility locations upon labour dislocations, creating unused labour pools in some areas and labour shortages in others.33 Argyle Diamonds in Western Australia is a company with substantial management challenges – in particular, the need to manage a large workforce at a very remote location. This is a typical challenge faced by mining and oil companies. Changes in these various sectors of the general and task environments can create tremendous challenges, especially for organisations operating in complex, rapidly changing industries.

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General environment

Technological Costco.com offers opportunities to reach a wider audience Applies technology to manage store and corporate operations

Task environment Natural Greenhouse inventories to track emission trends Energy-efficient building design Committed to aggressive environmental protection in the petrol business

Customers 66.5 million members 30% are small business owners Appeals to customers seeking high volume and low price 89% membership renewal

Sociocultural

Competitors Vigorous and widespread Woolworths, Coles, Kmart, Target, Lowes

Costco Wholesale Corporation

Focuses on bulk needs of families in suburban communities Targets wide range of customers Average customer income is US$57 000

Economic Suppliers Brand-name vendors, such as P&G, Kraft, and Whirlpool Builds close supplier relationships to keep prices low Supplier Diversity Program for minority- and women-owned businesses

Negatively affected by economic slowdown Susceptible to fluctuating currency exchange rates Value pricing drives customer traffic

Legal/political

Labour market 160 000 loyal, highly productive employees Considers employees a competitive advantage Lean and stable executive ranks Labour and benefits comprise 70% of operating costs

Sources: Costco Wholesale Corporation website, http://www.costco.com (accessed 10 July 2012); (30 April 2012). Costco Wholesale Corporation. Marketline, 3–9; Alaric DeArment. (12 December 2011). Costco’s Lobbying Changes Washington State’s Liquor Laws: Who Is Next? DrugstoreNews.com, 12, http://www.drugstorenews.com/article/ costco%E2%80%99s-lobbying-changes-%E2%80%A9wa%E2%80%99s-liquor-lawswho-next; and Sharon Edelson. (30 January 2012). Costco Keeps Formula As It Expands. Women’s Wear Daily, 1.

Government-mandated minimum wage Supports privatisation of liquor sales (licence states)

International Strong growth expected in Asian markets 27% of sales from countries outside of US

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EXHIBIT 2.2 The external environment of Costco Wholesale Corporation

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The organisational environment, consisting of both general and task environments, includes all elements existing outside the boundary of the organisation that have the potential to affect the organisation.

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An organisational ecosystem includes organisations in all the sectors of the task and general environments that provide the resource and information transactions, flows and linkages necessary for an organisation to thrive.

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The general environment indirectly influences all organisations within an industry and includes five dimensions.

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The task environment includes the sectors that conduct day-to-day transactions with the organisation and directly influence its basic operations and performance.

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The international dimension of the external environment represents events originating in foreign countries, as well as opportunities for Australian companies in other countries.

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The technological dimension of the general environment includes scientific and technological advances in society.

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The sociocultural dimension includes demographic characteristics, norms, customs and values of a population within which the organisation operates.

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The economic dimension represents the general economic health of the country or region in which the organisation operates.

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The legal–political dimension includes government regulations at the local, state and federal levels, as well as political activities designed to influence company behaviour.

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The internal environment includes elements within the organisation’s boundaries, such as employees, management and corporate culture.

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The natural dimension includes all elements that occur naturally on Earth, including plants, animals, rocks and natural resources such as air, water and climate.

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Suppliers provide the raw materials the organisation uses to produce its output.

THE ORGANISATION– ENVIRONMENT RELATIONSHIP 2.2

Why do organisations care so much about factors in the external environment? The answer is that the environment creates uncertainty for organisation managers, who must respond by designing the organisation to adapt to the environment or influence the environment.

TAKE A MOMENT Refer to your score in the new manager self-assessment at the start of this chapter to see how well you might adapt as a new manager in an uncertain environment.

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E N V I RO N M E N TA L U N C E RTA I N T Y Uncertainty means that managers do not have sufficient information about environmental factors to

understand and predict environmental needs and changes.34 As indicated in EXHIBIT 2.3, environmental characteristics that influence uncertainty depend upon the number of factors that affect the organisation and the extent to which those factors change. A large multinational such as Costco has thousands of factors in the external environment creating uncertainty for managers. When external factors change rapidly, the organisation experiences very high uncertainty. Examples include the electronics and aerospace industries. Firms must make efforts to adapt to these changes. When MySpace’s audience plummeted 27 per cent in 2010, managers struggled to identify the factors that were upending the then popular social media service. One factor was the changing tastes of fickle social media customers, which are difficult to predict. When Facebook provided a better customer experience and a simple Google-like interface, customers left MySpace in droves. In fact, MySpace lost 9 million customers between 2009 and 2010. ‘MySpace was like a big party, and then the party moved on,’ said Michael J. Wolf, the former president of Viacom’s MTV Networks and managing partner at media consulting firm Activate.35 Similarly, Facebook has become a giant business in offering both personal and business communications for a decade, and many business users are now spending their time and effort increasingly on Snapchat and Instagram platforms. When an organisation deals with only a few external factors and these factors are relatively stable, such as for soft-drink bottlers or food processors, managers experience low uncertainty and can devote less attention to external issues. Two basic strategies for coping with high environmental uncertainty are to adapt the organisation to changes in the environment and to influence the environment to make it more compatible with organisational needs.

High

High uncertainty Rate of change in factors in environment

Low uncertainty Low Low

High Number of factors in organisation environment

Adapt to and influence environment

uncertainty Managers know what goal they wish to achieve, but information about alternatives and future events is incomplete.

EXHIBIT 2.3 The external environment and uncertainty

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A DA P T I NG T O T H E E N V I RO N M E N T TAKE A MOMENT Read the Ethical challenge at the end of chapter, pertaining to competitive intelligence. Would you have the courage to risk your job by challenging your boss’s inappropriate use of confidential information?

Environmental changes may evolve unexpectedly, as in the shifting customer tastes for social media sites, or they may occur violently, as in the devastating Japanese earthquake and tsunami. The level of turbulence created by an environmental shift will determine the type of response that managers must make in order for the organisation to survive. Managers continuously scan the business horizon for both subtle and dramatic environmental changes, also called strategic issues, and identify those that require strategic responses. Strategic issues are ‘events or forces either inside or outside an organisation that are likely to alter its ability to achieve its objectives’. As environmental turbulence increases, strategic issues emerge more frequently.36 Managers use several strategies to adapt to these strategic issues, including boundary-spanning roles, interorganisational partnerships, and mergers or joint ventures.

BO UNDA RY-SPA NNING R O L E S boundary-spanning roles Roles assumed by people and/or departments that link and coordinate the organisation with key elements in the external environment.

Departments and boundary-spanning roles link and coordinate the organisation with key elements in the external environment. Boundary spanners serve two purposes for the organisation: they detect and process information about changes in the environment, and they represent the organisation’s interest to the environment.37 People in departments such as marketing and purchasing span the boundary to work with customers and suppliers, both face-to-face and through market research. For example, LEGO became frustrated with the long lead times it took to produce their packaging, as they wanted to be able to delay decisions about box design until the last minute. They wanted this ability so that they could integrate the most recent toy trends into their designs and this meant changes in their existing processes. The quality and design of LEGO boxes is viewed as critical to both the retail and customer experience with the product and could not be compromised. The company looked to the external market and established a competitive process for suppliers to come up with creative solutions. From an application process that involved submitting ideas, a short list of potential suppliers was established. The suppliers were all invited to work collaboratively with LEGO managers and designers to understand the company’s needs and best generate original solutions. In this way the suppliers could utilise their own expertise and lean processes to come up with answers to LEGO’s problems. After this collaborative process each supplier was given a day to make a presentation. This creative and competitive process can be lucrative to both LEGO and the supplier.38 Another recent approach to boundary spanning is the use of business intelligence, which results from using sophisticated software to search through large amounts of internal and external data to spot patterns, trends and relationships that might be significant. For example, Verizon uses business intelligence software to actively monitor customer interactions and fix problems almost immediately.39 Business intelligence is related to the growing area of boundary spanning known as competitive intelligence (CI), which refers to activities such as snooping as much information as possible about one’s

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rivals. Competitive intelligence specialists use websites, commercial databases, financial reports, market activity, news clippings, trade publications, personal contacts and numerous other sources to scan an organisation’s environment and spot potential threats or opportunities.40 Visa has an employee who searches the web for two hours each day for insights on MasterCard and other competitors. Harley-Davidson hires an outside research firm to search through massive amounts of data and reveal patterns that help decipher and predict competitors’ actions.41 Eighty per cent of large companies maintain in-house snoops, also known as competitive intelligence (CI) professionals. Companies such as Nortel Networks, Motorola, NutraSweet Co. and Xerox employ CI specialists to scope out their competitors and help managers make better decisions and plans. TELUS Corp., a Canadian telecommunications company, has beefed up its CI team to cope with a tidal wave of competition from rivals in long-distance data communication, mobile phone and paging services. NutraSweet’s CI professionals helped the company delay a costly advertising campaign when the company learned that a rival sweetener was at least five years away from gaining government approval. Most CI work is strictly legal, relying on commercial databases, news clippings, employment advertisements, trade publications, product literature and personal contacts.42 Boundary spanning is an increasingly important task in organisations because environmental shifts can happen so quickly in today’s world. Managers need good information about their competitors, customers, and other elements of the environment to make good decisions. Thus, the most successful companies involve everyone in boundary-spanning activities. People at the grassroots often can see and interpret significant changes sooner than managers who are more removed from the day-to-day work.43 However, top executives, too, need to stay in tune with the environment. Tom Stemberg, CEO of Staples, visits a competitor’s store once a week and shares what he learns with others on the management team.44 Perceiving environmental shifts that could impact the organisation isn’t always easy. Managers must learn not only to interpret the data right in front of them but also to see weak signals on the periphery and answer the question, ‘What don’t we know that might matter?’45

FORECA STING A ND P LA NNING Forecasting and planning for environmental changes are major activities in many organisations. Planning departments often are created when uncertainty is high.46 Forecasting is an effort to spot trends that enable managers to predict future events. Forecasting techniques range from quantitative economic models of environmental business activity to newspaper clipping services. For example, a company called iSentia provides media monitoring services to over 6000 clients in 15 countries and employs over 1200 people (http://isentia.com). iSentia started out as a small family business in Australia over 30 years ago.47 Heinz, Qantas, Malaysian, Singapore and Air New Zealand airlines, Shell, BP, Herron Pharmaceuticals and Arnott’s Biscuits have all devised specific management plans for handling crises. Whether the crisis is a hostile takeover attempt or product tampering, an organisation that does not have a plan will make mistakes. Planning can soften the adverse effect of rapid shifts in the environment.

IN TERO RGA NISAT IONA L PA RTNE R S HI P S With tough global competition, constantly changing technology and shifting government regulations, few companies can compete effectively unless they join with other firms in various partnerships. Organisations around the world are embedded in complex networks of complicated relationships – collaborating in some markets, competing fiercely in others. The number of corporate alliances has been increasing at a

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rate of 25 per cent annually, and many of those have been between competitors.48 For example, in the auto industry, Ford and General Motors (GM) compete fiercely, but the two joined together to develop a six-speed transmission. Hyundai, Chrysler and Mitsubishi jointly run the Global Engine Manufacturing Alliance to build four-cylinder engines. Volvo is now owned by Zhejiang Geely Holding Group of China, but it maintains an alliance with its previous owner, Ford, to supply engines and certain other components.49 In a partnership, each organisation both supports and depends on the others for success, and perhaps for survival, but that doesn’t mean they don’t still compete fiercely in certain areas.50 Managers in partnering organisations shift from an adversarial orientation to a partnership orientation. The new paradigm, shown in EXHIBIT 2.4, is based on trust and the ability of partners to work out equitable solutions to conflicts so that everyone profits from the relationship. Managers work to reduce costs and add value to both sides, rather than trying to get all the benefits for their own company. The new model is also characterised by a high level of information sharing, including e-business links for automatic ordering, payments and other transactions. In addition, person-to-person interaction provides corrective feedback and solves problems. People from other companies may be on site, or they may participate in virtual teams to enable close coordination. Partners are frequently involved in one another’s product design and production, and they are committed for the long term. It is not unusual for business partners to help one another, even outside of what is specified in the contract.51

EXHIBIT 2.4 The shift to a partnership paradigm

FROM ADVERSARIAL ORIENTATION

TO PARTNERSHIP ORIENTATION

Suspicion, competition, arm’s length

Trust, value added to both sides

Price, efficiency, own profits

Equity, fair dealing, everyone profits

Information and feedback limited

e-business links to share information and conduct digital transactions

Lawsuits to resolve conflict

Close coordination – virtual teams and people onsite

Minimal involvement and up-front investment

Involvement in partner’s product design and production

Short-term contracts

Long-term contracts

Contracts limit the relationship

Business assistance goes beyond the contract

MERGERS A ND JO INT V E NT UR E S Mergers are a major factor in an organisation’s external environment. A merger is also a way to reduce uncertainty. A merger occurs when two or more organisations combine to become one. In the AsiaPacific region, Kim Jung Tae was CEO of Korea’s most successful bank, Kookmin Bank, and he oversaw the major merger of the previous Kookmin organisation with the Housing and Commercial Bank in Korea. The merged organisation became ranked number 60 in the world with US$200 billion in assets. The business environment of the Korean banking industry has been tough, thanks to the GFC. Kim refocused his bank away from the risky sectors, from a profit of some US$800 million in 2000, leading to the solid organisational base that achieved a listing on the New York Stock Exchange. The merger succeeded despite difficult economic circumstances that have sent competitors to the wall. On a more personal note, Kim did not draw a monetary salary from the Kookmin Bank that he led, preferring to

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engage in a performance-based system of share allocation. As in his previous company, he replaced the seniority-based system of promotion with a merit system, and accepted 400 000 shares when their value was US$7 each. He led the company to a position where these shares each have a market value of US$40, and his challenge, in rationalising a merged organisation with some 1100 branches and 23 000 staff, was to continue its stellar performance.52 A joint venture involves a strategic alliance or program by two or more organisations. This typically occurs when a project is too complex, expensive or uncertain for one firm to do alone. Today, keeping pace with rapid technological change and competing in the global environment have stretched the resources of even the richest companies. Oil and mining companies have used joint ventures to explore for oil on the North West Shelf or in remote regions of Western Australia. In 1998, 73 Australian automotive components makers joined together to design and build a car from scratch, independently of the major automotive assemblers. Their aim was to take the car around the world to car shows, to demonstrate their capabilities and sell up to AU$1 billion worth of Australian automotive components overseas.53 Many small businesses are also turning to joint ventures with large firms or with international partners. A larger partner can provide sales staff, distribution channels, financial resources or research staff. Small businesses seldom have the expertise to deal internationally, and so a company such as Nypro Inc., a plastic injection-moulding manufacturer in Massachusetts, US, joins with overseas experts who are familiar with the local rules. Nypro now does business in four countries.54

I N F L U E N C I NG T H E E N V I RO N M E N T The other major strategy for handling environmental uncertainty is to reach out and change those elements causing problems. Widely used techniques for changing the environment include advertising and public relations, political activity and trade associations. EXHIBIT 2.5 summarises the techniques organisations can use to adapt to and influence the external environment.

AD VERTISING A ND P UBLIC R E L AT I O NS Advertising has become a very successful way to manage demand for an organisation’s products or services. Organisations spend large amounts of money to influence consumer tastes. Vodafone was established as the third mobile phone supplier in Australia in 1992 and had a slow and shaky start; five years later, brand awareness was only 28 per cent. A major investment in promotion, using Kramer (a character from the popular television show Seinfeld) and the Australian Wallabies rugby team, lifted brand awareness to 53 per cent in a relatively short time. Vodafone’s customer growth in 1998 was an amazing 83 per cent, from 500 000 to nearly 900 000, putting it in the big league behind Optus and Telstra.55 Ricky Gervais became the face of promoting Optus in recent years, to good effect. More recently, much of this advertising has moved onto the Internet, which attracted more advertising revenue than traditional television for the first time in 2010. Vodafone, Telstra and Optus all spent tens of millions of dollars in total on advertising in 2016 and were expected to do the same in 2017. Also in Australia, increased competitiveness among accounting and law firms has caused them to start advertising for clients, a practice unheard of a decade ago. Hospitals have also begun to advertise through newspapers and radio commercials to promote special services. So, increasingly in non-traditional sectors, advertising is being used as an important way to reduce uncertainty about customers. Public relations is similar to advertising, except that its goal is to influence public opinion about the organisation itself. Most organisations care a great deal about their public image. Each year the US-based

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joint venture A variation of direct investment in which an organisation shares costs and risks with another firm to build a manufacturing facility, develop new products or set up a sales and distribution network.

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magazine Fortune rates more than 300 companies to see which are the most and least admired in each of 32 industries. Public relations and a good public image are accomplished through advertising as well as speeches and press reports. In the 1990s, companies in the tobacco industry launched aggressive public relations campaigns touting smokers’ rights and freedom of choice in an effort to survive in this antismoking era.56 Today, their products, cigarettes, have been completely banned in Australia from all forms of advertising and even point of sale display, while ‘quit’ campaigns continue to advertise ever more aggressively with their anti-smoking messages. In other countries, especially developing countries, this is still not the case and cigarette sales continue to grow.

EXHIBIT 2.5 Organisational responses to environmental changes

Organisation structures for adapting to the environment

Advertising/ Public relations

Boundary-spanning roles Forecasting/planning Flexible structures Mergers/joint ventures

Political activity

Trade associations

Techniques for influencing the environment

As another example, Carlton & United Breweries (CUB), which has succeeded in making Foster’s a global brand name, has advertised sensible, limited and controlled consumption of their beer products, particularly in the context of discouraging drinking and driving.

P O LIT IC A L A C T IV IT Y Political activity represents organisational attempts to influence government legislation and regulation. Many companies pay lobbyists to express their views to federal and state politicians. National Australia Bank (NAB) employs lobbyists to inform and influence key people in Canberra of its views on the antimerger, ‘four-pillar’ bank policy and other issues, as do many of Australia’s other banks and major companies. Foreign companies also attempt to influence government policymakers on product design rules, import regulations and other elements of government activity influencing their businesses. Some retired politicians and business leaders become professional lobbyists after retiring from active political or executive life, using their networks and relationships for lobbying purposes.

T RA DE A SSOC IATIO NS trade association An association made up of organisations with similar interests for the purpose of influencing the environment.

Most organisations join with others having similar interests – the result is a trade association. In this way, organisations work together to influence the environment, including federal legislation and regulation. Trade associations are numerous and varied. Most industries in Australia have industry-based trade associations to represent them collectively; for example, the Plastics and Chemicals Industry Association (PACIA) and the Metal Trades Industry Association (MTIA). These organisations are usually funded through a levy or fees from their industry members. They may also provide ‘fee for service’ information and activities. Higher-level organisations such as the Business Council of Australia (BCA) represent the corporate sector more generally, providing government and the community with their views on business, policy and economic issues.

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better outcomes, an impassioned workforce and ultimately a more sustainable business.’ Justin says managers also must recognise that just as there are markets for their wares, markets exist for their workers, too! So there are supply and demand forces for the workforce. Staff become loyal for organisations that respect their positions as people. As one of very few retailers that bucked the trend of the post global financial crisis (GFC), Cotton On’s flat, nonhierarchical structure underpinned its ability to mobilise and react to what are sometimes phenomenal demands in retail. The workforce is energetic, agile and owns the Cotton On message. And getting them there didn’t happen by accident. Effective, two-way communication channels engage staff to be part of the outcome. Initiatives such as ‘bring your dog to work day’, ‘bring your kids to work day’, the onsite osteopath and dietitian and the new Cotton On University are examples that delight staff on a daily basis. They all contribute to the message that the organisation cares about how the workforce feels about their employer and the employees feel impelled to invest more of themselves in the organisation – reciprocity in action!

AUSTRALIAN MANAGER PROFILE Source: Courtesy Justin Pierce

Dr Justin Pierce is a project manager with the Cotton On Group, a non-executive director of Straight Jacket Capital and financial controller of a private equity firm. During high school and university, Justin’s career was settling in both the retail and education industries, as were his part-time roles. Justin now manages to fit both his passions together while he maintains two high-profile roles – one in retail and the other in education. Justin is also building a portfolio of non-executive directorial roles. In Justin’s own words, management is about people. ‘To get the most out of people, they must feel they are treated like people, which means mutually respected and empathised with. When you think about it, your own needs and wants, your ambitions, your hopes and dreams – everybody has these things. Many philosophers over the years, and those we revere, have put the so-called ‘ethic of reciprocity’ this way: do unto others as you would have them do unto you (King James Bible); choose actions you can will to be universal (Immanuel Kant); never impose on others what you would not choose for yourself (Confucius). Living the reciprocity message as a manager will lead to

DR JUSTIN PIERCE, COTTON ON GROUP

SOURCE: Contributed by Dr Justin Pierce

R EMEMBE R THIS ◗◗ ◗◗

When external factors change rapidly, the organisation experiences high uncertainty.

◗◗

Boundary-spanning roles link to and coordinate the organisation with key elements in the external environment.

◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗

Interorganisational partnerships reduce boundaries and increase collaboration with other organisations.

Strategic issues are events and forces that alter an organisation’s ability to achieve its goals. As environmental turbulence increases, strategic issues emerge more frequently.

A merger occurs when two or more organisations combine to become one. A joint venture is a strategic alliance or program by two or more organisations. Forecasting is an effort to spot trends that enable managers to predict future events. Planning can soften the adverse effect of rapid shifts in the environment. Organisations need to adapt to the changing and uncertain environment to be successful. Through activities such as advertising and lobbying, it is possible to influence the external environment.

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THE INTERNAL ENVIRONMENT – CORPORATE CULTURE 2.3

culture The shared knowledge, beliefs, values, behaviours and ways of thinking among members of a society.

EXHIBIT 2.6 Levels of corporate culture

The internal environment within which managers work includes corporate culture, production technology, organisation structure and physical facilities. Of these, corporate culture surfaces as extremely important to competitive advantage. The internal culture must fit the needs of the external environment and company strategy. When this fit occurs, highly committed employees create a high-performance organisation that is tough to beat.57 Most people don’t think about culture, it is often expressed as ‘how we do things around here’ or ‘the way things are here’. However, managers have to think about culture because it typically plays a significant role in organisational success. Organisational culture has been defined and studied in many and varied ways. For the purposes of this chapter, we define culture as the set of key values, beliefs, understandings and norms shared by members of an organisation.58 The concept of culture helps managers understand the hidden, complex aspects of organisational life. Culture is a pattern of shared values and assumptions about how things are done within the organisation. This pattern is learned by members as they cope with external and internal problems, and taught to new members as the correct way to perceive, think and feel.

Culture that can be seen at the surface level

Visible 1. Artefacts, such as dress, office layout, symbols, slogans, ceremonies

Invisible 2. Expressed values 3. Underlying assumptions and deep beliefs, such as ‘people here care about one another like a family’

Deeper values and shared understandings held by organisation members

Although strong corporate cultures are important, they can also sometimes promote negative values and behaviours. When the actions of top leaders are unethical, for instance, the entire culture can become contaminated. Consider what happened at News Corporation, a corporate giant with a lucrative string of media properties all over the world. The Murdoch organisation has been accused of frequently applying unethical, sometimes seedy tactics in business dealings. In addition, ‘blunt force’ spending has allegedly been used to cover up unscrupulous tactics and silence critics with multimilliondollar payoffs. ‘Bury your mistakes,’ Murdoch was fond of saying, according to news reports.59 But he couldn’t bury the scandal that rocked the organisation after private investigators working for News Corporation newspapers hacked private voicemail messages and journalists offered bribes to police in the pursuit of hot scoops. One investigator went so far as to hack the voicemail of a murdered 13-year-old girl, Milly Dowler, while she was still listed as missing.60 As this example illustrates, the

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values and behaviours of top leaders have the potential to shape significantly the decisions made by employees throughout the organisation. Mark Lewis, the lawyer for the family of the murdered girl, pointed out: ‘This is not just about one individual, but about the culture of an organization.’61 Culture can be analysed at two levels, as illustrated in EXHIBIT 2.6.62 At the surface level are visible artefacts, which include things such as manner of dress, patterns of behaviour, physical symbols, organisational ceremonies and office layout. Visible artefacts are all the things one can see, hear and observe by watching members of the organisation. At a deeper, less obvious level are values and beliefs, which are not observable but can be discerned from how people explain and justify what they do. Members of the organisation hold some values at a conscious level. These values can be interpreted from the stories, language and symbols that organisation members use to represent them. Some values become so deeply embedded in a culture that members are no longer consciously aware of them. These basic, underlying assumptions and beliefs are the essence of culture and subconsciously guide behaviour and decisions. In some organisations, a basic assumption might be that people are essentially lazy and will shirk their duties whenever possible; thus, employees are closely supervised and given little freedom and colleagues are frequently suspicious of one another. More enlightened organisations operate on the basic assumption that people want to do a good job; in these organisations, employees are given more freedom and responsibility, and colleagues trust one another and work cooperatively. At the Zappos Family of companies, a culture of wellbeing and happiness has been instrumental in the growth of this successful online retailer. The company has created a unique culture that is reflected in its core values. Fundamental values are demonstrated in organisations through symbols, stories, heroes, slogans and ceremonies.

INNOVATIVE WAY ZAPPOS FAMILY Zappos.com, an online retail site best known for its wide selection of shoes and its free shipping, boldly proclaims its unique culture in an offbeat set of 10 core values. CEO Tony Hsieh believes that these values illustrate the company’s innovative culture and demonstrate its ultimate business goal – cultivating happiness. Hsieh’s management theory goes like this – If you create a work culture that fosters wellbeing, good practices and (eventually) good profits will naturally flow out of the operation. So far, his theory is producing outstanding business results. Zappos.com, Inc. is raking in US$1 billion worth of annual gross sales, and employees widely report that their work is exciting and challenging. ‘We really buy into the idea that the better we treat each other, the better we’ll all be able to treat our customers’, says Rebecca Ratner, director of human resources. Hsieh knows firsthand how important a strong, positive culture is when it comes to employee and customer happiness. Before Zappos, he had experienced the joyless grind of working in a job that had no meaning, where technical skill was all that mattered. Hsieh decided to write

the book Delivering Happiness to document his journey from ‘chasing profits to chasing passion,’ the life lessons he has learned, and how those lessons have been applied at Zappos. Here are some key points for business leaders: ✚✚ Get the right values. Zappos has a set of 10 core values that include ‘create fun and a little weirdness’; ‘deliver wow through service’; ‘embrace and drive change’; ‘be adventurous, creative, and open-minded’; ‘pursue growth and learning’; and ‘be humble’. But Hsieh didn’t dictate the values from on high. He sent an email to all employees asking them what values should guide the company. The responses were discussed, condensed, and combined to come up with the final list.

✚✚ Get the right people. Zappos does two sets of interviews when hiring new employees. The first focuses on relevant experience, professional and technical skills, and the ability to work with the team. The second focuses purely on culture fit. There are questions for each of the core values, such as ‘How weird are you?’ People are carefully

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selected to fit the Zappos culture, even if that means rejecting people with stronger technical skills.

offered US$2000 to resign if they believe that they aren’t a good fit with the culture. Every year, Zappos releases a ‘Culture Book’, in which employees share their own stories about what the Zappos culture means to them.

✚✚ Make culture a top priority. All employees attend a four-week training session and commit the core values to memory. At the end of training, they’re

Copyright © 2010 Zappos.com, Inc. or its affiliates. Used by permission. Sources: Carlin Flora. (September–October 2009). Paid to Smile. Psychology Today, 58–9; and Tony Hsieh, Delivering Happiness: A Path to Profits, Passion, and Purpose (New York: Business Plus, 2012).

CASE STUDY GREEN POWER Many companies are pursuing reductions in their environmental outputs. Zara is an example of a business that not only likes to stay ahead of trends in terms of its fashion offerings, but is also doing many things to reduce its deleterious impact on the green environment. Zara is careful in the materials it buys, the transport systems it uses and even in its building designs – to ensure it has strong regard

for reducing its greenhouse house profile, aiming ultimately for eco-efficiency by 2020. Even service businesses are pursuing these goals; for example, Australia’s four big banks have recognised that they can contribute to environmental progress in everything from the uniforms they buy, the buildings they use and the green energy that they procure.

Source: Dumaine, B. (24 June 2014). Is Apple ‘greener’ than Starbucks?. Fortune, http://fortune.com/2014/06/24/50-best-global-green-brands-2014/ (accessed 11 February 2017).

Creating and influencing organisational culture is one of the most important things leaders do, because this has a significant impact on performance. In comparing 18 companies that have experienced longterm success with 18 similar companies that have not done so well, James C. Collins and Jerry I. Porras found the key determining factor in successful companies to be a culture in which employees share such a strong vision that they know in their hearts what is right for the company. Their book, Built to Last: Successful Habits of Visionary Companies, describes how companies such as Hewlett-Packard, Walt Disney and Procter & Gamble have successfully adapted to a changing world without losing sight of the core values that guide the organisation. Some companies put values in writing so they can be passed on to new generations of employees. Hewlett-Packard created a list of cultural concepts called ‘The HP Way’, which is evident wherever one goes in the Hewlett-Packard world. Companies known for their strong, distinctive cultures, such as Hewlett-Packard, regularly show up on lists of the best companies for which to work.63 The fundamental values that characterise cultures at these and other organisations can be understood through the visible manifestations of symbols, stories, heroes, slogans and ceremonies. Any organisation’s culture can be interpreted by observing these factors.

S Y M BO L S symbol An object, act or event that conveys meaning to others.

A symbol is an object, act or event that conveys meaning to others. Symbols can be considered a rich, nonverbal language that vibrantly conveys the organisation’s important values concerning how people relate

to one another and interact with the environment.64 Mindy Grossman, CEO of HSN Inc., found that something as simple as an office chair can be symbolic. When Grossman became HSN’s eighth CEO in 10 years, she inherited a downtrodden workforce. During her first few months, Grossman learned as much about the business as possible. ‘As I grew to understand the business, it became clear that it was fundamentally broken. To fix it, I needed to dramatically alter the company’s culture,’ she said. Part of the cultural transformation included improving the work environment, which had dirty offices full of broken-down furniture and clutter. ‘I looked around and realized we had 40 different kinds of office chairs. So I bought several thousand Herman Miller Aeron chairs,’ said Grossman. She received over 100 emails expressing appreciation on the day they were delivered.65 For Grossman, the new office chairs were an important symbol of a new company value of caring for employees. Symbols are often used by senior executives to let staff and other stakeholders know of the expected standards of behaviour and service.

ST O R I E S

In February 2014 Toyota voluntarily recalled 1.9 million Prius vehicles after concerns about a potential programming error. The recall was viewed as a significant change to how it handled the 2010 crisis and Toyota now recall more vehicles than any other automaker in the United States. Critics attributed the company’s reticence to go public in 2010 with its quality problems to its deep roots in Japanese culture, in which airing dirty linen in public is impolite. However, the Toyota culture has also been historically linked with a powerful commitment to quality, which has enabled the company, under the leadership of president and CEO Akio Toyoda, to return to its previous strong market position.

A story is a narrative based on true events and is repeated frequently and shared among organisational employees. Stories paint pictures that help symbolise the firm’s vision and values and help employees personalise and absorb them.66 A frequently told story at UPS concerns an employee who, without authorisation, ordered an extra Boeing 737 to ensure timely delivery of a load of Christmas packages that had been left behind in the holiday rush. As the story goes, rather than punishing the worker, UPS rewarded his initiative. By telling this story, UPS workers communicate that the company stands behind its commitment to worker autonomy and customer service.67

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See Chapter 10 for a focused discussion on leadership.

H E RO E S A hero is a figure who exemplifies the deeds, character and attributes of a strong corporate culture. Lee Iacocca is a well-known US hero who proved the courage of his convictions by working for US$1 a year when he first went to Chrysler. Heroes are role models for employees to follow. The deeds of heroes are out of the ordinary, but not so far out as to be unattainable by other employees. Heroes show how to do the right thing in the organisation. Organisations with strong cultures take advantage of achievements to define heroes who uphold key values. Many people have wondered if the culture that Steve Jobs created at Apple would be sustained after his death in 2011. Jobs exemplified the creativity, innovation, risk-taking and boundary-breaking thinking that made the company famous.68 When Jobs’ health began to fail, Apple’s

story A narrative based on true events that is repeated frequently and shared by organisational employees. hero A figure who exemplifies the deeds, character and attributes of a strong corporate culture.

board began considering replacements who could sustain the fertile culture that Jobs created. They chose Tim Cook, who long had served as second-in-command. Cook now cultivates a culture that reflects the values and behaviours of Apple’s hero, Steve Jobs. ‘Apple has a culture of excellence that is, I think, so unique and so special. I’m not going to witness or permit the change of it,’ he said.69

S L O GA N S A slogan is a phrase or sentence that succinctly expresses a key corporate value. Many companies use a slogan or saying to convey special meaning to employees. For example, Disney uses the slogan ‘The happiest place on earth’ and The Queensland Tourism Board used an effective slogan ‘Beautiful one day,

slogan A phrase or sentence that succinctly expresses a key corporate value.

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perfect the next’. The Ritz-Carlton adopted the slogan, ‘Ladies and gentlemen taking care of ladies and gentlemen’ to demonstrate its cultural commitment to take care of both employees and customers. ‘We’re in the service business, and service comes only from people. Our promise is to take care of them, and provide a happy place for them to work,’ said former general manager Mark DeCocinis, who managed the Portman Hotel in Shanghai, recipient of the ‘Best Employer in Asia’ award for three consecutive years.70 Cultural values can also be discerned in written public statements, such as corporate mission statements or other formal statements that express the core values of the organisation. The mission statement for Hallmark Cards, for example, emphasises values of excellence, ethical and moral conduct in all relationships, business innovation and corporate social responsibility.71

CE RE MONI E S ceremony A planned activity that makes up a special event and is conducted for the benefit of an audience.

See Chapter 12 for a focused discussion on communications.

A ceremony is a planned activity that makes up a special event and is conducted for the benefit of an audience. Managers hold ceremonies to provide dramatic examples of organisational values. Ceremonies are special occasions that reinforce valued accomplishments, create a bond among people by allowing them to share an important event, and anoint and celebrate heroes.72 The value of a ceremony can be illustrated by the presentation of a major award. When Dryen Australia, a company in Melbourne of some 40 people that imports and manufactures sheets, wanted to recognise and reward its longest-serving staff, it presented plaques and significant monetary rewards at a celebratory dinner to its 10- and 15-year employees. When the company achieved record sales revenue, managing director Peter Dryen gave each employee a AU$300 shopping centre gift voucher in recognition of their hard work and contribution.73 This practice led to higher levels of motivation and grew loyalty and has been repeated from time to time in that firm. Such ceremonies are a powerful form of communicating the values and priorities of an organisation. Yet nothing stays the same for long – in 2016, Peter Dryen sold that business which had been in his family for 40 years, to a new Chinese owner, who merged it with another iconic Australian firm it acquired: Moran (furniture). Needs of the environment

EXHIBIT 2.7 Four types of corporate culture

Flexibility

Stability

Adaptability culture

Achievement culture

Involvement culture

Consistency culture

Strategic focus

External

Internal

Sources: Based on D. R. Denison and A. K. Mishra. (March–April 1995). Toward a Theory of Organizational Culture and Effectiveness. Organization Science, 6:2: 204–23; R. Hooijberg and F. Petrock. (1993). On Cultural Change: Using the Competing Values Framework to Help Leaders Execute a Transformational Strategy. Human Resource Management, 32:1, 29–50; and R. E. Quinn, Beyond Rational Management: Mastering the Paradoxes and Competing Demands of High Performance (San Francisco: Jossey-Bass, 1988).

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In summary, organisational culture represents the values, understandings and basic assumptions that employees share, and these values are signified by symbols, stories, heroes, slogans and ceremonies. Managers help to define important symbols, stories and heroes to shape the culture.

R EMEMBE R THIS ◗◗

Organisational culture is the set of key values, beliefs, understandings, and norms shared by members of an organisation.

◗◗ ◗◗

A symbol is an object, act or event that conveys meaning to others.

◗◗ ◗◗ ◗◗

A hero is a figure who exemplifies the deeds, character and attributes of a strong culture.

A story is a narrative based on true events and is repeated frequently and shared among organisational employees.

A slogan, such as Disney’s ‘The happiest place on earth’, succinctly expresses a key corporate value. Managers hold ceremonies, planned activities at special events to reinforce company values.

2.4

TYPES OF CULTURE

We have already established that the external environment is a big influence on internal corporate culture. Cultures can vary widely across organisations; however, organisations within the same industry often reveal similar cultural characteristics because they are operating in similar environments.74 The internal culture should embody what it takes to succeed in the environment. If the external environment requires extraordinary customer service, the culture should encourage good service; if it calls for careful technical decision making, cultural values should reinforce managerial decision making. In considering what cultural values are important for the organisation, managers consider the external environment, as well as the company’s strategy and goals. Studies suggest that the right fit between culture, strategy and the environment is associated with four categories or types of culture, as illustrated in EXHIBIT 2.7. These categories are based on two dimensions: (1) the extent to which the external environment requires flexibility or stability; and (2) the extent to which a company’s strategic focus is internal or external. The four categories associated with these differences are adaptability, achievement, involvement and consistency.75

A DA P TA B I L I T Y C U LT U R E The adaptability culture emerges in an environment that requires fast response and high-risk decision making. Managers encourage values that support the company’s ability to rapidly detect, interpret and translate signals from the environment into new behaviours. Employees have the autonomy to make decisions and act freely to meet new needs, and responsiveness to customers is highly valued. Managers also actively create change by encouraging and rewarding creativity, experimentation and risk taking. Lush Cosmetics, a fast-growing maker of shampoos, lotions and bath products made from fresh ingredients such as mangoes and avocados, provides a good example of an adaptability culture. A guiding motto

adaptability culture Characterised by values that support the company’s ability to interpret and translate signals from the environment into new behaviour responses.

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at the company is ‘We reserve the right to make mistakes’. Founder and CEO Mark Constantine is passionately devoted to change and encourages employees to break boundaries, experiment and take risks. The company kills off one-third of its product line every year to offer new and offbeat products.76 Other companies in the cosmetics industry, as well as those involved in electronics, e-commerce and fashion, often use an adaptability culture because they must move quickly to respond to rapid changes in the environment.

CASE STUDY MCDONALD’S Ray Kroc, founder of McDonald’s, once said, ‘I don’t know what we’ll be serving in the year 2000, but we’ll be serving more of it than anybody’. From its founding through to the early 1980s, McDonald’s changed with consumers’ tastes, seeming to give us what we wanted before we even knew we wanted it. Today, however, Kroc’s bold claim does not seem so assured. Although McDonald’s still has a majority share of the US fast-food market and continues to expand internationally, the company is slipping fast in its ability to recognise and shape popular trends. Some analysts and investors believe the widespread problems with McDonald’s are due to the company’s insular, arrogant culture. The average top executive at McDonald’s started working at the company when Richard Nixon was President of the United States, and the company has been reluctant to bring in outside leaders to guide management as the external environment changes. And the board is made up of close-knit insiders who have done little to agitate for change. As performance declined, top leaders tended to blame others, such as dissident franchisees, news reporters and Wall Street analysts. ‘If there were one thing I would change about McDonald’s,’ said senior vice-president Brad A. Ball, ‘it would be to correct the misconceptions and misperceptions that have become so pervasive in the last few years.’ In the late 1990s, McDonald’s embarked on an effort to reform. Management was reorganised, and the then-head of the US domestic division, Jack M. Greenberg, brought in at least a handful of new managers, including executives from Burger King, Boston Market and General Electric. He also

divided the United States into territories, creating smaller companies to recapture some of McDonald’s entrepreneurial zeal. ‘We are not afraid to do things differently,’ Greenberg said. Managers began to recognise that, even though McDonald’s was still the world’s most successful restaurant company, it was far from achieving its potential. They were trying to return McDonald’s to the healthy, adaptive culture of the early years, when it was constantly in touch with the tastes of consumers. By the late 2000s, McDonald’s had made many changes, was operating more efficiently and sustainably and offering new products such as salads and café products. It increased sales across its 35 000 stores, obviously giving its 60 million customers per day an experience that they value, while also increasing the company’s stock price by a factor of three over the five years to 2007. Growth in emerging economies has been very solid. McDonald’s has more recently refurbished its stores and redesigned its products in leading markets such as Australia, now making many products to the specific orders of its customers. By 2014, McDonald’s had substantially accomplished this product and process upgrade through rolling it out on an international basis. As of 2016, McDonald’s has engaged in significant innovations, from ‘Create Your Taste’ to table service options and a range of new services and initiatives. McCafe’s, which are an Australian innovation for McDonald’s, have been rolled out internationally. These new services have led to significant sales growth, and have even brought new customers to consume from McDonald’s.

Sources: Euromonitor International. (September 2013). Country Report: Fast Food In The US. http://www.euromonitor.com/fast-food-in-the-us/report (accessed 3 November 2013; Leonardt, D. (9 March 1998). McDonald’s: Can it Regain its Golden Touch? BusinessWeek, 70–7

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AC H I E V E M E N T C U LT U R E The achievement culture is suited to organisations concerned with serving specific customers in the external environment, but without the intense need for flexibility and rapid change. This results-oriented culture values competitiveness, aggressiveness, personal initiative, cost-cutting and willingness to work long and hard to achieve results. An emphasis on winning and achieving specific ambitious goals is the glue that holds the organisation together.77 Brewing giant InBev provides an example. When InBev bought Anheuser-Busch, it replaced lavish perks and generous spending with a no-frills culture focused on cost cutting and meeting strict profit goals. Managers also created an incentive-based compensation system to reflect ‘an increased focus on meritocracy’. The system handsomely rewards high performers rather than spreading dollars more evenly among employees. ‘We always say, the leaner the business, the more money we’ll have at the end of the year to share,’ said Carlos Brito, InBev’s CEO.78

achievement culture A results-oriented culture that values competitiveness, personal initiative and achievement.

I N VO LV E M E N T C U LT U R E The involvement culture emphasises an internal focus on the involvement and participation of employees to adapt rapidly to changing needs from the environment. This culture places high value on meeting the needs of employees, and the organisation may be characterised by a caring, family-like atmosphere. Managers emphasise values such as cooperation, consideration of both employees and customers, and avoiding status differences.

involvement culture A culture that places high value on meeting the needs of employees and values cooperation and equality.

CO N S I ST E N C Y C U LT U R E The final category of culture, the consistency culture, uses an internal focus and a consistency orientation for a stable environment. Following the rules and being thrifty are valued, and the culture supports and rewards a methodical, rational, orderly way of doing things. In today’s fast-changing world, few companies operate in a stable environment, and most managers are shifting towards cultures that are more flexible and in tune with changes in the environment. However, Pacific Edge Software (now part of Serena Software), successfully implemented elements of a consistency culture to ensure that all its projects stayed on time and under budget. The husband-and-wife team of Lisa Hjorten and Scott Fuller implanted a culture of order, discipline and control from the moment they founded the company. The emphasis on order and focus meant employees could generally go home by 6.00 p.m. rather than working all night to finish an important project. Although sometimes being careful means being slow, Pacific Edge managed to keep pace with the demands of the external environment.79 Each of these four categories of culture can be successful. In addition, organisations usually have values that fall into more than one category. The relative emphasis on various cultural values depends on the needs of the environment and the organisation’s focus. Managers are responsible for instilling the cultural values the organisation needs to be successful in its environment.

consistency culture A culture that values and rewards a methodical, rational, orderly way of doing things.

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R EMEMBE R THIS ◗◗

For an organisation to be effective, corporate culture should be aligned with organisational strategy and the needs of the external environment.

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Organisations within the same industry often reveal similar cultural characteristics because they are operating in similar environments.

◗◗

The adaptability culture is characterised by values that support the company’s ability to interpret and translate signals from the environment into new behaviour responses.

◗◗

An achievement culture is a results-oriented culture that values competitiveness, personal initiative and achievement.

◗◗

A culture that places high value on meeting the needs of employees and values cooperation and equality is an involvement culture.

◗◗

A consistency culture values and rewards a methodical, rational, orderly way of doing things

SHAPING CORPORATE CULTURE FOR INNOVATIVE RESPONSE 2.5

Research conducted by a Stanford University professor indicates that the one factor that increases a company’s value the most is people and how they are treated.80 In addition, surveys show that CEOs often cite organisational culture as their most important mechanism for attracting, motivating and retaining talented employees, a capability considered the single best predictor of overall organisational excellence.81 In a survey of Canadian senior executives, fully 82 per cent believe a direct correlation exists between culture and financial performance.82 Consider how an ‘employees first’ corporate culture drives stellar financial performance at Southwest Airlines. Profitable for 38 consecutive years and touting the lowest ratio of complaints per passenger in the industry, Southwest offers industry-leading salaries and benefits, intense career development programs and a commitment to diversity among its workforce. In addition, Southwest promotes a strong collaborative culture and fosters good relationships with organised labour.83 At Southwest, a positive culture that reflects an intense commitment to employees results in a competitive advantage. Corporate culture plays a key role in creating an organisational climate that enables learning and innovative responses to threats from the external environment, challenging new opportunities or organisational crises. However, managers realise they can’t focus all their effort on values – they also need a commitment to solid business performance.

M A NAG I NG T H E H I G H - P E R F O R M A N C E C U LT U R E Companies that succeed in a turbulent world are those that pay careful attention to both cultural values and business performance. Cultural values can energise and motivate employees by appealing to higher ideals and unifying people around shared goals. In addition, values boost performance by shaping and guiding employee behaviour, so that everyone’s actions are aligned with strategic priorities.84 EXHIBIT 2.8 illustrates four organisational outcomes based on the relative attention managers pay to cultural values and business performance.85 For example, a company in Quadrant C pays little attention to either values or business results

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and is unlikely to survive for long. Managers in Quadrant D organisations are highly focused on creating a strong cohesive culture, but they don’t tie organisational values directly to goals and desired business results. When cultural values aren’t connected to business performance, they aren’t likely to benefit the organisation during hard times. The corporate culture at the LEGO Group, with headquarters in Billund, Denmark, nearly doomed the toymaker in the 1990s when sales plummeted as children turned from traditional toys to video games. At that time, LEGO reflected the characteristics found in Quadrant D of EXHIBIT 2.8. Imagination and creativity, not business performance, were what guided the company. The attitude among employees was, ‘We’re doing great stuff for kids – don’t bother us with financial goals.’ A new CEO, Jørgen Vig Knudstorp, upended the corporate culture with a new employee motto: ‘I am here to make money for the company.’ The shift to bottom-line results had a profound impact, and LEGO has become one of the most successful companies in the toy industry.86 Quadrant A represents organisations that are focused primarily on bottom-line results and pay little attention to organisational values. This approach may be profitable in the short run, but the success is difficult to sustain over the long term because the ‘glue’ that holds the organisation together – that is, shared cultural values – is missing. Finally, companies in Quadrant B put high emphasis on both culture and solid business performance as drivers of organisational success. Managers in these organisations align values with the company’s day-to-day operations – hiring practices, performance management, budgeting, criteria for promotions and rewards, and so forth. Consider the approach that General Electric (GE) took to accountability and performance management. High

Attention to business performance

Quadrant A

Quadrant B

High performance Low cultural values

High performance High cultural values

Managers meet performance goals but fail to uphold cultural values.

Managers achieve performance goals and uphold desired cultural values.

Quadrant C

Quadrant D

Low performance Low cultural values

Low performance High cultural values

Managers do not meet performance goals or uphold cultural values.

Managers do not meet performance goals but do uphold cultural values.

EXHIBIT 2.8 Combining culture and performance

Low Low

High

Attention to values Sources: Adapted from Jeff Rosenthal and Mary Ann Masarech. (Spring 2003). High-Performance Cultures: How Values Can Drive Business Results. Journal of Organizational Excellence, 3–18; and Dave Ulrich, Steve Kerr and Ron Ashkenas, Figure 11-2, GE Leadership Decision Matrix, The GE Work-Out: How to Implement GE’s Revolutionary Method for Busting Bureaucracy and Attacking Organizational Problems – Fast! (New York: McGraw-Hill, 2002), p. 230.

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When he was CEO, Jack Welch helped GE become one of the world’s most successful and admired companies. He achieved this by creating a culture in which risk was rewarded and accountability and measurable goals were keys to individual success and company profitability.87 The company’s traditional approach had achieved stellar financial results, but managers motivated people to perform primarily through control, intimidation and reliance on a small circle of staff. Welch was interested in more than just financial results – he wanted managers to exhibit the following cultural values in addition to ‘making their numbers’:88

◗◗ Have a passion for excellence and hate bureaucracy. ◗◗ Be open to ideas from anywhere. ◗◗ ‘Live’ quality, and drive cost and speed for competitive advantage.

high-performance culture Created when managers emphasise both values and business results.

Welch knew that for the company to succeed in a rapidly changing world, managers needed to pay careful attention to both cultural values and business performance. Quadrant D organisations represent the high-performance culture, a culture that: (1) is based on a solid organisational mission or purpose; (2) embodies shared adaptive values that guide decisions and business practices; and (3) encourages individual employee ownership of both bottom-line results and the organisation’s cultural backbone.89 One of the most important things managers do is create and influence organisational culture to meet strategic goals because culture has a significant impact on performance. In Corporate Culture and Performance, John Kotter and James Heskett provided evidence that companies that intentionally managed cultural values outperformed similar companies that did not. Recent research validates that elements of corporate culture are positively correlated with higher financial performance.90 Consider Virgin Australia, the Australian airline that came into a market dominated by longstanding corporate, Qantas. Its culture and ways of working are vastly different from Qantas. One major difference comes from the behavioural expectations set by management in Virgin Australia. The process of selection of new staff is more like an audition than an interview process. The company is looking for ‘Virgin flair’ in its staff, according to its head of human resources management, Bruce Highfield. On each flight, every staff member is evaluated on seven dimensions of ‘people competencies’ and this information is taken very seriously, and hence drives behaviour. Virgin Australia staff are all multi-skilled and are expected to pitch in and do a number of different jobs as required by the company. These working conditions have been agreed to by the unions and are very different from the rigid demarcations between who does what at Qantas. Virgin has a new approach and four unions to deal with, whereas Qantas is a victim of its fine history, and must manage relations with 13 unions. Virgin Australia has been compared to the very successful US-based airline Southwest, whose CEO has the business philosophy that business should be about ‘fun, humour and celebration’. While these are not traditional work values, the runs are on the board at Southwest, as it is the only US-based airline to have made a profit every year since 1973.91 This raises the fundamental question – does making work a fun experience for staff increase their productivity and level of customer service? Virgin Australia and Southwest firmly believe the answer is yes. Whether this approach translates well to other companies and industries is yet to be seen. Could Qantas, Cathay, Air New Zealand or Singapore Airlines adopt this approach?92

R EMEMBE R THIS ◗◗ ◗◗

Managers emphasise both values and business results to create a high-performance culture. Culture enables solid business performance through the alignment of motivated employees with the mission and goals of the company.

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2.6

CULTURAL LEADERSHIP

A primary way in which managers shape cultural norms and values to build a high-performance culture is through cultural leadership. Managers must overcommunicate to ensure that employees understand the new culture values, and they signal these values in actions as well as words. A cultural leader defines and uses signals and symbols to influence corporate culture. Cultural leaders influence culture in two key areas:

1 The cultural leader articulates a vision for the organisational culture that employees can believe in. The leader defines and communicates central values that employees believe in and will rally around. Values are tied to a clear and compelling mission, or core purpose.

2 The cultural leader heeds the day-to-day activities that reinforce the cultural vision. The leader makes sure that work procedures and reward systems match and reinforce the values. Actions speak louder than words, so cultural leaders ‘walk their talk’.93 Managers widely communicate the cultural values through words and actions. Values statements that aren’t reinforced by management behaviour are meaningless, or even harmful, for employees and the organisation. Whole Foods founder and CEO John Mackey wants his managers to place more value on creating ‘a better person, company, and world’ than on pursuing personal financial gain. To demonstrate his personal commitment to this belief, he asked the board of directors to donate all his future stock options to the company’s two foundations, the Animal Compassion Foundation and the Whole Planet Foundation.94 Cultural leaders also uphold their commitment to values during difficult times or crises. Upholding the cultural values helps organisations weather a crisis and come out stronger on the other side. Creating and maintaining a high-performance culture is not easy in today’s turbulent environment and changing workplace, but through their words – and particularly their actions – cultural leaders let everyone in the organisation know what really counts.

C H A NGI NG A N D M E RGI NG COR P OR AT E C U LT U R E S Culture gaps can be immense, especially in mergers and acquisitions.95 Despite the popularity of mergers and acquisitions as a corporate strategy, many still fail. Almost half of acquired companies are sold within five years, and some experts claim that 90 per cent of mergers never live up to expectations.96 One reason for failure is that although managers are able to integrate the acquired firm’s financial systems and production technologies, they typically are unable to integrate the unwritten norms and values that have an even greater impact on an organisation’s success.97 These problems increase in scope and frequency with global companies and cross-cultural mergers and acquisitions. Culture gaps can also exist in organisations that have not gone through merger or acquisition. When Chuck Mitchell took over at GTO, a nearly bankrupt US maker of automatic gate openers, he quickly realised that the most damaging inefficiencies were not in the company’s products or processes but in the hearts of its employees. Transforming an unadaptive culture requires leaders who are in tune with their own inner values and are motivated by seeing others learn and grow to their full potential. Many companies in Australia – from the biggest companies such as Telstra and National Australia Bank (NAB) to smaller companies such as Dryen Australia – have used employee satisfaction questionnaires to measure the nature and extent of culture gaps, with a view towards driving improvement on the basis of facts.

cultural leader Defines and articulates important values that are tied to a clear and compelling mission.

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TAKE A MOMENT Consider an organisation in which you have worked, been a repeat customer, or for some other reason been able to closely observe the workplace culture. Describe that culture, and consider how it developed and has been led to its current state.

R EMEMBE R THIS ◗◗ ◗◗

Managers create and sustain adaptive high-performance cultures through cultural leadership. Cultural leaders define and articulate important values that are tied to a clear and compelling mission, which they communicate widely and uphold through their actions

MANAGEMENT IN PRACTICE UNLOCKING INNOVATIVE SOLUTIONS THROUGH PEOPLE – IT IS POWER (AND RESPONSIBILITY) TO THE PEOPLE Feeling all too burdened by responsibility, 24-year-old Ricardo Semler created a new vision for the culture of his family’s business in 1983, while recuperating from a stress-related illness. When Semler had taken over Brazil-based Semco Corporation from his father in 1980 as a freshly minted Harvard MBA (one of the youngest ever to earn the prestigious degree), the company was manufacturing equipment for a Brazilian shipbuilding industry that was in abysmal shape. As Semco’s president and majority owner, Semler fired most of the top management and used a series of strategic acquisitions to steer the company into more viable markets. Ironically, as the company’s fortunes began to revive, Semler’s own health took a nosedive. As he lay in a hospital bed, Semler had a vision for a new way to manage – by relinquishing control to his employees. Thus began a five-year process of building a radically democratic culture based on open information and employee participation. Semler started modestly – letting employees choose their uniform colour, for example – and eventually moved to the creation of egalitarian project teams that had complete responsibility for particular projects, total authority regarding how to perform them, and the opportunity for team members to pocket a substantial percentage of any profits generated. Today, self-directed teams form the basis of the company’s loose, flexible organisation structure. People typically have a chance to choose what projects

they will work on, based on how they think they can best make a contribution. Semco uses few job titles and only three management levels: counsellors (the name Semler now goes by); partners; and associates. The CEO position rotates every six months among the counsellors. Workers set their own hours, elect and evaluate supervisors, and have major input into how they are compensated, with some actually setting their own pay rates. All financial information, including salaries, is available to everyone, and any employee is eligible to attend any meeting, including board meetings, where two seats are reserved for employees on a first-come, first-served basis. The result of applying these rather radical cultural values is that Semco has not only survived but prospered in Brazil’s often chaotic economic and political climate. The conglomerate now produces a diverse range of products and services, from manufacturing giant oil pumps to participating in mail processing joint ventures. Its revenues grew from US$4 million in 1982 to approximately US$240 million recently. ‘It’s about competitive advantage,’ Semler says. ‘Once you stop trying to control employees,’ he insists, ‘you release the powerful twin forces of self-discipline and peer pressure. Performance becomes the only criterion for success.’ At Semco, treating employees like responsible adults is just good business. With this

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culture and the corporate capability it has brought, Semco has taken advantage of growth opportunities in new industries such as its intelligent systems business, called Pitney Bowes Semco,

and its Branco (ethanol from sugarcane) business which are doing business successfully both domestically and internationally through the efforts of flexible, adaptable and creative staff.

SOURCES: Fisher, L. (Winter 2005). Ricardo Semler Won’t Take Control. Strategy + Business, 78−88; Caulkin, S. (29 April 2003). Who’s in Charge Here? No One. Observer, http://observer.guardian.co.uk; Ricardo Semler, Wikipedia, http://en.wikipedia.org; Easen, Nick (14 June 2004), Interview with Ricardo Semler. CNN.com, http://edition.cnn. com; and Lancourt, Joan and Savage, Charles (Autumn 1995). Organizational Transformation and the Changing Role of the Human Resource Function. Compensation & Benefits Management.

Some really important things have occurred in the world of organisations in the last 20 years. There are five clear and pervasive aspects of the world that have major implications for managers. 1. Globalisation – goods and services are now traded all over the world, and managers must compete with the best in the world, not just other local industry players. 2. Advanced technology – related to globalisation, the Internet has empowered consumers who have never been better informed, and can choose to buy goods and services in new and different ways. 3. Industry maturity – many industries have reached a point of overcapacity, where potential supply much exceeds demand in industrialised economies. For example, in the automotive industry, if all the world’s car factories were producing at capacity, many more cars would be produced than consumers are willing to pay for. So competition is fierce in many industries. 4. Variance and volatility – inside many societies, the gap between rich and poor is not decreasing, and on a global basis, there are some very rich countries and many which are still impoverished. Further, the stability of economies and markets has been strongly threatened in recent years by crises and recessions, in which there were many bankruptcies, job and home losses and disruption, that bounced around the whole world. 5. Climate change – although some still dispute it, most credible scientists clearly suggest that human-induced global warming is a trend that cannot be ignored and that the current trajectory of environmental degradation is a journey towards planetary disaster if unchecked. How can managers and their organisations plan and execute strategies that will assure their success given these massive challenges in their external business environment? Perhaps the best way is to build close relationships with stakeholders and to integrate their success with ‘yours’, to show consumers that the organisation is doing good things and not bad things in terms of the environment, and to provide a fair and balanced set of outcomes to communities in which that organisation operates. Modern managers are doing just this. They are considering it as important to satisfy their customers and employees as their shareholders, and importantly, are finding ways to satisfy all these stakeholders, and others, at higher levels than previously on a broad (triple bottom line) set of measures. This proactive approach, of sustainable development, to ‘doing well by doing good’ ultimately becomes ingrained in every aspect of the progressive organisation – in other words, it becomes core to its culture. It can become more than just an afterthought, or something separate to the mainstream business activities. Instead, it can be an integral part of them, namely, core to behaviours, ingrained into a broad range of the company’s key measures and its everyday behaviour. For a mining company, this means doing real, long-term good in the local community where its mines operate. For a supermarket chain, it might mean promoting recycling of packaging and eliminating the use of plastic bags. For a manufacturing company, university or bank, it might mean reducing electricity and water use, and providing support for employee health improvement initiatives. These ways of building stakeholder support, and organisational effectiveness are perhaps the best way of coping with the challenging circumstances of today’s business environment, and finding new and different ways of getting, and staying, ahead. To promote and indeed accelerate the uptake of sustainable development practices into organisations, many have recently appointed executives with this responsibility specifically into their top management team.

SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT AND THE BUSINESS ENVIRONMENT

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RESPONSE TO THE MANAGEMENT CHALLENGE

MICROSOFT: COPING WITH CHANGE One problem for Microsoft, described in the chapter-opening Management Challenge, is that the culture is out of alignment with its environment. Years of success led to complacency and even resistance to changes in key sectors of the environment. The company’s adaptability culture did not stay aggressive. The focus on protecting Microsoft’s dominance in PC software caused the company to miss two of the hottest technology advances – Internet search engines and downloading music. Now, its PC software business, which Microsoft still relies on for up to 80 per cent of its sales and 140 per cent of its profits,

is under attack. Former CEO Steven Ballmer tried various structural alternatives and management changes to beef up boundary spanning and get employees more focused on customers and new trends in the shifting external environment. Microsoft released many new products late in Ballmer’s tenure, which he believed would keep the company on top. However, most of those products were considered ‘catch-up’, while younger, more adaptable companies already moved to the next level of new products. Microsoft is a large and powerful company, but it may have reached a midlife crisis and likely will need a cultural adjustment from current CEO Satya Nadella to stay in tune with changes in key environmental sectors. Managers can use symbols, stories, heroes, slogans and cultural

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leadership to engage adaptable values that will help Microsoft move fast in response to new opportunities. In recent years in Australia, Microsoft has made great strides to overcome its previous challenges. It has used global power and technology that comes from its global parent, which it combines with local managers and a culture that gives Australian flavour to its local customers. It fosters a high level of creativity and innovation in its local workplace, and uses its staff in Australia to achieve competitive advantage, having won the prestigious Hewitt award of ‘Best Employer in Australia’ more than once. This demonstrates clearly that Microsoft’s advantage, which was originally technical, followed by one based on scale and the market dominance of being the standard setter in PC software operating systems, is (as it must be) now supplemented by a culture- and people-based capability. Without this enduring capability that comes from culture and inspired leadership,

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Microsoft would lose its industry leading position. Microsoft has acquired new-economy businesses such as LinkedIn, to ensure it is current with major trends in technology and consumer and professional behaviours, that will keep Microsoft relevant. It has also launched new software and hardware products, aiming to lift its sales, profits and reputation. Yet the company is still successful by many measures: it employed over 110 000 people and generated profits of US$16.8 billion in 2016, and most of the world still uses its software on our computers. Sources: Guth, Robert and Delaney, Kevin (2005). Microsoft tests software link of web searches to advertisers; pilot in France, Singapore engages Google and Yahoo! in battle for ad dollars. The Wall Street Journal, http://online.wsj.com/news/articles/ SB111093200460980588; Birger, J. and Stires, D. (20 February 2006). The Toughest Jobs in Business: 10 on the Spot. Fortune, 81–8. Krim, J. (22 December 2005). Microsoft Is Losing Some of Its Elbow Room; As Software King’s Growth Slows, Rivals Stake Out Their Own Territory. The Washington Post, D1.

DISCUSSION QUESTIONS 1 What are the characteristics of a flat world, a term used by Thomas Friedman to describe today’s business environment? 2 What challenges do they pose? How can you prepare to manage in a flat world? 3 Would the task environment for a mobile phone company discussed in this chapter contain the same elements as that for a government welfare agency? Discuss. 4 What do you think are the most important forces in the external environment creating uncertainty for organisations today? Do the forces you identified typically arise in the task environment or the general environment? 5 Contemporary best-selling management books often argue that customers are the most important element in the external environment. Do you agree? In what company situations might this statement be untrue? 6 Why do you think many managers are surprised by environmental changes and unable to help their organisations adapt? Can a manager ever be prepared for an environmental change as dramatic

as that experienced by airlines in the United States following the 11 September 2001 terrorist attacks in New York and Washington? 7 Why are interorganisational partnerships so important for today’s companies? What elements in the current environment might contribute to either an increase or a decrease in interorganisational collaboration? Discuss. 8 Many companies are ‘going green’ or adopting environmentally friendly business strategies. How do companies benefit from going green? 9 Why are symbols important to a corporate culture? Do stories, heroes, slogans and ceremonies have symbolic value? Discuss. 10 Both China and India are rising economic powers. How might your approach to doing business with communist China be different from your approach to doing business with India, the world’s most populous democracy? In which country would you expect to encounter the most rules? The most bureaucracy? 11 General Electric is famous for firing the lowest-performing 10 per cent of its managers each year. Valero Energy has a strict no-layoff

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policy, believing that people need to feel secure in their jobs to perform their best. Both General Electric and Valero Energy are high-performing companies. How do you account for the success of such opposite philosophies?

think these changing attitudes might affect the manager’s job over the next few years? 13 What do you see as the primary advantage of using big data analytics – understanding the environment or influencing the environment? Why?

12 Surveys reveal dramatic shifts in social attitudes toward issues such as gay marriage and citizenship for illegal immigrants. How do you

ETHICAL CHALLENGE

COMPETITIVE INTELLIGENCE PREDICAMENT

Michael Vasquez was proud of his job as a new product manager for a biotechnology start-up, and he loved the high stakes and tough decisions that went along with the job. But as he sat in his office after a long day, he was troubled, struggling over what had happened earlier that day and the information he now possessed. Just before lunch, Michael’s boss had handed him a stack of private strategic documents from their closest competitor. It was a competitive intelligence gold mine – product plans, pricing strategies, partnership agreements and other documents, most clearly marked ‘proprietary and confidential’. When Michael asked where the documents came from, his boss told him with a touch of pride that he had taken them right off the competing firm’s server. ‘I got into a private section of their intranet and downloaded everything that looked interesting,’ he said. Later, realising Michael was suspicious, the boss would say only that he had obtained ‘electronic access’ via a colleague and had not personally broken any passwords. Maybe not, Michael thought to himself, but this situation wouldn’t pass the 60 Minutes test. If word of this acquisition of a competitor’s confidential data ever got out to the press, the company’s reputation would be ruined. Michael didn’t feel good about using these materials. He spent the afternoon searching for answers to his dilemma, but found no clear

company policies or regulations that offered any guidance. His sense of fair play told him that to use the information was unethical, if not downright illegal. What bothered him even more was the knowledge that this kind of thing might happen again. Using this confidential information would certainly give him and his company a competitive advantage, but Michael wasn’t sure he wanted to work for a firm that would stoop to such tactics. W H AT D O YO U D O ? 1 Go ahead and use the documents to the company’s benefit, but make clear to your boss that you don’t want him passing confidential information to you in the future. If he threatens to fire you, threaten to leak the news to the press. 2 Confront your boss privately and let him know you’re uncomfortable with how the documents were obtained and what possession of them says about the company’s culture. In addition to the question of the legality of using the information, point out that it is a public relations nightmare waiting to happen. 3 Talk to the company’s legal counsel and contact the Society of Competitive Intelligence Professionals for guidance. Then, with their opinions and facts to back you up, go to your boss. SOURCE: Adapted from Weber, K. (January−February 2001). Gold Mine or Fool’s Gold? Business Ethics, 18.

GROUP CHALLENGE

SHOULD YOU GO GLOBAL?

Suppose you are running a family-owned business in Adelaide which gives financial advice and performs financial planning services for individuals, families and small businesses. Your business gives investment advice, sets up superannuation funds and helps retirees, business people and others with advice on how to plan their financial

future. You operate out of rented premises near the city. You have heard that in Melbourne and Sydney, a US-based global player has entered the market and basically wiped out the small independent firms such as yours. Conduct a board meeting of your company, in which the following strategic questions are on the agenda:

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1 Is Adelaide too small a place for a global player to enter so will this factor protect us?

4 Should we try to partner with a bigger company in order to survive and what would this mean to our income levels and autonomy?

2 Can we improve our service levels to customers so they won’t switch when the global player (which has a very well respected brand) comes to town. How?

5 Should we ‘accept the inevitable’ and try to sell the business?

3 Can we reduce our costs as a way of competing?

7 What decisions would you make on these questions?

CASE FOR CRITICAL ANALYSIS

6 What other considerations are important in our planning: for example, can technology help us to cope?

RICHMOND SUPPLY CO.

Jasper Hennings, owner of Richmond Supply Co., knew full well a company’s top executives were largely responsible for determining a firm’s corporate culture. That’s why he took such personal pride in the culture of his wholesale plumbing supply company. It didn’t just pay lip service to the values it espoused – integrity, honesty and a respect for each individual employee. His management team set a good example by living those principles. At least that’s what he’d believed until recently. The importance Jasper attached to respecting each individual was apparent in the company’s Internet use policy. It was abundantly clear that employees weren’t to use Richmond’s computers for anything but business-related activities. However, Jasper himself had vetoed the inclusion of what was becoming a standard provision in such policies that management had the right to access and review anything employees created, stored, sent or received on company equipment. He cut short any talk of installing software filters that would prevent abuse of the corporate computer system. Still, the company reserved the right to take disciplinary action, including possible termination, and to press criminal charges if an employee was found to have violated the policy. So how was he to square his cherished assumptions about his management team with what he’d just discovered? Henry Darger, his hard-working chief of operations, had summarily fired a female employee for having accessed another worker’s email surreptitiously. She hadn’t taken her dismissal well. ‘Just ask Darger what he’s up to when he shuts his office door,’ she snarled as she stormed out of Jasper’s office. She made what Jasper hoped was an idle threat to hire a lawyer. When Jasper asked Henry what the fired employee could possibly have meant, tears began to roll down the operations chief’s face. He admitted that ever since a young nephew had committed suicide the year before and a business he’d helped his wife start had failed, he’d increasingly been seeking escape from his troubles by logging onto

adult pornography sites. At first, he’d indulged at home, but of late he’d found himself spending hours at work visiting pornographic sites, the more explicit the better. Jasper was stunned. After a few speechless minutes, he told Henry to take the rest of the day off, go home and think things over. The owner himself needed the afternoon to gather his wits. How should he handle this turn of events? On the one hand, Henry’s immediate dismissal of the woman who’d tapped into another employee’s email when the operations chief was violating the Internet policy himself was hypocritical, to say the least. The person charged with enforcing that policy needed to be held to the highest standards. On the other hand, Jasper knew that Richmond employees routinely used computers at their desks to check personal email, do banking transactions, check the weather or make vacation arrangements. The company had turned a blind eye because it didn’t seem worth the effort of enforcing the hard-and-fast policy for such minor infractions. Besides, Henry was a valued, if clearly troubled, employee. Replacing him would be costly and difficult. If Jasper decided to keep him on, the president clearly had no choice but to cross the line and get involved in Henry’s private life, and he would be treating Darger differently from the treatment the female employee received. When he met with Henry again first thing in the morning, he needed to have a plan of action. QU E S T I O N S 1 What environmental factors have helped to create the situation Jasper Hennings faces? What factors does Jasper need to consider when deciding on his course of action? 2 Analyse Richmond’s culture. In addition to the expressed cultural values and beliefs, what other subconscious values and beliefs do you detect? Are conflicting values present? When values are in conflict, how would you decide which ones take precedence?

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3 Assume you are Jasper. What are the first two steps you would take to handle the Henry Darger situation? How would your role as

a cultural leader influence your decision? What message will your solution send to the other managers and rank-and-file employees?

Sources: Based on Green, Willard P. (Summer 2003). Pornography at Work. Business Ethics, 19; Marley, P. (24 January 2006). Porn-Viewing Parole Agent Regains Job. Milwaukee Journal Sentinel: http:// www.jsonline.com/story/idex.aspx?id=387492; Sample Internet Policies for Businesses and Organizations. Websense, http://www.websense-sales.com/internet-access-policy.html; and Lambert, A. (14 February 2005). Technology in the Workplace: A Recipe for Legal Trouble. Workforce, http://www.workforce.com/archive/article/23/95/08.php

ON THE JOB VIDEO CASE

CAMP BOW WOW – THE ENVIRONMENT AND CORPORATE CULTURE

For a real-world application of the management theories described in this chapter, log on to CourseMate Express to watch the On the Job video and answer the following questions. DI S C US SIO N QUESTIONS

2 Why did Camp Bow Wow have to change its culture when it became a national franchise? 3 What impact does Heidi Ganahl’s story have on employees at Camp Bow Wow?

1 What aspects of Camp Bow Wow’s corporate culture are visible and conscious? What aspects are invisible and unconscious?

ENDNOTES 1 Harrington, A. and Bartosiewicz, P. (18 October 2004). The 50 Most Powerful Women in Business: Who’s Up? Who’s Down? Fortune, 181–8; Morris, B. (23 June 2003). The Accidental CEO. Fortune, 58–67; Moore, P. L. (6 August 2001). She’s Here to Fix the Xerox. BusinessWeek, 47–8. 2 Bass, D. and Ewing, A. (8 July 2015). Microsoft to cut jobs, take $7.6 billion writedown on Nokia. https://www.bloomberg.com/news/articles/2015-07-08/microsoft-to-cut-7-800jobs-as-it-restructures-phone-business (accessed 24 October 2016). 3 Scott Barr, C. (18 May 2016). Microsoft sells Nokia brand use to Foxconn and HMD global. http://www.slashgear.com/microsoft-sells-nokia-brand-to-foxconn-and-hmdglobal-18440501/ (accessed 24 October 2016). 4 Ewing, A. and Viita, K. (20 November 2013). Nokia Investors Approve Phone Unit’s Sale to Microsoft. Bloomberg, http://www.bloomberg.com/news/2013-11-19/nokia-investorsapprove-phone-unit-s-sale-to-microsoft.html (accessed 22 November 2013). 5 Palmeri, C. (14 August 2007). What Went Wrong at Mattel. BusinessWeek Online, http:// www.businessweek.com/bwdaily/dnflash/content/aug2007/db20070814_154726_page_2. htm (accessed 5 February 2008). 6 Barboza, D. and Story, L. (26 July 2007). Dancing Elmo Smackdown. The New York Times Online, http://www.nytimes.com/2007/07/26/business/26toy.html?_r=1&scp=1&sq=dancing +elmo+smackdown&st=nyt&oref=slogin (accessed 5 February 2008). 7 Colvin, G. (27 February 2012). How It Works. Fortune, 72–9. 8 Kubota, Y. (26 January 2016), Toyota again No. 1 in global car sales, MarketWatch, http://www. marketwatch.com/story/toyota-again-no-1-in-global-car-sales (accessed 26 January 2016). 9 Daft, R. L. (1995). Organization Theory and Design, 5th edn, St Paul: West. 10 Bourgeois, L. J. (1980). Strategy and Environment: A Conceptual Integration. Academy of Management Review, 5, 25–39. 11 Moore, J. (1996) The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems (New York: HarperCollins). 12 Reece, D. J. (March/April 2011). Dynamic Capabilities: A Guide for Managers. Ivey Business Journal, http://www.iveybusinessjournal.com/topics/strategy/dynamiccapabilities-a-guidefor-managers (accessed 12 June 2012).

13 Friedman, T. L. (2005). The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Straus and Giroux), pp. 3–23. 14 Sellers, P. (21 May 2012). The New Coke. Fortune, 140. 15 Lenzer, R. The Most Crucial Event Since the Industrial Revolution. http://www.forbes.com/ sites/robertlenzner/2011/04/25/chinese-demand-assures-higher-resource-prices-andglobal-shortages/ (accessed 30 July 2013). 16 Edwards, C. (20 June 2005). Wherever You Go, You’re On the Job. BusinessWeek, 87–90. 17 Angus & Robertson Bookworld (2015). About Angus & Robertson Bookworld. http://www. angusrobertson.com.au/company-information (accessed 24 October 2016). 18 Baker, S. and Astor, A. (14 February 2005). The Business of Nanotech. BusinessWeek, 64–71. 19 Johnston, W. B. (March–April 1991). Global Work Force 2000: The New World Labor Market. Harvard Business Review, 115–27. 20 Friedrich, R., Peterson, M. and Koster, A. The Rise of Generation C. Strategy + Business, Issue 62 (Spring 2011), http://www.strategy-business.com/article/11110?gko=64e54 (accessed 25 June 2012). 21 Australian Bureau of Statistics, Population by Age and Sex, Australian States and Territories, June 2010, http://www.abs.gov.au/ausstats/[email protected]/mf/3201.0. 22 Australian Bureau of Statistics, Population Projections, http://www.abs.gov.au/ausstats/ [email protected]/7d12b0f6763c78caca257061001cc588/0046daf21caa349bca2573d20010fe65!OpenD ocument (accessed 30 July 2013). 23 Slow to Approve Cancer Drugs, http://www.medscape.com/viewarticle/814285slow to approve cancer drugs; Survey of Research Governance Timelines in Australia, http:// medicinesaustralia.com.au/files/2010/01/20130222-rpt-survey-of-research-governancetimelines-in-australia.pdf. 24 Himelstein, L. and Zinn, L., with Mallory, M., Carey, J., Dunham, R. S. and Hamilton, J.O. (4 July 1994). Tobacco: Does it Have a Future? Business Week, 24–9. 25 Cubby, B. (1 May 2009). Target bans plastic bags next month. The Age, http://www.theage. com.au/national/target-bans-plastic-bags-next-month-20090430-aoyb.html (accessed 11 February 2017); Collier, K. (1 October 2013). Discount department store Target brings back free plastic bags after hundreds of customer complaints. Herald Sun, http://www.heraldsun.com.

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au/news/discount-department-store-target-brings-back-free-plastic-bags-after-hundreds-ofcustomer-complaints/story-fni0fiyv-1226730267164 (accessed 19 February 2017). 26 Birch, S. (25 January 2008). Now Companies Are Going Green Right from the Start. The Times, Green Motoring Focus Report 7. 27 Weise, E. and Rice, D. Even the ‘Best’ Outcome Won’t Be Good; The Oil Spill’s Potential Toll Is Becoming Clear. USA Today, 9 June 2010. 28 Simons, J. (2 April 2001). Stop Moaning About Gripe Sites and Log On. Fortune,181–2. 29 Colvin, G. (2 February 2012). Toyota’s Comeback Kid. Fortune, 73. 30 Downsides of Just-in-Time Inventory. Bloomberg Businessweek (28 March–3 April 2011), 17–18. 31 Valdes-Dapena, P. (30 March 2011). Japan Earthquake Impact Hits U.S. Auto Plants. CNNMoney, http://money.cnn.com/2011/03/28/autos/japan_earthquake_autos_outlook/ index.htm# (accessed 13 June 2012). 32 Murphy, M. (11 January 2012). Reinforcing the Supply Chain. The Wall Street Journal, B6. 33 Czinkota, M. R. and Ronkainen, I. A. (Winter 1992). Global Marketing 2000: A Marketing Survival Guide. Marketing Management, 37–42. 34 Daft, R. L. (1995). Organization Theory and Design, 5th edn, St Paul: West; Daft, R. L. (1994). Management, 3rd edn, Fort Worth: The Dryden Press, 44; Duncan, R. B. (1972). Characteristics of Organizational Environment and Perceived Environmental Uncertainty. Administrative Science Quarterly, 17, 313–27. 35 Arango, T. (11 January 2011). Hot Social Networking Site Cools as Facebook Grows. The New York Times Online, http://www.nytimes.com/2011/01/12/technology/ internet/12myspace.html?pagewanted=all (accessed 14 June 2012). 36 Perrott, B. E. (2011). Strategic Issue Management as Change Catalyst. Strategy & Leadership, 39:5, 20–9. 37 Dollinger, M. J. (1984). Environmental Boundary Spanning and Information Processing Effects on Organizational Performance. Academy of Management Journal, 27, 351–68; Jemison, D. B. (1984). The Importance of Boundary Spanning Roles in Strategic Decisionmaking. Journal of Management Studies, 21, 131–52. 38 Andersen, P. H., Kragh, H. and Lettl, C. (January 2013). Spanning organizational boundaries to manage creative processes: The case of the LEGO Group. Industrial Marketing Management, 42: 1, 125–34. 39 Duffy, T. (Winter 2004). Spying the Holy Grail. Microsoft Executive Circle, 38–9. 40 Abramson, G. (15 July 1999). All Along the Watchtower. CIO Enterprise, 24–34. 41 Girard, K. (May 2003). Snooping on a Shoestring. Business 2.0, 64–6. 42 McBride, H. (July 1997). They Snoop to Conquer. Canadian Business, 45–7; Crock, S., Smith, G., Weber, J., Melcher, R. A. and Himelstein, L. (28 October 1996). They Snoop to Conquer. BusinessWeek, 172–6; Teitelbaum, R. S. (2 November 1992). The New Race for Intelligence. Fortune, 104–7; Dumaine, B. (7 November 1988). Corporate Spies Snoop to Conquer. Fortune, 68–76. 43 Epstein, E. M. (Autumn 2003). How to Learn from the Environment about the Environment – A Prerequisite for Organizational Well-Being. Journal of General Management, 29:1, 68–80. 44 McNeilly, M. (2002). Gathering Information for Strategic Decisions, Routinely. Strategy & Leadership, 30:5, 29–34. 45 Day, G. S. and Schoemaker, P. J. H. (November 2005). Scanning the Periphery. Harvard Business Review, 135–48. 46 Lenz R. T. and Engledow, J. L. (1986). Environmental Analysis Units and Strategic Decisionmaking: A Field Study of Selected ‘Leading Edge’ Corporations. Strategic Management Journal, 7, 69–89; Javidan, M. (1984). The Impact of Environmental Uncertainty on Longrange Planning Practices of the US Savings and Loan Industry. Strategic Management Journal, 5, 81–92. 47 See http://www.isentia.com/en-au/about/our-story. 48 Hughes, J. and Weiss, J. (November 2007). Simple Rules for Making Alliances Work. Harvard Business Review, 122–31; Muson, H. (March–April 2002). Friend? Foe? Both? The Confusing World of Corporate Alliances. Across the Board, 19–25; and D. R. Gnyawali and R. Madhavan. Cooperative Networks and Competitive Dynamics: A Structural Embeddedness Perspective. Academy of Management Review 26, no. 3 (2001): 431–45. 49 Merx, K. Automakers Interconnected Around World. Edmonton Journal (6 April 2007), H14; and Bradsher, K. (28 March 2010). Ford Agrees to Sell Volvo to a Fast-Rising Chinese Company. The New York Times Online, http://www.nytimes.com/2010/03/29/business/ global/29auto.html (accessed 1 August 2011). 50 Petzinger, T. Jr. (1999). The New Pioneers: The Men and Women Who Are Transforming the Workplace and Marketplace (New York: Simon & Schuster), pp. 53–4.

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51 Wagner, S. M. and Boutellier, R. (November–December 2002). Capabilities for Managing a Portfolio of Supplier Relationships. Business Horizons, 79–88; Peter Smith Ring and Andrew H. Van de Ven. (1994). Developmental Processes of Corporate Interorganizational Relationships. Academy of Management Review, 19: 90–118; Myron Magnet. (21 February 1994). The New Golden Rule of Business. Fortune, 60–4; and Grittner, P. (October 1996). Four Elements of Successful Sourcing Strategies. Management Review. 41–5. 52 Asiaweek.com. (26 October 2001). The Superbanker. http://www.asiaweek.com/asiaweek/ magazine/dateline/0878218016600.html. 53 Costa, G. (21 December 1999). $400,000 for Concept Car. The Age, Melbourne. 54 Hyatt, J. (December 1988). The Partnership Route. Inc., 145–8; Svatko, J. E. (December 1988). Joint Ventures. Small Business Reports, 65–170. 55 Bryant, G. (1 February 1999). Clearer Message Gets a Mobile Network Moving. Business Review Weekly, 60. 56 Carey, J. (10 November 1997). Big Tobacco’s Hidden War. BusinessWeek, 139–40; Himelstein, L. and Zinn, L., with Mallory, M., Carey, J., Dunham, R. S. and Hamilton, J. O. (4 July 1994). Tobacco: Does it Have a Future? BusinessWeek, 24–9. 57 Wiener, Y. (1988). Forms of Value Systems: A Focus on Organizational Effectiveness and Culture Change and Maintenance. Academy of Management Review 13, 534–45; Meek, V. L. Organizational Culture: Origins and Weaknesses. Organization Studies 9 (1988): 453–73; Sherwood, J. J. (Winter 1988). Creating Work Cultures with Competitive Advantage. Organizational Dynamics, 5–27; and Brown, A. D. and Starkey, K. (November 1994). The Effect of Organizational Culture on Communication and Information. Journal of Management Studies, 31, no. 6: 807–28. 58 Martin, J. Organizational Culture: Mapping the Terrain (Thousand Oaks, CA: Sage Publications, 2002); Kilmann, R. H., Saxton, M. J. and Serpa, R. Issues in Understanding and Changing Culture. California Management Review 28 (Winter 1986): 87–94; and Smircich, L. Concepts of Culture and Organizational Analysis. Administrative Science Quarterly 28 (1983): 339–58. 59 Carr, D. Troubles That Money Can’t Dispel. The New York Times Online (17 July 2011), http:// www.nytimes.com/2011/07/18/business/media/fornews-corporation-troubles-that-moneycant-dispel.html?pagewanted=all (accessed 13 June 2012). 60 Burns, J. F. and Peters, J. W. (16 July 2011). Two Top Deputies Resign as Crisis Isolates Murdoch. The New York Times Online, http://www.hongkong-mart.com/forum/viewtopic. php?f=2&t=367 (accessed 13 June 2012). 61 Carr, D. Troubles That Money Can’t Dispel. The New York Times Online (17 July 2011), http:// www.nytimes.com/2011/07/18/business/media/fornews-corporation-troubles-that-moneycant-dispel.html?pagewanted=all (accessed 13 June 2012). 62 Based on Edgar H. Schein. (1992). Organizational Culture and Leadership, 2nd ed. (San Francisco: Jossey-Bass): 3–27. 63 Levering, R. and Moskowitz, M. (12 January 1998). The 100 Best Companies to Work For in America. Fortune, 84–95; Collins, J. C. (29 May 1995). Change is Good – But First Know What Should Never Change. Fortune, 141. 64 Pratt, M. G. and Rafaeli, A. Symbols as a Language of Organizational Relationships. Research in Organizational Behavior 23 (2001): 93–132. 65 Grossman, M. HSN’s CEO on Fixing the Shopping Network’s Culture. Harvard Business Review (December 2011): 43–6. 66 Jarnagin, C. and Slocum, J. W. Jr. (2007). Creating Corporate Cultures through Mythopoeic Leadership. Organizational Dynamics 36: 3, 288–302. 67 Quinn, R. E. and Spreitzer, G. M. (Autumn 1997). The Road to Empowerment: Seven Questions Every Leader Should Consider. Organizational Dynamics, 37–49. 68 Kane, Y. I. and Vascellaro, J. E. (26 August 2011). Successor Faces Tough Job at Apple. The Wall Street Journal Online, http://allthingsd.com/20110826/successor-faces-tough-job-atapple/ (accessed 13 June 2012). 69 Based on an interview with Tim Cook conducted by The Wall Street Journal’s Walt Mossberg and Kara Swisher (4 June 2012), http://online.wsj.com/article/SB100014240527023035521045 77436952829794614.html?KEYWORDS=steve+jobs+apple+culture (accessed 16 June 2012). 70 Yeung, A. (Summer 2006). Setting People up for Success: How the Portman Ritz-Carlton Hotel Gets the Best from Its People. Human Resource Management 45:2, 267–75. 71 Jones, P. and Kahaner, L. (1995). Say It and Live It: 50 Corporate Mission Statements That Hit the Mark (New York: Currency Doubleday). 72 Trice, H. M. and Beyer, J. M. (1984). Studying Organizational Cultures through Rites and Ceremonials. Academy of Management Review, 9, 653–69. 73 Dryen, P. (3 April 2000). Personal communication with Dryen Australia managing director Peter Dryen.

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74 Chatman J. A. and Jehn, K. A. (1994). Assessing the Relationship Between Industry Characteristics and Organizational Culture: How Different Can You Be? Academy of Management Journal, 37:3, 522–53. 75 This discussion is based on P. McDonald and J. Gandz. (Winter 1992). Getting Value from Shared Values. Organizational Dynamics 21:3, 64–76; D. R. Denison and A. K. Mishra. (March–April 1995). Toward a Theory of Organizational Culture and Effectiveness. Organization Science 6:2, 204–23; and R. L. Daft (2005). The Leadership Experience, 3rd ed. (Cincinnati, OH: South-Western, 2005), pp. 570–3. 76 Conley, L. Rinse and Repeat. Fast Company, 76–7. 77 Hooijberg, R. and Petrock, F. (1993). On Cultural Change: Using the Competing Values Framework to Help Leaders Execute a Transformational Strategy. Human Resource Management, 32:1, 29–50. 78 Kesmodel, D. and Vranica, S. (23 April 2009). Unease Brewing at Anheuser as New Owners Slash Costs. The Wall Street Journal Online, http://online.wsj.com/article/ SB124096182942565947.html (accessed 22 June 2012). 79 Balu, R. (October 2000). Pacific Edge Projects Itself. Fast Company, 371–81. 80 Pfeffer, J. (1998). The Human Equation: Building Profits by Putting People First (Boston, MA: Harvard Business School Press). 81 Kahn, J. (26 October 1998). What Makes a Company Great? Fortune, 218; J. C. Collins and J. I. Porras. (1994). Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins); and J. C. Collins. (29 May 1995). Change Is Good – But First Know What Should Never Change. Fortune, 141. 82 Wahl, A. Culture Shock. (10–23 October 2005). Canadian Business, 115–116. 83 Based on information in A. Beard and R. Hornik. (November 2011). It’s Hard to Be Good. Harvard Business Review, 88–96. 84 Chatman, J. A. and Cha, S. E. (Summer 2003). Leading by Leveraging Culture. California Management Review, 45:4, 20–34.

85 This section is based on J. Rosenthal and M. A. Masarech. (Spring 2003). High-Performance Cultures: How Values Can Drive Business Results. Journal of Organizational Excellence, 3–18. 86 Schwartz, N. D. (12 June 2006). One Brick at a Time. Fortune, 45–6; and N. D. Schwartz. Lego’s Rebuilds Legacy. (5 September 2009). International Herald Tribune. 87 This example is based on D. Ulrich, S. Kerr and R. Ashkenas. (2002). The GE Work-Out (New York: McGraw-Hill), pp. 238–40. 88 From Ulrich et al., GE Values. In The GE Work-Out, Figure 11-2. 89 Rosenthal and Masarech. High-Performance Cultures. 90 Kotter, J. P. and Heskett, J. L. (1992). Corporate Culture and Performance (New York: The Free Press); E. Flamholtz and R. Kannan-Narasimhan. Differential Impact of Cultural Elements on Financial Performance. (2005). European Management Journal, 23:1, 50–64. Also see J. M. Kouzes and B. Z. Posner. (2002). The Leadership Challenge: How to Keep Getting Extraordinary Things Done in Organizations, 3rd ed. (San Francisco: Jossey-Bass). 91 Southwest Airlines Reports Record Fourth Quarter and Full Year Profit; 41st Consecutive Year of Profitability, http://southwest.investorroom.com/2014-01-23-Southwest-AirlinesReports-Record-Fourth-Quarter-And-Full-Year-Profit-41st-Consecutive-Year-OfProfitability. 92 Long, S. (24 November 2001). On Virgin Ground. Australian Financial Review, 24–5. 93 Rosenthal and Masarech. (July 2002). High-Performance Cultures; P. Lencioni. Make Your Values Mean Something. Harvard Business Review, 113–17; and T. J. Peters and R. H. Waterman, Jr. (1988). In Search of Excellence (New York: Warner). 94 Jarnagin and Slocum. Creating Corporate Cultures through Mythopoeic Leadership. 95 Kilmann, R. (April 1985). Corporate Culture. Psychology Today, 62–8. 96 Lefkoe, M. (20 June 1987). Why So Many Mergers Fail. Fortune, 113–14. 97 Nahavandi, A. and Malekzadeh, A. R. (1988). Acculturation in Mergers and Acquisitions. Academy of Management Review, 13, 79–90; Lefkoe, M. Why So Many Mergers Fail.

CHAPTER 3 M A N AGING IN A GL OB A L E N V I RON M E N T

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define globalisation and explain how it is creating a borderless world for today’s managers

2 describe a global mindset and why it has become imperative for companies operating internationally

3 describe the characteristics of a multinational corporation and explain the ‘bottom of the pyramid’ concept

4 define international management and explain how it differs from the management of domestic business operations

5 indicate how dissimilarities in the economic, legal–political and sociocultural environments throughout the world can affect business operations

6 discuss how the international landscape is changing, including the growing power of China, India and Brazil

7 describe how regional trading alliances are reshaping the international business environment.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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MANAGEMENT CHALLENGE

ACHIEVING INTERNATIONAL COMPETITIVENESS Today, managers all over Australia are faced with the challenges and opportunities of global competitors and markets. In Toyota’s Australian operations, based in an assembly facility in Melbourne, Camrys are assembled for the local market and also for export to Middle East countries. Historically, this has been a major export earner for both the company and the Australian economy, providing local employment not just for Toyota staff, but for the whole local automotive components industry that supplies Toyota. With help and financial support from the Australian and Victorian state governments, Toyota has introduced stateof-the-art technology, manufacturing its advanced hybrid system engines in Australia. However, the challenge from the parent company is its global facility location decisions. Sitting in the company’s global head office in Toyota City in Japan, executives are continually reconsidering where in the world is the best place to produce its cars. And despite the high quality of the Camrys produced in Melbourne, it may be possible for a facility in Japan, Thailand or China that is operated by Toyota to build these vehicles at lower cost. This makes it always tempting to close the Australian facility and send cars from Thailand to the Middle East and to Australia. The challenge for the managers in Toyota’s

Australian plant is to keep their costs and quality at levels of global competitiveness with other Toyota plants, as much as with Nissan, Honda, GM, Ford and other brands. In February 2014, the global president of Toyota announced that the challenges of continuing to assemble cars in Australia had caused the company to reluctantly take the decision to close the local plant (effective in late 2017). Similarly, at GPC Electronics factory in Penrith, New South Wales, Managing Director, Christopher Janssen, is trying to compete with the larger global players with a strategy based on supply chain innovation – providing not just electronic products but improved supply chain solutions to his customers. In order to be competitive and indeed be seen as competitive, GPC Electronics has established a facility and supply chain in China, from which it can organise supply of components too. Many Australian companies have adopted a strategy much like ‘If you can’t beat them, join them’, establishing supply lines from China, partnerships in China, or even their own factories in China, in order to take advantage of the competitive results from those factories, particularly the lower costs. Ignoring these global opportunities and challenges is not an option for any company. QU E S T I O N What are the challenges facing executives in Australian manufacturing businesses? Similarly, for a company such as GPC Electronics, how can it maintain its competitive position with its global customers?

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NEW MANAGER SELF-ASSESSMENT ARE YOU READY TO WORK INTERNATIONALLY? Are you ready to negotiate a sales contract with someone from another country? Companies large and small deal on a global basis. To what extent are you guilty of the behaviour below? Please answer each item as Mostly true or Mostly false for you. ARE YOU TYPICALLY...

MOSTLY TRUE

MOSTLY FALSE

1 Impatient? Do you have a short attention span? Do you want to keep moving to the next topic? 2 A poor listener? Are you uncomfortable with silence? Does your mind think about what you want to say next? 3 Argumentative? Do you enjoy arguing for its own sake? 4 Unfamiliar with cultural specifics in other countries? Do you have limited experience in other countries? 5 Short-term oriented? Do you place more emphasis on the short term than on the long term in your thinking and planning? 6 ‘All business’? Do you think that it is a waste of time getting to know someone personally before discussing business? 7 Legalistic to win your point? Do you hold others to an agreement regardless of changing circumstances? 8 Thinking ‘win/lose’ when negotiating? Do you usually try to win a negotiation at the other’s expense? Scoring and Interpretation: Western managers often display cross-cultural ignorance during business negotiations compared to counterparts in other countries. Western habits can be disturbing, such as emphasising areas of disagreement rather than agreement, spending little time understanding the views and interests of the other side, and adopting an adversarial attitude. Westerners often like to leave a negotiation thinking they won, which can be embarrassing to the other side. For this quiz, a low score shows better international presence. If you answered Mostly true to three or fewer questions, then consider yourself ready to assist with an international negotiation. If you scored six or more Mostly true responses, it is time to learn more about other national cultures before participating in international business deals. Try to develop greater focus on other people’s needs and an appreciation for different viewpoints. Be open to compromise and develop empathy for people who are different from you. Source: Adapted from Cynthia Barnum and Natasha Wolniansky. (October 1989). Why Americans Fail at Overseas Negotiations. Management Review, 54–7.

See Chapter 2 for a more detailed discussion of the external environment.

Do you think if you stay in your hometown as a manager, you won’t have to interact with people from other cultures? Think again. Many people who grew up in small towns with little diversity fail to appreciate the importance of cross-cultural skills. Yet in today’s world, every manager needs to think globally. Rapid advances in technology and communications have made the international dimension an increasingly important part of the external environment, discussed in Chapter 2. The future of our businesses and our societies is being shaped by global rather than local relationships. A global mindset and international experience are fast becoming prerequisites for managerial success. Many organisations based in Australia, including the four big banks and BHP Billiton, have learned that the greatest potential for growth lies overseas. In addition, the demand for raw materials such as steel, aluminium, cement, and copper has slowed

in Australia but is booming in countries such as China, India and Brazil. For online companies, too, going global is a key to growth. The number of residential Internet subscribers in China is growing significantly faster than in Australia. Western Europe and Japan together account for a huge share of the world’s e-commerce revenue. Less-developed countries are challenging mature countries in a number of industries. China is the world’s largest maker of consumer electronics and is rapidly and expertly moving into biotechnology, computer manufacturing, and semiconductors. The pace of innovation in India is startling in industries as diverse as precision manufacturing, health care, and pharmaceuticals, and some observers see the beginnings of hypercompetitive multinationals in that country.1 In 2013, Apple executives offered an apology to the Chinese government and consumers – an action they initially resisted. Apple has experienced tremendous growth in China, which accounts for GPC Electronics Managing a growing percentage of the company’s sales and profits, but the company has also been the target Director Christopher Janssen controls a company that of increasing criticism from Chinese government-run media and consumer-rights groups. When a manufactures electronic components and circuit Chinese prime-time television broadcast accused Apple of fudging warranty periods and adopting boards in Australia. This can weaker customer service policies in China, managers issued a statement saying that the company be done at lower cost in other countries, so he has to offers comparable after-sales practices in China as in the rest of the world and that Apple provides an be particularly innovative to keep his company profitable. ‘incomparable user experience’. The statement provoked a blistering attack, including references to Apple’s ‘arrogance’ and hollow promises. Apple managers realised a little late that what Chinese officials and customers wanted was an apology. The company said that it would change its customer service policies, replacing defective iPhones with entirely new ones rather than repairing them or replacing components, and offering a one-year warranty on any phone that had been replaced. In contrast, the company gives only a 90-day warranty in the United States on a repaired or replaced phone. The apology ‘should have come earlier’, said the official Xinhua news agency, ‘but it is not too late for [Apple] to rebuild Chinese consumers’ trust’.2 Apple managers certainly hope not. China is the company’s second-largest market, after the United States. Marketing and selling goods internationally is a challenge, and managers in most companies believe that winning in China is a new imperative. The country is already a crucial market for many industries, and the potential for growth is huge. In 2012, China accounted for 30 per cent of all vehicles sold by General Motors (GM) and 28 per cent of those sold by Volkswagen.3 Brazil, Russia, India and China (often referred to as BRIC), as well as other emerging economies, are becoming major markets for the products and services of North American companies. At the same time, these regions are growing rapidly as providers of both products and services to the United States, Canada, Europe and other developed nations. Finding managers with the mindset needed to succeed in these countries is proving difficult for multinational firms. China, India and Brazil are expected to see the greatest shortage of executive talent for the next few years.4 Every manager today needs to think globally because the whole world is a source of business threats and opportunities. Even managers who spend their entire careers working in their hometowns have to be aware of the international environment and probably interact with people from other cultures. This chapter introduces basic concepts about the global environment and international management. First, we provide an overview of today’s borderless world and the global mindset needed to be effective. Next, we look more closely at the changing international landscape and the growing importance of China, India and Brazil. Then the chapter discusses multinational corporations (MNCs), considers the globalisation backlash, and describes the ‘bottom of the pyramid’ (BOP) concept. We then touch on various strategies and techniques for entering the global arena and take a look at the economic, legal–political, and sociocultural challenges that companies encounter within the global business environment. The chapter also describes how regional trade agreements are reshaping the international business landscape.

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Source: Fairfax Syndication/Andrew Quilty

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A BORDERLESS WORLD: GLOBALISATION, MULTINATIONAL CORPORATIONS AND THE INTERNATIONAL LANDSCAPE

Source: Alamy Stock Photo/dpa picture alliance

3.1

The reality facing most managers is that isolation from international forces is no longer possible. Organisations in all fields are being reordered around the goal of addressing needs and desires that transcend national boundaries. Consider that the Federal Bureau of Investigation (FBI) now ranks international cybercrime as one of its top priorities because electronic boundaries between countries are virtually non-existent.5 ‘The whole boundary mindset has been

John Hering, co-founder and Executive Chairman of Lookout, Inc.

obliterated,’ says John Hering, the executive chairman of Lookout, Inc., a mobile security company with customers in 170 countries using 400 mobile networks around the world. ‘For many people, this is the only computer they have,’ he says. ‘The thought of something bad happening to your phone is untenable.’6

G L O B A L I S AT I O N The reality of today’s borderless companies also means consumers can no longer tell which country they are buying from. Your BMW may have come from Europe, while a neighbour’s Nissan may have been built in any of a number of places where Nissan has plants. A polo shirt may be made from cloth cut in Australia but sewn in Hong Kong. Eat an Aussie pie at the local cricket ground and you may have just purchased from a foreign company. Organisations can participate in the international arena on a variety of levels, and the process of globalisation typically passes through four distinct stages, as illustrated in EXHIBIT 3.1.

1 In the domestic stage, market potential is limited to the home country, with all production and marketing facilities located at home. Managers may be aware of the global environment and may want to consider foreign involvement.

2 In the international stage, exports increase, and the organisation usually adopts a multidomestic approach, probably using an international division to deal with the marketing of products in several countries individually.

3 In the multinational stage, the organisation has marketing and production facilities located in many countries, with more than one-third of its sales outside the home country. Organisations typically have a single home country, although they may opt for a bi-national approach, whereby two parent organisations in separate countries maintain ownership and control. Examples are Unilever (manufacturer of household products, from detergents to ice cream) and the Royal Dutch Shell Group (petroleum and related products), both of which are based in the United Kingdom and the Netherlands.

4 Finally, the global stage (or stateless stage) of international development transcends any single home country. These organisations operate in true global fashion, making sales and acquiring resources in

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whatever country offers the best opportunities and lowest cost. At this stage, ownership, control and top management tend to be dispersed among several nationalities.7 1. DOMESTIC

2. INTERNATIONAL

3. MULTINATIONAL

4. GLOBAL

Strategic orientation

Domestically oriented

Export-oriented, multidomestic

Multinational

Global

Stage of development

Initial foreign involvement

Competitive positioning

Explosion of international operations

Global

Cultural sensitivity

Of little importance

Very important

Very important

Critically important

Manager assumptions

‘One best way’

‘Many good ways’

‘The least-cost way’

‘Many good ways’

Source: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th edn (Cincinnati, OH: South-Western, 2002), pp. 8–9.

TAKE A MOMENT As a new manager, learn to ‘think globally’. Take an interest in international people and issues. Don’t hinder your own or your company’s success by thinking only in terms of domestic issues, competitors and markets. Expand your thinking by reading and networking broadly.

As the number of ‘stateless’ organisations increases, so too the awareness of national borders decreases, as reflected by the frequency of foreign participation at the management level. Rising managers are expected to know a second or third language and to have international experience. The need for global managers is intense. Organisations around the world want the brightest and best candidates for global management. Young managers who want their careers to move forward recognise the importance of global experience. According to Harvard Business School professor Christopher Bartlett, author of Managing Across Borders, people should try to get global exposure when they are young in order to start building skills and networks that will grow throughout their careers.8 Consider the makeup of global organisations in today’s environment. Food processor Nestlé (Switzerland) typifies the stateless company, with 98 per cent of its sales and 96 per cent of its employees outside the home country. Nestlé’s chief executive officer (CEO) has great faith in regional managers who are native to the region and know the local culture. The combination of strong brands and autonomous regional managers has made Nestlé the largest branded food company in Mexico, Brazil, Chile and Thailand, and the company is on its way to becoming the leader in Vietnam and China as well. The global media giant News Corporation, owner of Fox Broadcasting Company, is run by Rupert Murdoch, who was born in Australia, partly educated in Britain and is now an American citizen. Australians have been the global heads of Coca-Cola, McDonald’s and Ford. At British firm ICI, 40 per cent of the top 170 executives are not British. Meanwhile, German companies such as Hoechst and BASF rely on local managers to run foreign operations.9 Both Ford Motor Company and IBM are globalising their management structures. To aid its efforts, IBM has studied power equipment giant, Asea Brown Boveri Ltd (ABB), a major player in the global game.

EXHIBIT 3.1 Four stages of globalisation

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CASE STUDY

Source: Getty Images/The India Today Group

THE AXIS OF INDIA

Shikha Sharma

Shikha Sharma is a leader with a difference. She has not worried at all about being a woman in what was traditionally a man’s world: high finance. As Managing Director and CEO of one of Mumbai’s major banks, Axis Bank, she has taken her 50 135 employees on a journey of 90 per cent profit growth since she took over in 2009, with the bank’s compounded annual net profit growth rate above 20 per cent over the three years (2012–2016). Sharma has focused on sensible growth and risk management. With degrees from the Indian Institute of Management and a background in insurance and finance, she has transferred her skills to retail banking with relish. Sharma’s style reflects the non-traditional new competency, rarely seen in businesses where control is paramount: she chooses good people and delegates to them. Through trust and honesty, this strategy has worked very well. She restructured the bank to put staff closer to their customers, clearly a good idea. She has instigated regular senior team meetings and strategy retreats, facilitating relationship building and teamwork. The delegation has worked to bring out her colleagues’ and staff’s best efforts. And the operating and business performance of the bank has shot up as a result. By 2016, Axis had increased its number of domestic branches to 2904 and ATMs to 12 743 and has begun to expand internationally, with nine overseas branches now fully established. To put this into perspective, Australia’s largest bank, the Commonwealth Bank, has

a total of 1150 branches in Australia, more than 4300 ATMs, and 13 branches overseas. From 2010 to 2013, Axis’ gross profit has risen over 60 per cent and it is now the third-largest private bank in India (ninth among all Indian scheduled banks). Axis has added nearly 28 000 employees since 2010, with an average employee age of 30 years. Under Sharma’s leadership, employee empowerment is viewed as a means to enhance customer experience and deliver excellent customer service. Axis uses the HR function to focus on developing and training employees to meet the bank’s vision of being the preferred financial service provider. Axis founded the Axis Bank Foundation in 2006 to contribute to its three chosen corporate social responsibility (CSR) initiatives of education, health and sustainability. The bank has committed to spend two per cent of its average annual net profit to support this foundation. In 2016, Axis dispersed over AU$2.69 million to various education programs. The foundation looks to support non-government organisations (NGOs) in providing care and assistance to those in need. Axis encourages employees to nurture their social obligation through participating in activities such as charity marathons, and even holds a very popular Blood Donation Drive at Axis House. In 2014, the foundation was the recipient of the Outstanding Corporate Foundation award at the Forbes India Philanthropy Awards.

Sources: Commonwealth Bank of Australia (2016). International branches. https://www.commbank.com.au/about-us/our-company/internationalbranches.html (accessed 3 November 2016); Yeates, C. (15 May 2016). Banks cull branches but resist deep cuts in bid to reinvent retail experience. The Sydney Morning Herald, http://www.smh.com.au/business/banking-and-finance/banks-cull-branches-but-resist-deep-cuts-in-bid-to-reinventretail-experience-20160513-gouqxt.html (accessed 3 November 2016); Anand, N. (7 January 2016). Shikha Sharma: A brilliant banker who scripted Axis Bank’s success story. Rediff Business, http://www.rediff.com/business/report/pix-special-shikha-sharma-a-brilliant-banker-who-scriptedaxis-banks-success-story/20160107.htm (accessed 3 November 2016); Axis Bank Limited (2016). Annual report. https://www.axisbank.com/docs/ default-source/annual-reports/for-axis-bank/annual-report-2015-2016.pdf?sfvrsn=6 (accessed 3 November 2016); Palande, P. (2 January 2015). Fixing the big picture: Axis Bank Foundation. Forbes India, http://www.forbesindia.com/article/philanthropy-awards-2014/fixing-the-big-pictureaxis-bank-foundation/39287/0 (accessed 3 November 2016)

D E V E L O P I NG A G L O B A L M I N D S E T Succeeding on a global level requires more than a desire to go global and a new set of skills and techniques; it requires that managers develop a global mindset. As more managers find themselves working in foreign countries or working with foreign firms within their own countries, they need to

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be able to navigate through ambiguities and complexities that far exceed anything they encounter within their traditional management responsibilities.10 A global mindset can be defined as the ability of managers to appreciate and influence individuals, groups, organisations and systems that represent different social, cultural, political, institutional, intellectual and psychological characteristics.11 A manager with a global mindset can perceive and respond to many different perspectives at the same time rather than being stuck in a domestic mindset that sees everything from one’s own perspective. Reliance Industries, the largest private sector company in India, specifically lists ‘global mindset’ as one of the core competencies for its managers.12 A global mindset requires skills, understanding and competencies in three dimensions. The cognitive dimension means knowing about the global environment and global business, mentally understanding how cultures differ, and having the ability to interpret complex global changes. The psychological dimension is the emotional and affective aspect. This includes a liking for diverse ways of thinking and acting, a willingness to take risks, and the energy and self-confidence to deal with the unpredictable and uncertain. The social dimension concerns the ability to behave in ways that build trusting relationships with people who are different from oneself.13 People who have had exposure to different cultures and speak different languages develop a global mindset more easily. Global leaders often speak multiple languages and have extensive experience interacting with people different from themselves. People in Australia who have grown up without language and cultural diversity typically have more difficulties with foreign assignments, but willing managers from any country can cultivate a global mindset. How do people expand their global mindset? Managers expand globally in two ways – by both thinking and doing.14 Learning by thinking requires a genuine curiosity about other people and cultures, an interest in and study of world affairs and international business, and the ability to open your mind and appreciate different viewpoints. Learning by doing means cultivating relationships with people across cultural and national boundaries. The rise of social media has opened new opportunities for students as well as managers to create networks of relationships that cross cultural divides. In addition, international travel, foreign study, and learning a foreign language are key activities for developing a global mindset.

T H E C H A NG I NG I N T E R NAT I O NA L L A N D S C A P E Many companies today are going straight to China or India as a first step into international business. China and India have been the world’s fastest-growing economies in recent years. In addition, Brazil is becoming a major player in the international business landscape.

CH INA, INC . For the past several years, foreign companies have invested more in business in China than they spent anywhere else in the world. A market that was of little interest a decade ago has become the one place that nearly every manager is thinking about. China is German car maker, BMW’s biggest market for its largest and most profitable sedans.15 That might be one reason Alay Mulally, CEO of US-based Ford Motor Company, spends about a third of his time on matters related to China. Ford was late getting into China and, in 2013, had only about three per cent of the Chinese auto market. Mulally planned to build five additional plants in that country, double the number of dealerships, bring 15 new vehicles to China, and launch the Lincoln brand there in 2014. Ford and the Lincoln brand have grown strongly in China

global mindset The ability to appreciate and influence individuals, groups, organisations and systems that represent different social, cultural, political, institutional, intellectual and psychological characteristics.

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through 2017. ‘Clearly this is going to continue to be the highest rate [of] growth for us,’ Mulally said. The shift towards putting China at the center of decision making is reflected in a change in meeting times at the United States headquarters. ‘We get up really early, we stay really late,’ said Mark Fields, Ford’s chief operating officer, referring to the practice of holding meetings early in the morning or late in the evening to accommodate managers in China, who are 12 hours ahead.16 China, with the fastest-growing middle class in history, is the largest or second-largest market for a variety of products and services, including mobile phones, automobiles, consumer electronics, luxury goods and Internet use.17

INDIA , THE SERV IC E G I A NT India, second only to China in population, has taken a different path towards economic development. While China is strong in manufacturing, India is a rising power in software design, services, and precision engineering. Numerous companies see India as a major source of technological and scientific brainpower, and the country’s large English-speaking population makes it a natural for United States companies wanting to outsource services. One index lists more than 900 business services companies in India, which employ around 575 000 people.18 Some of the fastest-growing industries in India are pharmaceuticals, medical devices and diagnostics. The country has a large number of highly trained scientists, doctors, and researchers, and United States firms Abbott Laboratories and Covidien have both opened research and development centres there. India is also a growing manufacturer of pharmaceuticals and is the world’s largest exporter of generic drugs. By 2020, India’s pharmaceuticals industry will likely be a global leader, according to a report by PricewaterhouseCoopers (PwC).19

M U LT I NAT I O NA L CO R P O R AT I O N S

multinational corporation (MNC) An organisation that receives more than 25 per cent of its total sales revenues from operations outside the parent company’s home country; also called a global company or transnational company.

The size and volume of international businesses are so large that it is hard to comprehend. For example, if revenues were valued at the equivalent of a country’s gross domestic product (GDP), the revenue of ExxonMobil is comparable in size to the GDP of Egypt. The revenue of Walmart is comparable to Greece’s GDP, Toyota’s to Algeria’s GDP and GE’s to Kazakhstan’s GDP.20 A large volume of international business is being carried out by big international businesses that can be thought of as global corporations, stateless corporations or transnational corporations. In the business world, these large international firms typically are called multinational corporations (MNCs), which have been the subject of enormous attention. MNCs can move a wealth of assets from country to country and influence national economies, politics and cultures. Although the term has no precise definition, a multinational corporation (MNC) typically receives more than 25 per cent of its total sales revenues from operations outside the parent’s home country. During the recent economic slump, the percentage of revenue from foreign operations increased for many multinationals because of stronger sales in developing markets such as China and India. In the third quarter of 2010, revenues for Yum! Brands (including restaurants such as KFC and Pizza Hut) in China surpassed those in the United States for the first time, and the company’s China business may become twice as large as that in the United States.21 MNCs also have the following distinctive managerial characteristics:

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1 An MNC is managed as an integrated worldwide business system in which foreign affiliates act in close alliance and cooperation with one another. Capital, technology and people are transferred among country affiliates. The MNC can acquire materials and manufacture parts wherever in the world it is most advantageous to do so.

2 An MNC is ultimately controlled by a single management authority that makes key strategic decisions relating to the parent and all affiliates. Although some headquarters are binational, such as the Royal Dutch/Shell Group, some centralisation of management is required to maintain worldwide integration and profit maximisation for the enterprise as a whole.

3 MNC top managers are presumed to exercise a global perspective. They regard the entire world as one market for strategic decisions, resource acquisition and location of production, advertising and marketing efficiency. In a few cases, the MNC management philosophy may differ from that just described. For example, some researchers have distinguished among ethnocentric companies, which place emphasis on their home countries; polycentric companies, which are oriented towards the markets of individual foreign host countries; and geocentric companies, which are truly world oriented and favour no specific country.22 The truly global companies that transcend national boundaries are growing in number. These companies no longer see themselves as American, Chinese or German; they operate globally and serve a global market. Apple provides a good example. The company gets most of its sales (67 per cent, or US$33.9 billion, of the second quarter of 2016) outside the ‘home’ country of the United States, and its 115 000 employees are spread all over the world. CEO Tim Cook is American, chief design officer Jonathan Ive is British, and chief financial officer (CFO) Luca Maestri is Italian. Apple has numerous products including Mac computers (MacBook, MacBook Air, MacBook Pro, Mac Mini, iMac, and Mac Pro), iPods, iPhones, iPads, Apple Watch, Apple TV, software (including macOS, iOS, and iTunes) and Apple Energy. Almost all of Apple’s manufacturing is now handled abroad.23 National Australia Bank purchased the Bank of New Zealand as an effective way of achieving a major market share and position in that market. BHP Billiton continually looks to globalise and expand through acquisitions of assets that are related to, and add value to, its existing large set of mining operations. It has entered the potash business in North America through a major acquisition, which would both broaden its industry basis and further diversify its international operations. When BHP, which was founded in Broken Hill and known as ‘The Big Australian’ company, merged with South African mining company Billiton, many stakeholders were concerned about whether and how their entrenched cultures would mix. The merged entity, BHP Billiton, brought together a traditional Australian company – described as being open, emphasising ‘mateship’ and allowing the questioning of authority – with a company that has been characterised as involving strict hierarchy, authority and focus on results. While business strategies, systems and operations can be merged relatively quickly and easily, the challenge of merging cultures is much more problematic for managers. These businesses continue to evolve, including further acquisition and sale of businesses, on a global basis.

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G L O B A L I S AT I O N B AC K L A S H Many people are concerned about seemingly negative impacts of globalisation. In Western countries, the primary concern has been the loss of jobs as companies expanded their offshoring activities by exporting more and more work overseas. The transfer of jobs such as making shoes, clothing and toys began decades ago, and in recent years, services and knowledge work have also been outsourced to developing countries. Many Australian shoppers say they’d be willing to pay higher prices for locally made products to keep jobs from going overseas.24 Business leaders, meanwhile, insist that economic benefits of globalisation flow back to the Australian economy in the form of lower prices, expanded markets and increased profits that can fund innovation.25 A troubling issue for some people has been how overseas contractors and suppliers treat their employees. In the United States, for example, in the first few months of 2010, 10 employees at Foxconn Technologies, a Chinese contract manufacturer that makes electronic products for Apple, Dell and other United States companies, committed suicide. After a coalition of advocacy groups sent an open letter to Apple calling for an investigation to ensure safe and decent working conditions at all its suppliers, managers asked the Fair Labor Association to investigate Foxconn. The group found widespread problems, including excessively long work hours, low pay, and unsafe working conditions. In a symbolic gesture to emphasise the company’s commitment, Apple’s new CEO, Tim Cook, visited Foxconn’s manufacturing plant where the iPhone is made and met with both company and government leaders in China. 26 In June 2012, Apple announced it would bring some of its Mac manufacturing back to the United States. Apple also negotiated a new partnership with a Taipei-based supplier named Pegatron Corp. to manufacture some of its iPhones and iPads. This strategic change seeks to minimise Apple’s heavy reliance on Foxconn and reduces its exposure to risk associated with the company. 27 With concerns over jobs and labour practices, the anti-globalisation fervour is just getting hotter – and is not likely to dissipate any time soon. In the end, the question is not whether globalisation is good or bad, but how business and government managers can work together to ensure that the advantages of a global world are fully and fairly shared.

S E R V I NG T H E BO T T O M O F T H E P Y R A M I D Although large multinational organisations are accused of many negative contributions to society, they also have the resources needed to do good things in the world. One approach that combines business with social responsibility is referred to as serving the bottom of the pyramid (BOP). This concept proposes that corporations can alleviate poverty and other social ills, as well as make significant profits, by selling to the world’s poorest people. The term bottom of the pyramid refers to the more than 4 billion people who make up the lowest level of the world’s economic ‘pyramid’ as defined by percapita income. These people earn less than US$1500 a year, with about one-fourth of them earning less than a dollar a day.28 Traditionally, these people haven’t been served by most large businesses because products and services are too expensive, inaccessible and not suited to their needs. Therefore, in many countries, the poor end up paying significantly more than their wealthier counterparts for some basic needs. A number of leading companies are changing that by adopting BOP business models geared to serving the poorest of the world’s consumers.

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1 Understand and nurture your own growth and wellbeing: ✚✚ keep your body and mind in good condition – you will need to call on substantial pools of strength and stamina if you are to succeed ✚✚ have a great support team (family, friends and mentors) to share with, and who will both keep you going and help keep your feet on the ground; reciprocate their support and extend this to others ✚✚ have a clear view of what you believe in, be true to this and draw strength from it ✚✚ have a stretching plan for personal growth and development. 2 Know who you are, what you stand for and be consistent: ✚✚ share your value set, and be clear on what you expect of your own and your teams’ behaviours ✚✚ be authentic ✚✚ maintain and protect your integrity. 3 Seek to understand before being understood: ✚✚ be a good listener ... champion best ideas ... not your own. 4 Understand and practise team leadership: ✚✚ regularly and clearly articulate the challenges – being respectful of the past, realistic about the present and optimistic about the future ✚✚ all individuals should feel accountable to the team (as well as you) ✚✚ support the team in achieving their tasks and challenges ✚✚ encourage innovation and stretch goals ✚✚ explore failures for what can be learned ... don’t punish reasonable risk taking ✚✚ reward and celebrate successes ✚✚ invest in capability building of individuals and the team ... do not ‘carry’ the unwilling or unable. 5 Continually challenge, improve or reinvent the business proposition you are promoting: ✚✚ developing and defending competitive advantage is always challenging and usually rewarding

AUSTRALIAN MANAGER PROFILE

Source: Courtesy Glenn Barnes

After Glenn completed his studies in the biological sciences he began his career in the fast-moving consumer-branded goods category with Unilever (Australia) Ltd. During his time at Unilever, Glenn held various positions of responsibility, including executive roles in production management, product and process development and methods engineering. Glenn credits his most significant achievement at Unilever as being part of a team at Streets Ice Cream who regained, and then held, the leadership-in-value share of the Australian ice cream market through their product and brand innovation. From Unilever, Glenn joined Mars Inc. where he again covered various executive roles in product and process development, brand management, marketing and sales strategy, and sales and marketing leadership. Glenn’s roles at Mars ranged from individual country, to regional, to global responsibilities and his successes with the company included developing a strategy for establishing businesses in China and being part of the team that developed Snickers into a leading global brand. Glenn’s career successes did not end there as he moved from consumer goods to the banking, insurance and financial services sectors with the National Australia Bank (NAB) Ltd. His achievements at the NAB were extraordinary. In the ten years from 1990, when Glenn first joined, the group’s net income grew from AU$4 billion to AU$12.3 billion and net profit grew from AU$8 million to AU$3.4 billion. Share prices rose from AU$6 to a rewarding AU$26. The NAB went from being the number three player in Australia to becoming the clear market leader in the country. During this time Glenn held individual country, regional and global roles and was part of the team that developed a clear and profitable customer-focused strategy for the group. With 20 years in governance experience in banking and financial services, and over 30 years in executive, business leadership and directorship roles as well as regional and global leadership roles, what has his journey taught him?

GLEN N BA R NES, CHAIRMA N, A NSELL LTD A ND AUSTR A LIA N UNIT Y LTD

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✚✚ continually reinvest in improving and or

✚✚ good people are the life blood of any

superseding your business model and proposition ... you need to keep ahead of the competition and the game changers ✚✚ know your brand, profit and loss, balance sheet and cash position and dynamics... continually probe and model the impact of positive and negative possibilities.

business ... they will push you and your business to new heights ✚✚ invest in their becoming the best that they can be ... don’t worry about losing some to better opportunities ... view this as good PR ✚✚ when you have found and/or developed someone who has the potential to do your job better than you ... get out of the way and do something else!

6 Recruit and develop the best people you can afford:

SOURCE: Contributed by Glenn Barnes.

R EMEMBE R THIS ◗◗

Today’s companies and managers operate in a borderless world that provides both risks and opportunities.

◗◗

Globalisation refers to the extent to which trade and investments, information, ideas and political cooperation flow between countries.

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To succeed on a global level requires managers at all levels to have a global mindset, which is the ability to appreciate and influence individuals, groups, organisations and systems that represent different social, cultural, political, institutional, intellectual and psychological characteristics.

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Many companies are going straight to China or India as a first step into international business. China is strong in manufacturing, whereas India is a major provider of services.

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The Chinese company Lenovo has emerged as the country’s first global corporation, with managers coming from 14 different nations, living and working in six cities on three continents.

◗◗ ◗◗

Managers look to China and India as sources of lower-cost technological and scientific brainpower.

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Some researchers distinguish among ethnocentric companies, which place emphasis on their home countries, polycentric companies, which are oriented towards the markets of individual host countries and geocentric companies, which are truly world oriented.

◗◗ ◗◗

The increasing size and power of MNCs has sparked a globalisation backlash.

◗◗

The bottom of the pyramid (BOP) concept proposes that corporations can alleviate poverty and other social ills, as well as make significant profits, by selling to the world’s poor.

A multinational corporation (MNC) is an organisation that receives more than 25 per cent of its total sales revenues from operations outside the parent company’s home country and has a number of distinctive managerial characteristics.

MNCs have the resources to reach and serve the world’s poorest people, who cannot afford the typical products and services offered by big companies.

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3.2

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GETTING STARTED INTERNATIONALLY

Organisations have a couple of ways to become involved internationally. One is to seek cheaper resources, such as materials or labour, offshore, which is called offshoring or global outsourcing. Another is to develop markets for finished products or services outside their home countries, which may include exporting, licensing and direct investing. Exporting, licensing and direct investing are called market entry strategies because they represent alternative ways to sell products and services in foreign markets. EXHIBIT 3.2 shows the strategies that companies can use to engage in the international arena, either to acquire resources or to enter new markets.

market entry strategies The various tactics that managers use to enter foreign markets.

High EXHIBIT 3.2 Strategies for entering the international arena

Greenfield venture

Ownership of foreign operations

Acquisition

Joint venture

Franchising Licensing Global outsourcing Exporting Low Low

Cost to enter foreign operations

High

E X P O RT I NG With exporting, the company maintains its production facilities within the home nation and transfers its products for sale in foreign countries.29 Exporting enables a company to market its products in other countries at modest resource cost and with limited risk. Exporting does entail numerous problems based on physical distances, government regulations, foreign currencies and cultural differences, but it is less expensive than committing the firm’s own capital to build plants in host countries. Hollywood movie studios have long exported films to foreign countries, but they’re taking a different approach than in the past.

exporting An entry strategy, in which the organisation maintains its production facilities within its home country and transfers its products for sale in foreign markets.

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INNOVATIVE WAY HOLLYWOOD STUDIOS Hollywood films have long been quintessentially American products, and years ago, audiences in Japan, Brazil or South Korea would faithfully watch movies that were written for and primarily marketed to Western audiences. No longer. Local films are giving Hollywood a run for its money. At the same time, audiences are declining in the United States but growing overseas. Hollywood movies now get about 73 per cent of their revenue from abroad, up from 66 per cent in 2010. In recent times, a few Hollywood studios have gone as far as making movies specifically for certain foreign markets, and almost all of them are reframing their films to suit foreign tastes. Here are some examples of some of their tactics:

✚✚ Use foreign actors. The Chinese cut of Marvel’s Iron Man 3 features additional scenes set in China, which star some of the most famous Chinese actors, including Fan Bingbing as one of the doctors who operates on Tony Stark.

✚✚ Set the movie in a growing market – or in no man’s land. Several recent films, such as The Hundred-Foot Journey (India), and Captain Phillips (Kenya), have been set in developing countries, which are rapidly growing entertainment markets for movies. Others, like Star Wars: The Force Awakens and The Hobbit films, are set in fantasy worlds that are home to no one nationality.

✚✚ Stuff the film with foreign brands. In Transformers: Age of Extinction, Paramount Studios had a character gulping Shuhua low-lactose milk from China’s Yili dairy company as well as shots of ducks’ necks from a Chinese takeaway chain (Zhouheiya Food Co Ltd) and a Beijing luxury hotel (Pangu Plaza). However, some Chinese advertisers were unhappy with how they were portrayed in the film.

✚✚ Shoot in foreign cities. The 2015 film, Furious 7, was partially shot in Abu Dhabi and Tokyo with the James Bond film, Spectre, being shot in Mexico City, Rome, Morocco and Austria. These and other techniques represent a whole new approach to making movies. Rather than trying to lure audiences to their films, studios are targeting their films to the audiences. In addition, managers are increasingly looking for films with global appeal. ‘I can tell you that no studio is going to make a big expensive movie that costs US$150 million or $200 million unless it has worldwide appeal,’ said Mark Zoradi, former president of Walt Disney Company’s Motion Pictures Group. ‘You can’t pay back that production cost on the domestic model alone.’

Sources: Loffhagen, M. (13 May 2016). 15 movies that made drastic changes for a Chinese audience. Screen Rant, http://screenrant.com/movies-changedfor-china/?view=all (accessed 3 November 2016); Brook, T. (21 October 2014). How the global box office is changing Hollywood. http://www.bbc.com/ culture/story/20130620-is-china-hollywoods-future (accessed 3 November 2016); Kud, L. (10 July 2014). Transformers 4 and the perils of backfiring product placement. The Atlantic, http://www.theatlantic.com/entertainment/archive/2014/07/how-chinese-product-placement-blew-up-in-the-face-oftransformers/374236/ (accessed 3 November 2016); China Daily (2015). Zhouheiya Food Co Ltd. http://www.chinadaily.com.cn/regional/2015-12/07/ content_22651269.htm (accessed 3 November 2016); Faughnder, R. (30 December 2015). $40 billion in global box office? Thank China and ‘Star Wars’. http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-global-box-office-20151231-story.html (accessed 3 November 2016); Schuker, L. A. E. (2 August 2010). Plot change: foreign forces transform Hollywood films. The Wall Street Journal, http://www.wsj.com/articles/SB10001424052748704913304 575371394036766312 (accessed 3 November 2016); Olson, M-L. (13 August 2013). Fast & Furious 7 will be filmed in UAE confirms twofour54.The National, http://www.thenational.ae/arts-culture/film/fast-furious-7-will-be-filmed-in-uae-confirms-twofour54 (accessed 3 November 2016); Miller, R. (4 December 2014). The next James Bond film is called Spectre: new car, poster, and full cast confirmed. The Verge, http://www.theverge.com/2014/12/4/7327013/jamesbond-24-full-cast-title-car-release-date (accessed 3 November 2016).

OU T S OU R C I NG global outsourcing Engaging in the international division of labour so as to obtain the cheapest sources of labour and supplies regardless of country; also called global offshoring.

Global outsourcing, also called offshoring, means engaging in the international division of labour so that

work activities can be done in countries with the cheapest sources of labour and supplies. Millions of low-level jobs such as textile manufacturing, call centre operations, and credit card processing have been outsourced to low-wage countries in recent years. The growth of the Internet and plunging telecommunications costs have enabled companies to outsource more and higher-level work as well, such as software development, accounting or medical services. A patient might have a magnetic resonance imaging (MRI) test performed in Brisbane and

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read by doctors in India. Large pharmaceutical companies farm out much of their early-stage chemistry research to cheaper labs in China and India.30

L I C E N S I NG With licensing, a corporation (the licensor) in one country makes certain resources available to companies in another country (the licensee). These resources include technology, managerial skills, and patent or trademark rights. They enable the licensee to produce and market a product or service similar to what the licensor has been producing. Heineken, which has been called the world’s first truly global brand of beer, usually begins by exporting to help boost familiarity with its products; if the market looks enticing enough, Heineken then licenses its brands to a local brewer. Licensing offers a business firm relatively easy access to international markets at low cost, but it limits the company’s participation in, and control over, the development of those markets. One special form of licensing is franchising, which occurs when a franchisee buys a complete package of materials and services, including equipment, products, product ingredients, trademark and trade name rights, managerial advice and a standardised operating system. With licensing, a licensee generally keeps its own company name, autonomy, and operating systems, but a franchise takes the name and systems of the franchisor. The fast-food chains are some of the best-known franchisors. The story is often told of the Japanese child visiting Los Angeles who excitedly pointed out to his parents, ‘They have McDonald’s in America.’

licensing An entry strategy in which an organisation in one country makes certain resources available to organisations in another in order to participate in the production and sale of its products abroad.

D I R E CT I N V E ST I NG A higher level of involvement in international trade is direct investment in facilities in a foreign country. Direct investing means that the company is involved in managing the productive assets, which distinguishes it from other entry strategies that permit less managerial control. Currently, the most popular type of direct investment is to engage in strategic alliances and partnerships. In a joint venture, a company shares costs and risks with another firm, typically in the host country, to develop new products, build a manufacturing facility, or set up a sales and distribution network.31 A partnership is often the fastest, cheapest and least risky way to get into the global game. For example, Abbott Laboratories has teamed up with an Indian drug firm, Biocon Ltd, to develop nutritional supplements and generic drugs tailored to the local market.32 A Chinese firm has formed a joint venture with an American partner to refurbish New York City’s Alexander Hamilton Bridge and work on other construction projects in the United States.33 In addition to joint ventures, the complexity of today’s global business environment is causing managers at many companies to develop alliance networks, which are collections of partnerships with various other firms, often across international boundaries.34 The other choice is to have a wholly owned foreign affiliate, over which the company has complete control. Direct acquisition of an affiliate may provide cost savings over exporting by shortening distribution channels and reducing storage and transportation costs. Local managers also have a better understanding of economic, cultural and political conditions. Kraft Foods bought Cadbury PLC in large part because the firm had established local contacts and distribution networks in emerging markets. The most costly and risky direct investment is called a greenfield venture, which means a company builds a subsidiary from scratch in a foreign country. The advantage is that the subsidiary is exactly what the company wants and has the potential to be highly profitable. For example, in 2012, Airbus announced

direct investing An entry strategy in which the organisation is involved in managing its production facilities in a foreign country.

wholly owned foreign affiliate A foreign subsidiary over which an organisation has complete control. greenfield venture The most risky type of direct investment, in which a company builds a subsidiary from scratch in a foreign country.

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plans to build jetliners in its first assembly plant in the United States. By building a huge plant in Alabama and employing American workers, Airbus managers expect to become part of United States culture, thereby reducing political opposition to the purchase of the company’s airplanes.35 The disadvantage is that the company has to acquire all market knowledge, materials, people and know-how in a different culture, and mistakes are possible.

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Two major alternatives for engaging in the international arena are to seek cheaper resources via outsourcing and to develop markets outside the home country.

◗◗

Global outsourcing, sometimes called offshoring, means engaging in the international division of labour so as to obtain the cheapest sources of labour and supplies, regardless of country.

◗◗ ◗◗

Market entry strategies are various tactics that managers use to enter foreign markets.

◗◗

With a market entry strategy of licensing, a company in one country makes certain resources available to companies in other countries to participate in the production and sale of its products abroad.

◗◗

Franchising is a form of licensing in which a company provides its foreign franchisees with a complete package of materials and services.

◗◗ ◗◗

McDonald’s and other fast-food companies have franchises all over the world.

◗◗

Alternatives for direct investing include engaging in joint ventures, acquiring foreign affiliates and initiating a greenfield venture.

◗◗

With a joint venture, an organisation shares costs and risks with another firm in a foreign country to build a facility, develop new products or set up a sales and distribution network.

◗◗

A wholly owned foreign affiliate is a foreign subsidiary over which an organisation has complete control.

◗◗

The most risky type of direct investment is the greenfield venture, in which a company builds a subsidiary from scratch in a foreign country.

Exporting is a market entry strategy in which a company maintains production facilities within its home country and transfers products for sale in foreign countries.

Direct investing is a market entry strategy in which the organisation is directly involved in managing its production facilities in a foreign country.

3.3 international management The management of business operations conducted in more than one country.

THE INTERNATIONAL BUSINESS ENVIRONMENT

International management is the management of business operations conducted in more than one

country. The fundamental tasks of business management – including the financing, production and distribution of products and services – do not change in any substantive way when a firm is transacting business across international borders. The basic management functions of planning, organising, leading and controlling are the same whether a company operates domestically or internationally. However, managers will experience greater difficulties and risks when performing these management functions on an international scale.

3: MANAGING IN A GLOBAL ENVIRONMENT

Consider the following blunders:

◗◗ It took McDonald’s more than a year to figure out that Hindus in India do not eat beef because they consider the cow to be sacred. The company’s sales took off only after McDonald’s started making burgers sold in India out of lamb.36

◗◗ When IKEA launched a superstore in Bangkok, managers learned that some of its Swedish product names sound like crude terms for sex when pronounced in Thai.37

◗◗ In Africa, the labels on bottles show pictures of what is inside so illiterate shoppers can know what they’re buying. When a baby-food company showed a picture of an infant on its label, the product didn’t sell very well.38

Economic

◗◗ United Airlines discovered that even colours can doom a product. The airline handed out white carnations when it started flying from Hong Kong, only to discover that, to many Asians, such flowers represent death and bad luck.39 Some of these examples might seem humorous, but there’s nothing funny about them to managers trying to operate in a highly competitive global environment. What should managers of emerging global companies look for to avoid making obvious international mistakes? When they are comparing one country with another, the economic, legal–political and sociocultural sectors present the greatest difficulties. Key factors to understand in the international environment are summarised in EXHIBIT 3.3.40

Economic development Infrastructure Resource and product markets Per capita income Exchange rates Economic conditions

Legal–political Political risk Government intervention Tariffs, quotas, taxes Terrorism, political instability Laws, regulations

Organisation

Sociocultural Social values, beliefs Language Religion (objects, taboos, holidays) Demographic profile Formal education, literacy Time orientation

EXHIBIT 3.3 Key factors in the international environment

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The basic management functions are the same in either a domestic or an international subsidiary, but managers will experience greater difficulties and risks when performing these functions internationally.

◗◗ ◗◗

International management means managing business operations in more than one country. When operating on an international basis, it is important for managers to give considerable thought to economic, legal–political and sociocultural factors.

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3.4

THE ECONOMIC ENVIRONMENT

The economic environment represents the economic conditions in the country where the international organisation operates. This part of the environment includes factors such as economic development and resource and product markets. In addition, factors such as inflation, interest rates and economic growth are also part of the international economic environment.

E CO NO M I C D E V E L O P M E N T Economic development differs widely among the countries and regions of the world. Countries can be categorised as either ‘developing’ or ‘developed’. The developing countries are sometimes referred to as emerging or less-developed countries (LDCs). The criterion usually used to classify countries as developed or developing is per capita income, which is the income generated by the nation’s production of goods and services divided by total population. The developing countries have low per-capita incomes. LDCs are generally in the southern hemisphere, and include parts of Africa, Asia and South America, whereas developed countries (apart from Australia, New Zealand and South Africa) tend to be in the northern hemisphere; for example, the United States, United Kingdom and Japan.41 Most international business firms are headquartered in the wealthier, economically advanced countries. However, based on the number of prospective customers, developing countries constitute an immense market that many organisations are beginning to tap. Major Australian organisations are moving across borders to take advantage of the burgeoning demand for goods and services in countries such as China and Indonesia. Large companies, such as Uncle Ben’s of Australia or Foster’s Group, ship many container loads of pet food and beer, respectively, to developing nations. Although these companies may face risks and challenges, they are positioning themselves for the future in emerging economies where most of the population are still at least 10 years away from their peak buying years.42 Juliana Chugg moved from Australia to Minneapolis, United States to head up the baking division of General Mills Corporation.43 She was CEO of the Australian division of the company, during which time she almost doubled sales revenue to AU$208 million. Still in her early 40s, Ms Chugg became a Senior Vice President of General Mills, a business that includes powerful billion-dollar brands such as Pillsbury. She is an example of a successful executive in the global market for such talent, who thrives on the principle of delegation, giving others around her the chance to make good, well-informed decisions. She is also an active proponent of achieving work–life balance, having made the unprecedented move to regularly close the Australian business on Friday afternoons, to give her colleagues an early start on weekends, an initiative that clearly did not hurt sales or productivity.

I N F R A ST R U C T U R E infrastructure A country’s physical facilities that support economic activities.

A country’s physical facilities that support economic activities make up its infrastructure, which includes transportation facilities such as airports, highways and railways; energy-producing facilities such as utilities and power stations; and communication facilities such as telephone lines and radio stations. Organisations operating in LDCs must contend with lower levels of technology and perplexing logistical, distribution and communication problems. Mike Mazzola, an executive for Reuters Ltd, a major information services provider, found that getting a telephone installed in Mexico could take up to a year. Even after he got one,

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he often had to dial several times before the call would go through. Mobile telephone companies have found tremendous opportunities in LDCs, where land lines are still limited. China has the world’s biggest base of mobile phone subscribers at over 800 million, and the number is expected to continue growing.

E CO NO M I C I N T E R D E P E N D E N C E One thing the recent global financial crisis made abundantly clear is how economically interconnected the world is. Although the crisis might seem atypical, savvy international managers realise that their companies will probably be buffeted by similar crises fairly regularly. For example, most students are probably familiar with the bursting of the dot-com bubble in the early part of this century, which caused a severe drop in the stock market and affected companies around the globe. The Asian financial crisis of 1997–98 similarly affected firms in North America, Europe, and other parts of the world. More recently, Greece’s inability to make payments on its debt sparked a panic that devalued the euro and threatened the stability of financial markets worldwide.44 Recent financial woes have left a number of countries reeling, as reflected in a ‘misery index’ created by a Moody’s economist and illustrated in EXHIBIT 3.4. The misery index adds together a country’s unemployment rate and the budget deficit as a percentage of GDP. The 2010 figures suggest significantly greater misery for almost every country compared to the beginning of this century. Iceland and Ireland, two countries hit particularly hard by the recent economic crisis, had a negative misery index in 2000 but registered high scores for misery in 2010. The United States went from a misery score of less than five in 2000, to about 21 in 2010.45 Greater misery

EXHIBIT 3.4 How countries are bearing the economic crisis: Misery Index, 2010, compared to 2000

+30

+25

+20

2000

2000

0

Iceland

Ireland

2000

2000

2000

2010

2010

2010

2010

2000

+5

2010

+10

2010

+15

−5

Lesser misery

Greece

Portugal

Spain

United States

Source: Based on ‘A New Definition of Misery,’ The New York Times (18 December 2009), based on data from Moody’s; www.nytimes. com/imagepages/2009/12/18/business/economy/20091219_CHARTS_GRAPHIC.html (accessed on 19 December 2009).

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Another reflection of economic interdependence is the fact that parts and supplies for many companies come from around the world, which presents managers with new complexities. For example, a recent challenge for Honda and Toyota auto plants in the United States, Canada and Asia was getting the electronics and other parts they needed from suppliers in Thailand, where flooding had swamped huge industrial sections of the country. Walmart, the world’s largest retailer, with stores around the world, has been under pressure to evaluate and disclose how suppliers treat workers. At a recent shareholder meeting, a Bangladeshi labour organiser complained that many factories that produce goods for the giant US-based chain mistreat workers, and he presented a proposal that the company require suppliers to describe working conditions in detail.46

R E S OU R C E A N D P ROD U CT M A R K E T S

exchange rate The rate at which one country’s currency is exchanged for that of another country.

When operating in another country, managers must evaluate the market demand for their products. If market demand is high, managers may choose to export products to that country. To develop plants, however, resource markets for providing needed raw materials and labour also must be available. For example, the greatest challenge for McDonald’s, which now sells Big Macs on every continent except Antarctica, is to obtain supplies of everything from potatoes to hamburger buns to plastic straws. At McDonald’s in Krakow, the burgers come from a Polish plant partly owned by Chicago-based OSI Industries; the onions come from Fresno, California; the buns come from a production and distribution centre near Moscow; and the potatoes come from a plant in Aldrup, Germany. McDonald’s tries to contract with local suppliers when possible. In Thailand, McDonald’s actually helped farmers cultivate Idaho russet potatoes of sufficient quality to produce their golden French fries.47

E X C H A NG E R AT E S

Source: Getty Images/Danita Delimont

The exchange rate is the rate at which one country’s currency is exchanged for that of another country. Changes in the exchange rate can have major implications for the profitability of international operations that exchange millions of dollars into other currencies every day.48 For example, assume that the Australian dollar is exchanged for 90 US cents. If the Australian dollar increases in value to over US$1.10, Australian goods will be more expensive in the United States because it will take more of the that currency to buy a dollar’s worth of Australian goods. It will be more difficult to export Australian goods to the United States, and profits will be slim. On the other hand, if the Australian dollar drops to a value of 75 US cents, Australian goods could be cheaper in the United States and can be exported at a profit. But at that lower rate, foreign goods would be more expensive to import.

Projects such as Beijing’s fourth ring road, Shenzhen’s subway, the incredibly fast Maglev train system (430 km/hour) and the Three Gorges dam project, are examples of ongoing mega-projects in China. Analysts expect the Chinese government to boost its spending by 20 per cent on public works and other projects to improve the infrastructure in China.

I N F L AT I O N, I N T E R E ST R AT E S A N D E CO NO M I C G ROW T H Inflation rates measure the annual rate of growth of prices in the economy, and interest rates measure the cost of borrowing money. Australia’s inflation rate has fluctuated substantially over the past 30 years – more than 10 per cent in some years – and so have its prevailing interest rates. Australia’s economy surpassed all expectations of its strength

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and robustness when it did not fall prey to reverberations from the Asian economic crisis of the 1990s, and rode out the more recent GFC relatively well. The medium-term outlook for the Australian economy is for more stability, with low inflation and interest rates, and solid economic growth, predicted to continue at approximately 1.5 to 3 per cent per year. This means that the Australian economy will be an attractive place to do business, since stability and a solid, growing economy are two key factors that major companies look for in their global search for countries in which to locate their businesses.

R EMEMBE R THIS ◗◗

Countries vary widely in terms of economic development and are classified as either developed countries or less-developed countries (LDCs).

◗◗

Infrastructure refers to a country’s physical facilities, such as highways, utilities and airports, that support economic activities.

◗◗

As recent financial crises in the United States and Europe show, countries are economically interconnected, and financial problems in one area of the world can spread rapidly around the globe.

◗◗

International business managers can expect their companies to be affected periodically by economic problems that cross geographical boundaries.

THE LEGAL–POLITICAL ENVIRONMENT

Businesses must deal with unfamiliar political systems when they go international, as well as with higher levels of government supervision and regulation. Government officials and the general public often view foreign organisations as outsiders, or even intruders, and are suspicious of their impact on economic independence and political sovereignty. Some of the major legal–political concerns affecting international business are political risk, political instability, and laws and regulations. Sometimes it becomes difficult to separate the arguments made in the national interest from the commercial interests of profit-seeking companies. In countries such as Singapore and Australia, where important industries such as media and telecommunications are very concentrated in ownership and control, governments must work with these businesses to regulate their affairs and ensure a reasonable balance between national interests and corporate profit motives.49 Governments closely control many industries in Australia, often preserving monopolies (such as casinos) or duopolies (such as commercial TV broadcasting). The taxi industry is one in which governments have controlled standards and restricted supply of taxi licences, and as a result these licences were worth as much as AU$300 000 each. International company Uber has severely challenged the taxi industry in cities around the world and fully disrupted these taxi licence values. The taxi industry is regulated in terms both of prices and number of taxi licences. Consumers and taxi owners are the main stakeholders who attempt to influence regulations and policies.

Source: Fairfax Syndication/Penny Stephens

3.5

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POL ITICA L R ISK political risk An organisation’s risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments.

An organisation’s political risk is defined as its risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments.50 Political risk includes government takeovers of property and acts of violence directed against a firm’s properties or employees. Because such acts are not uncommon, organisations must formulate special plans and programs to guard against unexpected losses. For example, Hercules Inc., a large US-based chemical company, has increased the number of security guards at several of its European plants. Difficulties in mining operations in Bougainville, Papua New Guinea, have been very costly to some major Australian mining companies. Some companies actually buy political risk insurance, especially as they move into high-risk areas such as Eastern Europe, China and Brazil. Political risk analysis has emerged as a critical component of environmental assessment for multinational organisations.51

P O L I T I C A L I N STA B I L I T Y

political instability Events such as riots, revolutions, or government upheavals that can affect the operations of an international company.

Another frequently cited problem for international organisations is political instability, which includes riots, revolutions, civil disorder and frequent changes in government. Political instability increases uncertainty. Civil wars and large-scale violence have occurred in Indonesia, Iran, Iraq, Afghanistan, Libya, Tunisia, Egypt, Syria, Malaysia, Thailand, Sri Lanka, Greece and Myanmar in recent decades. Although most organisations would prefer to do business in stable countries, some of the greatest growth opportunities lie in areas characterised by instability. The greatest threat of violence is in countries experiencing political, ethnic or religious upheaval. In China, for example, political winds have shifted rapidly and often dangerously. Yet it is the largest potential market in the world for the goods and services of developed countries, and Foster’s, Xerox, Ford, Volkswagen, Motorola and Kodak are busy making deals there. Foreign managers are often subject to major threats in countries characterised by political instability. In countries as different as Russia, France, Yemen and Brazil, business leaders have been kidnapped, sometimes by professional criminals who hold them for ransom, and sometimes by employees wanting better working conditions. In recent years many ships have been seized by pirates off the coast of Africa and in parts of Asia. Recent political instability in certain regions has put the investments and staff of foreign companies at risk, sometimes grave risk. Another frequently cited problem for international companies is political instability, which includes riots, revolutions, civil disorders and frequent changes in government. Political turmoil in Syria, for example, which has occurred off and on ever since the country came into existence following its independence from France in 1946, reignited in mid-2011 as part of the Arab Spring, a revolutionary wave of protests in the Arab world that began in late 2010. By 2013, Syria was embroiled in a bloody civil war, with the United States threatening military action after allegations that the regime of President Bashar al-Assad used chemical weapons against civilians, killing nearly 1500 people, including 426 children. The wave of protests in the Arab region, affecting not only Syria, but also Tunisia, Egypt, Libya, Yemen and Bahrain, has created a tumultuous environment for businesses operating in the region. ‘No president, no government, no police,’ said Jalilia Mezni, owner of Société d’Articles Hygiéniques in Tunisia, ‘Only complete disorder’.52 Political risk and political instability remain elevated throughout the Arab world, causing problems for both local and foreign organisations. In August 2013, for example, the Syrian

3: MANAGING IN A GLOBAL ENVIRONMENT

Electronic Army (SEA), a group of pro-government computer hackers, disrupted several Western websites, including Twitter, The Washington Post, and The New York Times, which went down twice within a period of two weeks.53 Zaid Qadoumi, the CEO of Canada’s BroadGrain, which has been delivering agricultural commodities to emerging markets and political hot spots since the company was founded, offered extra pay for a crew to deliver a load of wheat to Libya, but advised workers to ‘cut the ropes and leave’ if they believed the situation was too dangerous.54

L AW S A N D R E G U L AT I O N S Government laws and regulations differ from country to country and make manufacturing and sales a true challenge for international firms. Host governments have many laws concerning libel, consumer protection, information and labelling, employment and safety, and wages. International organisations must learn these rules and regulations, and abide by them. For example, French law forbids the use of children in advertising, and Germany prohibits the use of competitive claims, both of which are allowable and widely used in New Zealand and Australia.55 China is an interesting example of the way government laws and regulations can present a challenge for international organisations. China has become not only one of the world’s most important economies, but also one in which the private and government sectors are learning to work together in new ways. The Chinese government conducted virtually all activities in past decades, but the private sector now accounts for 50 per cent of China’s GDP. This number is increasing as enterprises from all over the world seek to work with Chinese government agencies to secure their position in both investing and producing in China’s low-cost environment, and also to gain access to what will one day be the world’s largest market.56 The most visible changes in legal–political factors grow out of international trade agreements and the emerging international trade alliance system. Consider, for example, the impact of the General Agreement on Tariffs and Trade (GATT), the European Union (EU), the North American Free Trade Agreement (NAFTA) and the Association of South East Asian Nations (ASEAN).

R EMEMBE R THIS ◗◗

Complicated legal and political forces can create huge risks for international managers and organisations.

◗◗

Political risk refers to a company’s risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments.

◗◗

Political instability includes events such as riots, revolutions or government upheavals that can affect the operations of an international company.

◗◗

A revolutionary wave of protests in the Arab world that began in late 2010, known as the Arab Spring, has created a tumultuous environment for businesses operating in the region.

◗◗

Managers must understand and follow the differing laws and regulations in the various countries where they do business.

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3.6

THE SOCIOCULTURAL ENVIRONMENT

A nation’s culture includes the shared knowledge, beliefs and values, as well as the common modes of behaviour and ways of thinking, among members of the society. Cultural factors are more perplexing than political and economic factors in foreign countries. Culture is intangible, pervasive and difficult to learn. It is imperative for international businesses to comprehend the significance of local cultures and deal with them effectively.

S O C I A L VA L U E S

ethnocentrism A cultural attitude marked by the tendency to regard one’s own culture as superior to others. power distance The degree to which people accept inequality in power among institutions, organisations and people. uncertainty avoidance A value characterised by people’s intolerance for uncertainty and ambiguity, resulting in support for beliefs that promise certainty and conformity. individualism A preference for a loosely knit social framework in which individuals are expected to take care of themselves. collectivism A preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests. masculinity A cultural preference for achievement, heroism, assertiveness, work centrality and material success. femininity A cultural preference for cooperation, group decisionmaking and quality of life.

Many managers fail to realise that the values and behaviour that typically govern how business is done in their own country don’t always translate to the rest of the world. Western managers in particular are regularly accused of an ethnocentric attitude that assumes their way is the best way. Ethnocentrism refers to a natural tendency of people to regard their own culture as superior and to downgrade or dismiss other cultural values. Ethnocentrism can be found in all countries, and strong ethnocentric attitudes within a country make it difficult for foreign firms to operate there. One way that managers can fight their own ethnocentric tendencies is to understand and appreciate differences in social values. Research done by Geert Hofstede on 116 000 IBM employees in 40 countries identified four dimensions of national value systems that influence organisational and employee working relationships.57 Examples of how countries rate on the four dimensions are shown in EXHIBIT 3.5.

1 Power distance. High power distance means that people accept inequality in power among institutions, organisations and people. Low power distance means that people expect equality in power. Countries that value high power distance include Malaysia, India and the Philippines. Countries that value low power distance include Denmark, Austria and New Zealand.

2 Uncertainty avoidance. High uncertainty avoidance means that members of a society feel uncomfortable with uncertainty and ambiguity, and thus support beliefs that promise certainty and conformity. Low uncertainty avoidance means that people have high tolerance for the unstructured, the unclear and the unpredictable. High uncertainty avoidance countries include Greece, Portugal and Uruguay. Countries with low uncertainty avoidance values are Sweden, Singapore and Jamaica.

3 Individualism and collectivism. Individualism reflects a value for a loosely knit social framework in which individuals are expected to take care of themselves. Collectivism means a preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests. Countries with individualist values include the United States, Canada, Great Britain and Australia. Countries with collectivist values include China, Mexico and Brazil.

4 Masculinity/femininity. In this formulation, ‘masculinity’ stands for a preference for achievement, heroism, assertiveness, work centrality (with resultant high stress) and material success. ‘Femininity’, on the other hand, reflects the values of relationships, cooperation, group decision making and quality of life. Societies with strong masculine values include Japan, Thailand, Austria, Mexico and Germany. Countries with feminine values include Sweden, Norway, Denmark and France. Men and women alike subscribe to the dominant values in masculine and feminine cultures. Hofstede and his colleagues later identified a fifth dimension, long-term orientation versus shortterm orientation. The long-term orientation, found in China and other Asian countries, includes a greater concern for the future and highly values thrift and perseverance. A short-term orientation, found in Russia

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and West Africa, is more concerned with the past and the present and places a high value on tradition and meeting social obligations.58 Researchers continue to explore and expand on Hofstede’s findings. For example, in just 25 years, more than 1400 articles and numerous books were published on individualism and collectivism alone.59 Social values influence organisational functioning and management styles. For example, organisations in France and the Latin and Mediterranean countries tend to be hierarchical bureaucracies. Germany and other central European countries have organisations that strive to be impersonal, well-oiled machines. In India, Asia and Africa, organisations are viewed as large families. Effective management styles differ in each country, depending on cultural characteristics.60

COUNTRY

POWER DISTANCE

Australia

a

b

c

d

UNCERTAINTY AVOIDANCE

INDIVIDUALISM

MASCULINITY

7

7

2

5

Costa Rica

8 (tie)

2 (tie)

10

9

France

3

2 (tie)

4

7

West Germany

8 (tie)

5

5

3

India

2

9

6

6

Japan

5

1

7

1

Mexico

1

4

8

2

Sweden

10

10

3

10

Thailand

4

6

9

8

United States

6

8

1

4

a 1 5 Highest power distance, 10 5 Lowest power distance b 1 5 Highest uncertainty avoidance, 10 5 Lowest uncertainty avoidance c 1 5 Highest individualism, 10 5 Lowest individualism d 1 5 Highest masculinity, 10 5 Lowest masculinity Sources: Dorothy Marcic, Organizational Behavior and Cases, 4th edn (St Paul, MN: West, 1995). Based on two books by Geert Hofstede: Culture’s Consequences (London: Sage Publications, 1984) and Cultures and Organizations: Software of the Mind (New York: McGraw-Hill, 1991).

GLOBE PRO JEC T VA LUE DIMENS I O NS Research by the Global Leadership and Organizational Behavior Effectiveness (GLOBE) Project extends Hofstede’s assessment and offers a broader understanding for today’s managers. The GLOBE Project used data collected from 18 000 managers in 62 countries to identify nine dimensions that explain cultural differences. In addition to the dimensions identified by Hofstede, the GLOBE project identifies the following characteristics:61

1 Assertiveness. A high value on assertiveness means a society encourages toughness, assertiveness and competitiveness. Low assertiveness means that people value tenderness and concern for others over being competitive.

2 Future orientation. Similar to Hofstede’s time orientation, this dimension refers to the extent to which a society encourages and rewards planning for the future over short-term results and quick gratification.

3 Gender differentiation. This dimension refers to the extent to which a society maximises gender role differences. In countries with low gender differentiation, such as Denmark, women typically have a

EXHIBIT 3.5 Rank orderings of 10 countries along four dimensions of national value systems

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higher status and play a stronger role in decision making. Countries with high gender differentiation accord men higher social, political and economic status.

4 Performance orientation. A society with a high performance orientation places high emphasis on performance and rewards people for performance improvements and excellence. A low performance orientation means people pay less attention to performance and more attention to loyalty, belonging and background.

5 Humane orientation. The final dimension refers to the degree to which a society encourages and rewards people for being fair, altruistic, generous and caring. A country high on humane orientation places a great value on helping others and being kind. A country low on this orientation expects people to take care of themselves. Self-enhancement and gratification are of high importance. EXHIBIT 3.6 gives examples of how some countries rank on these GLOBE dimensions. These dimensions give managers an added tool for identifying and managing cultural differences. Social values greatly influence organisational functioning and management styles. Consider the difficulty that Emerson Electric managers had when Emerson opened a new manufacturing facility in Suzhou, China. One area in which the American view and the Chinese view differed widely was in terms of time orientation. The American managers favoured a short time horizon and quick results, and they viewed their assignments as stepping stones to future career advancement. The Chinese managers, on the other hand, favoured a long-term approach, building a system and setting a proper course of action to enable long-term success.62 Other companies have encountered similar cultural differences. Consider the Australian concept of self-directed teams, which emphasises shared power and authority, with team members working on a variety of problems without formal guidelines, rules and structure. Managers trying to implement teams have had trouble in areas where cultural values support high power distance and a low tolerance for uncertainty, such as Mexico. Many workers in Mexico, as well

EXHIBIT 3.6 Examples of country rankings on selected GLOBE value

DIMENSION

LOW

MEDIUM

HIGH

Assertiveness

Sweden

Egypt

Spain

Switzerland

Iceland

United States

Japan

France

Germany

Russia

Slovenia

Denmark

Italy

Australia

Canada

Kuwait

India

Singapore

Sweden

Italy

South Korea

Denmark

Brazil

Egypt

Poland

Netherlands

China

Russia

Israel

United States

Greece

England

Taiwan

Venezuela

Japan

Hong Kong

Germany

New Zealand

Indonesia

France

Sweden

Egypt

Singapore

United States

Iceland

Future orientation

Gender differentiation

Performance orientation

Humane orientation

Source: Mansour Javidan and Robert J. House. (2001). Cultural Acumen for the Global Manager: Lessons from Project GLOBE. Organizational Dynamics, 29:4, 289–305, with permission from Elsevier

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as in France and Mediterranean countries, expect organisations to be hierarchical. In Russia, people are good at working in groups and like competing as a team rather than on an individual basis. Organisations in Germany and other central European countries typically strive to be impersonal, well-oiled machines.63

CO M M U N I C AT I O N D I F F E R E N C E S People from some cultures tend to pay more attention to the social context (social setting, non-verbal behaviour, social status, etc.) of their verbal communication than Australians do. For example, Australian managers working in China have discovered that social context is considerably more important in that culture, and they need to learn to suppress their impatience and devote the time necessary to establish personal and social relationships. EXHIBIT 3.7 indicates how the emphasis on social context varies among countries. In a high-context culture, people are sensitive to circumstances surrounding social exchanges. People use communication primarily to build personal social relationships; meaning is derived from context – setting, status and nonverbal behaviour – more than from explicit words; relationships and trust are more important than business; and the welfare and harmony of the group are valued. In a low-context culture, people use communication primarily to exchange facts and information; meaning is derived primarily from words; business transactions are more important than building relationships and trust; and individual welfare and achievement are more important than the group.64 To understand how differences in cultural context affect High Chinese communications, consider the Australian expression, ‘The squeaky context Korean wheel gets the oil’. It means that the loudest person will get Japanese Vietnamese the most attention, and attention is assumed to be favourable. Arab Equivalent sayings in China and Japan are ‘Quacking ducks Greek Spanish get shot’ and ‘The nail that sticks up gets hammered down’, Italian respectively. In these latter two cultures, standing out as an English North American individual merits unfavourable attention. Consider the culture Scandinavian gap when China’s Lenovo Group acquired IBM’s PC business. In Swiss Low German meetings and conference calls, Western executives were frustrated context by their Chinese counterparts’ reluctance to speak up, while the Sources: Edward T. Hall, Beyond Culture (Garden City, NY: Anchor Press/Doubleday, Chinese managers were irritated by the Americans’ propensity to 1976); and J. Kennedy and A. Everest. (September 1991). Put Diversity in Context. ‘just talk and talk’, as one vice president of human resources put it.65 Personnel Journal, 50–4. High-context cultures include Asian and Arab countries. Low-context cultures tend to be American and Northern European. Even within these countries, cultural subgroups vary in the extent to which context counts, explaining why differences among groups can hinder successful communication. White females, and indigenous people all tend to prefer higher context communication than do white males. A high-context interaction requires more time because a relationship has to be developed, and trust and friendship must be established. Furthermore, most male managers and most people doing the hiring in organisations are from low context cultures, which conflicts with people entering the organisation from a background in a higher-context culture. Understanding the subtle contextual differences among cultures requires cultural intelligence (CQ), a person’s ability to use reasoning and observation skills to interpret unfamiliar gestures and situations and devise appropriate behavioural responses.66

high-context culture A culture in which people use communication to build personal relationships. low-context culture A culture where people use communication primarily to exchange facts and information. EXHIBIT 3.7 Highcontext and low-context cultures

cultural intelligence (CQ) The ability to use reasoning and observation skills to interpret unfamiliar gestures and situations, and devise appropriate behavioural responses.

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TAKE A MOMENT As a new manager, remember that understanding national culture is as important as paying attention to economic and political matters when working in or with a foreign country. Prepare yourself by studying how the foreign country’s social and cultural values compare with your own country. Avoid an ethnocentric attitude and recognise how the ethnocentrism of others may affect your perspective or work attitudes.

R EMEMBE R THIS ◗◗

Managers working internationally should guard against ethnocentrism, which is the natural tendency among people to regard their own culture as superior to others.

◗◗

Hofstede’s sociocultural value dimensions measure power distance, uncertainty avoidance, individualism-collectivism and masculinity-femininity.

◗◗

Power distance is the degree to which people accept inequality in power among institutions, organisations and people.

◗◗

Uncertainty avoidance is characterised by people’s intolerance for uncertainty and ambiguity and resulting support for beliefs that promise certainty and conformity.

◗◗

Individualism refers to a preference for a loosely knit social framework in which individuals are expected to take care of themselves.

◗◗

Collectivism refers to a preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests.

◗◗

Masculinity is a cultural preference for achievement, heroism, assertiveness, work centrality and material success.

◗◗

Femininity is a cultural preference for relationships, cooperation, group decision making and quality of life.

◗◗

Hofstede later identified another dimension, long-term orientation, which reflects a greater concern for the future and a high value on thrift and perseverance, versus short-term orientation, which reflects a concern with the past and present and a high value on meeting current obligations.

◗◗

Additional value dimensions identified by Project GLOBE are assertiveness, future orientation, gender differentiation, performance orientation and humane orientation.

3.7

INTERNATIONAL TRADE ALLIANCES

Many countries have entered into a variety of international trade alliances, and we describe some of the most important of these below. Some of these have been in place for decades, and some are new, and change is always on the cards for them, as evidenced by the BREXIT vote in Britain, in which British people voted to leave much of its connection to Europe’s economy and free trade conditions. Similarly, it appears that the election of Donald Trump to the presidency of USA as of 2017 heralds a new era of such alliances, being a ‘backing off’ by the USA from some such existing and prospective agreements. This is just another key example of the changing and turbulent nature of the environment in which managers must make decisions.

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GAT T A N D T H E WO R L D T R A D E O R GA N I Z AT I O N The General Agreement on Tariffs and Trade (GATT), signed by 23 nations in 1947, started as a set of rules to ensure non-discrimination, clear procedures, the negotiation of disputes and the participation of less developed countries in international trade. GATT sponsored eight rounds of international trade negotiations aimed at reducing trade restrictions. The 1986 to 1994 Uruguay Round (the first to be named for a developing country) involved 125 countries and cut more tariffs than ever before. In addition to lowering tariffs 30 per cent from the previous level, it boldly moved the world closer to global free trade by calling for the establishment of the World Trade Organization (WTO). The WTO represents the maturation of GATT into a permanent global institution that can monitor international trade and has legal authority to arbitrate disputes on some 400 trade issues.67 As China increasingly becomes ‘the world’s factory’, and India becomes a major global player in information technology, call centres and servicing industries, the globalisation of business networks is expected to roll on rapidly. The WTO, with 153 member countries, seeks to increase the welfare of people in member nations, through improving trade, but also through improving the environment, contributing to anti-dumping, intellectual property management, transparency in government and other desirable international standards. See http://www.wto.org for more details of this interesting organisation. China has benefited substantially since joining the WTO in 2001. Further, India and China are developing into becoming massive consumer markets in their own right.

E U RO P E A N U N I O N Formed as the European Economic Community in 1958 to improve economic and social conditions among its members, the European Union (EU) today is a 28-nation alliance, as illustrated in EXHIBIT 3.8. The biggest expansion came in 2004 when the EU welcomed 10 new members from Southern and Eastern Europe. The goal of the EU is to create a powerful single market system for Europe’s millions of consumers, allowing people, goods and services to move freely. The increased competition and economies of scale within Europe will enable organisations to grow large and efficient, becoming more competitive in the United States and other world markets. Some observers fear that the EU will become a trade barrier, creating a ‘fortress Europe’ that will be difficult to penetrate by organisations in other nations. Another aspect of European unification is the introduction of the euro. Several member states of the EU have adopted the euro, a single European currency that replaced national currencies in Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.68 However, not all has gone smoothly for the integration, particularly since the global recession began. Small but vocal factions in several countries, including the United Kingdom, have been arguing that companies and citizens would be better off withdrawing from the Eurozone. In 2016, a historic vote in Britain led to ‘Brexit’ (‘Britain exit’), which was a decision to leave the Eurozone. As economic stability varied from country to country, pitting winners against losers, the economic crisis revived national loyalties and cross-border resentments, slowing the move toward a unified and cohesive ‘European identity’. Spain, Ireland, Portugal and particularly Greece all have had trouble paying their debts, putting the entire Eurozone at risk and leading to a possible breakup of the euro system. In 2016, this instability, in part, led to the United Kingdom voting to leave the EU. Initially economists feared the

euro The single European currency that has replaced 17 national currencies in the European Union. The eight coins have one side common to all countries and a reverse side specific to each country. The seven different banknotes look the same in each country.

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EXHIBIT 3.8 The 28 nations within the European Union

SWEDEN

FINLAND

ESTONIA

LATVIA

DENMARK

LITHUANIA

NETHERLANDS IRELAND

UNITED BELGIUM KINGDOM POLAND

GERMANY

LUXEMBOURG FRANCE

CZECH REPUBLIC

AUSTRIA

SLOVAKIA HUNGARY ROMANIA

CROATIA SLOVENIA BULGARIA ITALY SPAIN GREECE PORTUGAL

MALTA

CYPRUS

Eurozone would suffer a damaging blow from the Brexit vote as exports to the United Kingdom would become more expensive, with business confidence in the market waning. However, initial reports have been positive with the Eurozone being described as ‘resilient’ with both output and GDP increasing.69 Even though government and industries in most of these countries have reversed the downward slide and renewed their competitiveness by cutting spending, raising taxes, and laying off millions of employees, economic uncertainties remain, with some suggestion that Greece might need another bailout. In addition, even though debt is declining in many countries, the numbers of the unemployed are soaring. Moreover, citizens are questioning whether government leaders are telling the truth about the extent of the crisis.70 Some analysts think a broad breakup of the Eurozone is unlikely, but Eurozone economies are at a crossroads. Smart managers are rethinking what they would do in the event that a return to national currencies required a rethinking of everything from how to expand operations to how to pick suppliers and pay employees.71

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NO RT H A M E R I C A N F R E E T R A D E AG R E E M E N T ( NA F TA) NAFTA, which came into effect on 1 January 1994, merged the US, Canada and Mexico into a megamarket with more than 421 million consumers. The agreement broke down tariffs and trade restrictions on most agricultural and manufactured products over a 15-year period. Thus, virtually all United States industrial exports into Canada and Mexico are duty free. NAFTA builds upon the 1989 US–Canada agreement and is aimed at spurring growth and investment, increasing exports and expanding jobs in all three nations.72 Although NAFTA has not lived up to its grand expectations, experts stress that it increased trade, investment and income and continues to enable companies in all three countries to compete more effectively with rival Asian and European firms.73

A S S O C I AT I O N O F S OU T H E A ST A S I A N NAT I O N S (A S E A N ) ASEAN was founded in 1967 when the governments of five countries – Indonesia, Malaysia, the Philippines, Singapore and Thailand – joined together to pursue three mutual purposes:

◗◗ jointly accelerating economic growth, social progress and cultural development ◗◗ promoting regional peace and stability ◗◗ actively collaborating on technical, scientific and economic matters. In the past 46 years, ASEAN has become a significant force in the fastest-growing region in the world, and has grown to a membership of 10 countries, having admitted Brunei Darussalam, Laos, Vietnam, Cambodia and Myanmar. ASEAN member countries established the AFTA arrangement (ASEAN Free Trade Area) in 1993, with a market of half a billion people, aimed at attracting investment, providing large companies with a large integrated market, and driving competitiveness and productivity forward. In 1994, the AFTA arrangements were brought forward to be fully implemented within a decade of that time, comprising the elimination of trade barriers between the member countries. Some arrangements came into place immediately to free up trade and promote business efficiency. In 1977, Australia was recognised as one of the ASEAN group’s important trading partners and was given ‘dialogue partner’ status. ASEAN keeps a committee and office in Canberra, and similar offices in other of its key trading partners, to coordinate business and other relationships. Along with Japan and China, ASEAN countries represent critically important trade partners for Australia, in terms both of imports and of exports. ASEAN countries have recently continued to expand their trading arrangements, moving forward with new agreements with Australia and New Zealand, China, India, Korea and Japan. For Australia and New Zealand, the AANZFTA (ASEAN–Australia and New Zealand Free Trade Area) agreement came into existence in 2010. It aims to make trading more efficient across these regions and countries by reducing tariffs, freeing up investment rules and making the transfer of goods, services, people and money more efficient and effective across the signatory countries.

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SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT: A GLOBAL ISSUE AND OPPORTUNITY

Slavery still exists in some countries that use organised child labour. This would be unacceptable in first-world countries such as Australia and New Zealand. A category of product that most of us enjoy is chocolate, most of which comes from the cocoa industry of West Africa, where slavery, including that of very young children, has been widely observed and reported. As a result of pressure from consumers, special interest groups and human rights advocates, major chocolate-producing companies are increasingly pressuring their suppliers in Africa to stop such inhumane practices. And while the major global chocolate producers, such as Nestlé, Cadbury, Mars, Lindt and Hershey, have worked with their suppliers to achieve improvements and certifications that the cocoa beans that they buy are ‘slavery free’, this is easier said than done. Without major resourcing by these companies, it is all too easy for suppliers to revert to bad practices once the company buyers and inspectors have left. Nike was famously exposed in the 1990s for selling highly priced shoes that were made in Asian sweatshops, and its reputation suffered significantly. While it was Nike that became infamous for being caught allowing these things to happen and indirectly profiting from the lower costs that come from these suppliers’ factories, it is still the case that despite improvements, sweatshops are a major global problem. One issue is safety standards, which are high in first-world countries such as Australia and New Zealand, and much lower in many operations in thirdworld countries. So what should managers in Australia do, when with just a little investigation they can and do know of the much lower standards being applied in these sweatshops? Whose job is it to ‘police’ labour and safety standards in the over 100 000 factories in low-wage countries, particularly in Asia, Africa and Central and South America, that are supplying almost everything for sale in our shops? These are challenging problems to solve, with massively widespread improvements needed. Yet those local factories that run substandard operations by our Western standards are doing so to prosper, and have continuing strong incentives to shave costs by cutting all sorts of corners. This is indeed a global problem. The most progressive companies have worked hard to influence their suppliers to bring in high standards of work safety and other aspects of work. They do so from a belief that even if there are extra costs of doing so, there will be a reputational and efficiency benefit in the longer term. This will bring them a market edge, as consumers increasingly want to buy from companies that promote ‘doing good’ policies, and avoid companies that allow or turn a blind eye to substandard approaches in their supply chains. What will your stance be when you are a manager buying goods or components from relatively poor countries which do not have national workplace standards as high as yours? Nike has certainly lifted its standards of monitoring and control of these matters in its supplier companies from a low base, as has the chocolate industry. Unscrupulous employers who do not understand or cannot afford to invest in sustainable practices do the wrong thing by their workers.

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STUDY TOOLS

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Express CO UR SEM AT E EX PR ES S FO R MANAG E M E N T

S E A R C H M E ! M A NAG E M E N T

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RESPONSE TO THE MANAGEMENT CHALLENGE

ACHIEVING INTERNATIONAL COMPETITIVENESS For managers at Toyota in Australia and GPC Electronics, the never-ending challenge is to justify the existence of their operations in a borderless world. Learning across borders is critical, where competitiveness has to be established and sustained on a global basis. GPC and Toyota recognise that they cannot be competitive on cost with low wage country operations, and because all manufacturers are achieving high quality these days they are turning to innovation as a differentiator. This means creating new services, product features and process

improvements including new ways of doing business, that add value to customer outcomes. For large companies such as Toyota, and smaller firms such as GPC Electronics, innovation is a strategy for survival and a means towards prosperity. However, it brings challenges for managers. These include how to stimulate creativity across the workforce and how to commercialise new ideas once they are invented and validated. (See also the Capstone chapter.) With the high Australian dollar, companies such as GPC and Toyota find it increasingly difficult to justify the existence of their manufacturing operations in Australia; indeed, Toyota was forced to reduce its staff headcount in 2013–14 and announced its complete closure of Australian manufacturing as of 2017. On the other hand, GPC Electronics has found that through continuous and radical innovation it is possible to survive and prosper in the electronics industry in Australia.

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DISCUSSION QUESTIONS 1 What specifically would the experience of living and working in another country contribute to your skills and effectiveness as a manager in your own country? 2 Do you think it is realistic that bottom of the pyramid (BOP) business practices can have a positive effect on poverty and other social problems in developing countries? Discuss. 3 What policies or actions would you recommend to an entrepreneurial Australian business wanting to do business in Asia, Europe or the US? 4 What steps could a company take to avoid making product design and marketing mistakes when introducing new products into a foreign country? 5 Compare the advantages associated with the foreign-market entry strategies of exporting, licensing and establishing wholly owned subsidiaries. 6 Should a multinational company operate as an integrated, worldwide business system or would it be more effective to let each subsidiary operate autonomously?

ETHICAL CHALLENGE

7 What does it mean to say that the world is becoming ‘borderless’ or that large organisations are ‘stateless’? 8 Do you think it’s possible for someone to develop a global mindset if they never live outside their native country? How might they do that? 9 What is meant by the cultural values of individualism and masculinity or femininity? How might these values affect organisation design and management processes? 10 How do you think trade alliances such as the EU and ASEAN may affect you as a future manager? 11 Do you expect the trends of moving manufacturing operations to China will continue unabated? Will there be any factories left in New Zealand or Australia in the year 2030? 12 Why do you think many people are so frightened by globalisation? Based on what is occurring in the world today, do you expect the globalisation backlash to grow stronger or weaker over the next decade?

QUALITY OR CLOSING

On the way home from the launch party celebrating Plaxcor Metals’ entrance into the international arena, Donald Fields should have been smiling. He was part of the team that had closed the deal to sell component parts to Asian Business Machine, after his company had spent millions trying to break into this lucrative market. Several more deals were riding on the successful outcome of the first international venture. The expansion into new markets was critical to Plaxcor’s survival. As CEO Leslie Hanson had put it: ‘If we aren’t global within five years, we may as well close up shop.’ Fields was tense because of news he learned tonight: intense bidding for the first sale and several last-minute changes requested by the customer had forced Plaxcor to heavily modify its production process. The production manager had confided that ‘The product is a mess but still better than most of the competition’. He went on to assure him that, although well below normal standards, the variability would ‘probably not cause any problems’ and could be worked out after a few more orders.

Fields had spent the last few months selling Plaxcor on its quality reputation. He knew they could probably get by with the first runs and meet the opening deadline. He was afraid that telling the customer of the potential problems or extending the deadline would risk not only this deal but pending projects as well. But he knew if problems arose with the products, Plaxcor’s future in the Asian market would be bleak. Donald Fields was not sure Plaxcor could afford to gamble its entrance in the international market on a substandard product. W H AT D O YO U D O ? 1 Ask the customer for an extension of the deadline, and bring the products up to standard. 2 Gamble on the first runs, and hope the products do not fail. 3 Inform the customer of the problem, and let the customer make the decision.

3: MANAGING IN A GLOBAL ENVIRONMENT

GROUP CHALLENGE

167

CONSIDERATIONS FOR OVERSEAS EXPANSION

While at university, a friend of yours who is studying information systems developed a computer program that can predict stock price fluctuations faster than existing products. You and he have built a solid, growing business in Australia, selling and servicing this software package to stockbroking firms and in a cut down version, to professional private investors and ‘day traders’. Sales have recently slowed in Australia because the local market is quite saturated and mature; however upgrades and servicing of existing clients continues to be profitable. As the business owners and founders, you have decided to expand overseas and are considering the following questions, being discussed at your strategy meeting. 1 Which countries will be most attractive to go to in the first instance, and what are the criteria for choosing these?

CASE FOR CRITICAL ANALYSIS

2 Should your firm go it alone or seek to partner with firms in those countries, or acquire businesses there as a platform? 3 What staffing capability will be required to expand outside Australia? 4 Should you expect that the product will need no adaptation or some changes for foreign markets? 5 Will economic and business conditions, cultures, costs, wages and prices be the same overseas? 6 What are the key risks of overseas expansion and how will you manage them? 7 How can you best plan, organise, lead and control your overseas expansion?

SHUI FABRICS

Ray Betzell, general manager for the past five years of a joint venture between Rocky River Industries and Shanghai Fabric Ltd, was feeling caught in the middle. As he looked out over Shanghai’s modern gleaming skyline from his corner office, Ray knew his Chinese deputy general manager, Chiu Wai, couldn’t be more pleased with the way things were going. Ten years ago, Rocky River had launched Shui Fabrics, a 50-50 joint venture between the domestic textile manufacturer and the Chinese company, to produce, dye and coat fabric for sale to both Chinese and international sportswear manufacturers. After many obstacles, considerable red tape and several money-losing years, the joint venture was fulfilling Chiu Wai’s expectations – and those of the local government and party officials who were keeping careful tabs on the enterprise – much more quickly than he’d anticipated. By providing jobs to close to 3000 people, Shui was making a real contribution to the local economy. Job creation was no small accomplishment in a country where outside experts estimated that the actual (as opposed to the official) unemployment rate routinely hovered at 20 per cent. From Chiu Wai’s point of view, Shui was generating just the right level of profit – not too little and, just as importantly, not too much. With so many Western–Chinese joint ventures still operating in the red, Chiu Wai saw no reason Ray’s Western bosses shouldn’t be more

than satisfied with their 5 per cent annual return on investment. Those earnings weren’t going to land him in hot water with local authorities, many of whom still viewed profits made by Western companies on Chinese soil as just one more instance of exploitation in a long history of foreign attempts at domination. If Chiu Wai had been eavesdropping on the conversation Ray had just had with Rocky River president Paul Danvers, the Chinese manager would have certainly been dismayed. Ray, who’d thoroughly enjoyed his time in China, was painfully aware of the quiet frustration in his boss’s voice from the other side of the world. To be sure, Paul conceded, Shui had cut Rocky River’s labour costs, given the company access to the potentially huge Chinese market, and helped inoculate the firm against the uncertainty surrounding the periodic, often contentious Western–Chinese textile trade negotiations. Current import tariffs and quotas could change at any time. ‘But a 5 per cent ROI is just pathetic,’ Paul complained. ‘And we’ve been stuck there for three years now. At this point, I’d expected to be looking at something more in the order of 20 per cent.’ He pointed out that greater efficiency plus incorporating more sophisticated technology would allow Shui to reduce its workforce substantially and put it on the road to a more acceptable ROI. ‘I’m well aware of the fact that the Chinese work for a fraction of what we’d have to pay American

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workers, and I do appreciate the pressure the government is putting on you guys. But still, it doesn’t make any sense for us to hire more workers than we would in a comparable domestic plant.’ After an uncomfortable silence, during which Ray tried and failed to picture broaching the subject of possible layoffs to his Chinese counterparts, he heard Paul ask the question he’d been dreading: ‘I’m beginning to think it’s time to pull the plug on Shui. Is there any way you can see to turn this around, Ray, or should we start thinking about other options? Staying in China is a given, but there has to be a better way to do it.’ QUE S TI ONS 1 How would you characterise the main economic, legal–political and sociocultural differences influencing the relationship between

the partners in Shui Fabrics? What GLOBE Project dimensions would help you understand the differences in Chinese and Western perspectives illustrated in the case? 2 How would you define Shui’s core problem? Are sociocultural differences the main underlying cause of this problem? Why or why not? How would you handle the conflict with your boss back in Australia, New Zealand or the United States? 3 If you were Ray Betzell, what other options to the 50–50 joint venture would you consider for manufacturing textiles in China? Make the argument that one of these options is more likely to meet Rocky River’s expectations than the partnership already in place.

SOURCES: Based on Katherine Xin and Vladimir Pucik. (August 2003). Trouble in Paradise. Harvard Business Review, 27–35; Lillian McClanaghan and Rosalie Tung. (21 March 1991). Summary of ‘Negotiating and Building Effective Working Relationships with People in China’. Presentation by Sidney Rittenberg, Pacific Region Forum on Business and Management Communication, Simon Fraser University, Harbour Centre, Vancouver, BC, http://www.cic.sfu.ca/forum/rittenbe.html; and Charles Wolfe Jr. China’s Rising Unemployment Challenge. Rand Corporation web page, http://www.rand.org/.

ON THE JOB VIDEO CASE

BLACK DIAMOND EQUIPMENT: MANAGING IN A GLOBAL ENVIRONMENT

Watch the following video to see how Black Diamond approaches its management functions. QUE S TI ONS 1 What evidence do you see of a global mind-set in these managers? List at least three examples of global thinking provided in the video.

2 Referencing the common traits of an MNC as described in the text, explain why you think Black Diamond is or is not a multinational corporation. 3 Describe at least two environmental factors that affect this business, and summarise how the managers are responding to these factors.

ENDNOTES 1 Engardio, P. (22–29 August 2005). A New World Economy. BusinessWeek, 52–8. 2 Burkitt, L. and Mozur, P. (5 April 2013). China Squeezes Western Firms. The Wall Street Journal, B1. 3 Ibid. 4 Lublin, J. S. (11 April 2011). Hunt Is on for Fresh Executive Talent—Cultural Flexibility in Demand. The Wall Street Journal, B1. 5 Shield U.S. from Cybercrime; Foreign Hackers Stepping up Their Attacks. (10 December 2009). South Florida Sun-Sentinel; Bryan-Low, C. (21 November 2006). Criminal Network: To Catch Crooks in Cyberspace, FBI Goes Global. The Wall Street Journal. 6 Quoted in Ryan Underwood, ‘Going Global,’ Inc. (March 2011): 96–98. 7 Daft, R. (1992). Organization Theory and Design. St Paul: West; Adler, N. J. (1991). International Dimensions of Organizational Behavior. Boston: PWS-Kent, 7–8; Holstein,

W., Reed, S., Kapstein, J., Vogel, T. and Weber, J. (14 May 1990). The Stateless Corporation. BusinessWeek, 98–105. 8 Beeth, G. (May 1997). Multicultural Managers Wanted. Management Review, 17–21; Matson, E. (April–May 1997). How to Globalise Yourself. Fast Company, 133–9. 9 Holstein, W., Byrne, J. A. and Kerwin, K., with Cortese, A. and Dwyer, P. (23 May 1994). Borderless Management. BusinessWeek, 24–6; Landler, M., Barnathan, J., Smith, G. and Edmondson, G. (18 November 1994). Think Globally, Program Locally. BusinessWeek/21st Century Capitalism, 186–9. 10 This section is based on S. Beechler and D. Baltzley. (29 May 2008). Creating a Global Mindset. Chief Learning Officer, http://clomedia.com/articles/view/creating_a_global_mindset/1 (accessed 26 June 2012); J. S. P. Story and J. E. Barbuto, Jr. (2011). Global Mindset: A Construct Clarification and Framework. Journal of Leadership and Organizational Studies, 18:3, 377–384;

3: MANAGING IN A GLOBAL ENVIRONMENT

and S. L. Cohen. (2010). Effective Global Leadership Requires a Global Mindset. Industrial and Commercial Training, 42:1, 3–10. 11 Definition based on M. Javidan and M. B. Teagarden. (2011). Conceptualizing and Measuring Global Mindset. Advances in Global Leadership, 6, 13–39; and Beechler and Baltzley. Creating a Global Mindset. 12 Titus, A. Competency of Intercultural Management. (11 March 2009). The Jakarta Post, http://www.thejakartapost.com/news/2009/03/11/competency-intercultural- management. html (accessed 30 June 2012). 13 Based on Javidan, M. and Walker, J.L. (2012). ‘A Whole New Global Mindset for Leadership’, People & Strategy 35:2, 36–41. 14 This is based on Gregory C. Unruh and Ángel Cabrera, ‘Join the Global Elite’, Harvard Business Review (May 2013): 135–139. 15 Bob Davis, ‘As Global Economy Shifts, Companies Rethink, Retool’, The Wall Street Journal, 7 November 2010, http://online.wsj.com/article/SB10001424052748704049904575554290932 153112.html (accessed 29 June 2012). 16 Ramsey, M. (16 April 2013). Ford’s CEO Revs up Auto Maker’s China Role. The Wall Street Journal, B7. 17 George Stalk and David Michael, ‘What the West Doesn’t Get About China’, Harvard Business Review (June 2011): 25–27; Zoe McKay, ‘Consumer Spending in China: To Buy or Not to Buy’, Forbes.com, 15 June 2012, www.forbes.com/sites/insead/2012/06/15/consumerspending-in-china-to-buy-or-not-to-buy/ (accessed 29 June 2012); and Adam Davidson, ‘Come On, China, Buy Our Stuff!’ The New York Times, 25 January 2012, www.nytimes. com/2012/01/29/magazine/come-on-china-buy-our-stuff.html?pagewanted=all (accessed 29 June 2012). 18 W. Michael Cox and Richard Alm, ‘China and India: Two Paths to Economic Power’, Economic Letter, Federal Reserve Bank of Dallas, August 2008, www.dallasfed.org/research/ eclett/2008/el0808.html (accessed 14 July 2010). 19 ‘Pharmaceuticals’, India Brand Equity Foundation, IBEF.org, May 2012, www.ibef.org/ industry/pharmaceuticals.aspx (accessed 29 June 2012); and Sushmi Dey, ‘Indian Pharma Eyes US Generic Gold Rush’, Business Standard, 27 June 2012, www.business-standard.com/ india/news/indian-pharma-eyes-us-generic-gold-rush/478593/ (accessed 29 June 2012). 20 Count: Really Big Business. (December 2008–January 2009). Fast Company, 46. 21 Bell, D. E. and Shelman, M. L. (November 2011). KFC’s Radical Approach to China. Harvard Business Review, 137–42. 22 Perlmutter, H. V. (January–February 1969). The Tortuous Evolution of the Multinational Corporation. Columbia Journal of World Business, 9–18; and Y. Wind, S. P. Douglas and H. V. Perlmutter. (April 1973). Guidelines for Developing International Marketing Strategies. Journal of Marketing, 14–23. 23 Apple Inc. (2016). Apple reports second quarter results. http://www.apple.com/au/pr/ library/2016/04/26Apple-Reports-Second-Quarter-Results.html (accessed 3 November 2016); Yu, Hui-yong (20 July 2015). Apple said to lease office space in Seattle Tower. Bloomberg, https://www.bloomberg.com/news/articles/2015-07-20/apple-said-to-leaseoffice-space-in-seattle-tower (accessed 3 November 2016); Apple Inc. (2016). Apple website. Available: http://www.apple.com/au/ (accessed 3 November 2016). 24 Easton, N. (4 February 2008). Make the World Go Away. Fortune, 105–8. 25 Schroeder, M. and Aeppel, T. (10 December 2003). Skilled Workers Sway Politicians with Fervor Against Free Trade. The Wall Street Journal. 26 Wong, S., Liu J. and Culpan, T. (7–13 June 2010). Life and Death at the iPad Factory. Bloomberg BusinessWeek, 35–6; C. Duhigg and S. Greenhouse. (29 March 2012). Apple Supplier in China Pledges Big Labor Changes. The New York Times, http://www.nytimes. com/2012/03/30/business/apple-supplier-in-china-pledges-changes-in-workingconditions.html?pagewanted=all (accessed 30 June 2012); and K. Drew. (29 March 2012). Apple’s Chief Visits iPhone Factory in China. The New York Times, http://www.nytimes. com/2012/03/30/technology/apples-chief-timothy-cook-visits-foxconn-factory.html (accessed 30 June 2012). 27 McQuaid, J. (12 June 2012). Why Apple Is Bringing Manufacturing Back To The United States. Forbes, http://www.forbes.com/sites/johnmcquaid/2012/12/06/why-apple-isbringing-manufacturing-back-to-the-united-states (accessed August 2013); E. Dou. (29 May 2013). Apple Shifts Supply Chain Away From Foxconn to Pegatron. The Wall Street Journal, http://online.wsj.com/article/SB10001424127887323855804578511122734340726. html (accessed August 2013). 28 Prahalad, C. K. (13 April 2011). The Fortune at the Bottom of the Pyramid. Fast Company, http:// www.fastcompany.com/1746818/fortune-at-the-bottom-of-the-pyramid-ck-prahalad (accessed 30 June 2012); C. K. Prahalad and S. L. Hart. (2002). The Fortune at the Bottom of the Pyramid.

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Strategy + Business, 26, 54–67; and S. Johnson. (September–October 2007). SC Johnson Builds Business at the Base of the Pyramid. Global Business and Organizational Excellence, 6–17. 29 Kerr, J. (May 1989). Export Strategies. Small Business Reports, 20–5. 30 Wellner, A. S. (May 2006). Turning the Tables. Inc., 55–9. 31 Harrigan, K. R. (February 1987). Managing Joint Ventures. Management Review, 24–41; and T. R. Revesz and M. C. de la Sierra. (March 1987). Competitive Alliances: Forging Ties Abroad. Management Review, 57–9. 32 Weaver, C. (2 May 2012). Abbott Looks to Consumer for Growth. The Wall Street Journal, http://online.wsj.com/article/SB10001424052702303990604577367760661436198.html (accessed 28 June 2012). 33 Areddy, J. T. (4 June 2012). European Project Trips China Builder. The Wall Street Journal, A1; and K. Semple. (10 August 2011). Bridge Repairs by a Company Tied to Beijing. The New York Times, http://www.nytimes.com/2011/08/11/nyregion/china-construction-co-involvedin-new-yorks-public-works.html (accessed 27 June 2012). 34 Goerzen, A. (2005). Managing Alliance Networks: Emerging Practices of Multinational Corporations. Academy of Management Executive, 19:2, 94–107. 35 Michaels, D., Ostrower, J. and Pearson, D. (2 July 2012). Airbus’s New Push: Made in the U.S.A. The Wall Street Journal. 36 Holt, J. Gone Global? Management Review (March 2000): 13. 37 Hookway, J. (5 June 2012). IKEA’s Products Make Shoppers Blush in Thailand. The Wall Street Journal, A1. 38 Holt. Gone Global? 39 Slogans Often Lose Something in Translation. The New Mexican. 3 July 1994. 40 For a recent overview of various environmental factors influencing firms that operate internationally, see D. Conklin. (July–August 2011). The Global Environment of Business: New Paradigms for International Management. Ivey Business Journal, http://www. iveybusinessjournal.com/topics/global-business/the-global-environment-of-business-newparadigms-for-international-management (accessed 27 June 2012). 41 Richman, L. S. (1997). Global Growth is on a Tear, in F. Maidment (ed.) International Business 1997/98, Annual Editions, Guilford Publishing Group, 6–11. 42 Henkoff, R. (27 October 1997). Asia: Why Business is Still Bullish. Fortune, 139–42. 43 Hall, J. (August 2004). Our Top Leaders. BOSS Magazine, 58–63. 44 Walker, M., Forelle, C. and Gauthier-Villars, D. (11 May 2010). Europe Bailout Lifts Gloom. The Wall Street Journal; and G. Bowley and C. Hauser. (21 May 2010). Stocks Plunge on Fears of a Spreading European Crisis. The New York Times. 45 A New Definition of Misery. (18 December 2009). The New York Times (based on data from Moody’s), http://www.nytimes.com/imagepages/2009/12/18/business/economy/20091219_ CHARTS_GRAPHIC.html (accessed 27 September 2012). 46 Ramsey, M. and Takahashi, Y. (1 November 2011). Car Wreck: Honda and Toyota. The Wall Street Journal Online, http://online.wsj.com/article/SB100014240529702045282045770090 44170787650.html (accessed 29 June 2012); S. Clifford. (1 November 2011). Rattling WalMart’s Supply Chain. International Herald Tribune, 17. 47 Serwer, A. E. (17 October 1994). McDonald’s Conquers the World. Fortune, 103–16; Deveny, K. (13 October 1986). McWorld? BusinessWeek, 78–86. 48 Kogut, B. (Fall 1985). Designing Global Strategies: Profiting from Operational Flexibility. Sloan Management Review, 27, 27–38. 49 Ferguson, A. (23 August 2001). Strategy: Sovereign Stuff. Business Review Weekly, 38. 50 Fitzpatrick, M. (1983). The Definition and Assessment of Political Risk in International Business: A Review of the Literature. Academy of Management Review, 8, 249–54. 51 Bowman, R. J. (March 1995). Are You Covered? World Trade, 100–4; Stapenhurst, F. (March– April 1995). Political Risk Analysis in North American Multinationals: An Empirical Review and Assessment. International Executive, 127–45; (29 April 1986). Multinational Firms Act to Protect Overseas Workers from Terrorism, The Wall Street Journal, 31. 52 Alisa Wiersema, ‘Everything You Need to Know About the Syrian Civil War’, ABC News, 31 August 2013, http://abcnews.go.com/Politics/syrian-civil-war/story?id=20112311 (accessed 2 September 2013); and quote from Peter Wonacott, ‘An Entrepreneur Weathers a Tumultuous Arab Spring’, The Wall Street Journal, 17 January 2012, http:// online.wsj.com/article/SB10001424052970203436904577150690233235850.html (accessed 27 June 2012). 53 Suzanne Choney, ‘New York Times Hacked, Syrian Electronic Army Suspected’, NBC News, 28 August 2013, http://www.nbcnews.com/technology/new-york-times-hacked-syrianelectronic-army-suspected-8C11016739 (accessed 2 September 2013). 54 Gooderham, M. (21 June 2012). Companies That Go Where Others Fear to Tread. The Globe and Mail, B7.

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55 Borelli, R. (October 1997). A Worldwide Language TRAP. Management Review, 52–4; Pincus, L. B. and Belohlav, J. A. (1996). Legal Issues in Multinational Business: To Play the Game, You Have to Know the Rules. Academy of Management Executive, 10:3, 52–61. 56 Gilley, B. (30 August 2001). Jiang’s Turn Tempts Fate. Far Eastern Economic Review, 30. 57 Hofstede, G. (1984). Culture’s Consequences. London: Sage Publications; Hofstede, G. (1985). The Interaction between National and Organizational Value Systems. Journal of Management Studies, 22, 347–57. 58 Hofstede, G. (1993). Cultural Constraints in Management Theory. Academy of Management Executive, 7, 81–94. Hofstede, G. and Bond, M. H. (1988). The Confucian Connection: From Cultural Roots to Economic Growth. Organizational Dynamics, 16, 4–21. 59 Bing, J. W. (1 February 2004). Hofstede’s Consequences: The impact of his work on consulting and business practices. Academy of Management Executive, 18:1, http:// eds.b.ebscohost.com.ezp.lib.unimelb.edu.au/eds/pdfviewer/pdfviewer?sid=b4c29876ba30-4c03-8aec-ff27318534ac%40sessionmgr112&vid=35&hid=105; Gelfand, M. J., Bhawuk, D. P. S., Nishii, L. H. and Bechtold, D. J. (2004). Individualism and Collectivism, in House, et al. (eds). Culture, Leadership and Organizations: The Globe Study of 62 Societies (Thousand Oaks, CA: Sage). 60 Jackofsky, E. F., Slocum, J. W. Jr. and McQuaid, S. J. (1988). Cultural Values and the CEO: Alluring Companions? Academy of Management Executive, 2, 39–49. 61 Javidan M. et al. (February 2006). In the Eye of the Beholder: Cross-Cultural Lessons from Project GLOBE. Academy of Management Perspectives: 67–90; R. J. House et al. eds (2004). Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies (Thousand Oaks, CA: Sage Publications); M. Javidan and R. J. House. (2001). Cultural Acumen for the Global Manager: Lessons from Project GLOBE. Organizational Dynamics, 29:4: 289–305; and R. J. House et al. (2002). Understanding Cultures and Implicit Leadership Theories Across the Globe: An Introduction to Project GLOBE. Journal of World Business, 37, 3–10. 62 Sanchez-Runde, C. et al. (2011). Looking Beyond Western Leadership Models: Implications for Global Managers. Organizational Dynamics 40, 207–13. 63 Nicholls, C. E., Lane, H. W. and Brehm Brechu, B. (1999). Taking Self-Managed Teams to Mexico. Academy of Management Executive 13:2: 15–27; C. F. Fey and D. R. Denison. (November–December 2003). Organizational Culture and Effectiveness: Can American Theory Be Applied in Russia? Organization Science, 14:6, 686–706; E. F. Jackofsky, J. W. Slocum, Jr. and S. J. McQuaid. (1988). Cultural Values and the CEO: Alluring Companions? Academy of Management Executive, 2: 39–49. 64 Kennedy, J. and Everest, A. (September 1991). Put Diversity in Context. Personnel Journal, 50–4.

65 Spencer, J. (4 November 2008). Lenovo Goes Global, But Not Without Strife. The Wall Street Journal. 66 Earley, C. P. and Mosakowski, E. (October 2004) Cultural Intelligence. Harvard Business Review: 139. 67 Holt, D. H. (1998). International Management: Text and Cases. Fort Worth: The Dryden Press; Harmsen, R. (March 1995). The Uruguay Round: A Boon for the World Economy. Finance & Development, 24–6; Pitroda, S. S. (Spring 1995). From ATT to WTO: The Institutionalization of World Trade. Harvard International Review, 46–7, 66–7; The Economist (19 December 1998). Chinese Toy Making: Where the Furbies Come From, 95. 68 European Commission Economic and Financial Affairs website, http://ec.europa.eu/ economy_finance/euro/index_en.htm (accessed 18 March 2010). 69 Inman, P. (24 August 2016). Eurozone resilient after Brexit vote as output increases. The Guardian, https://www.theguardian.com/business/2016/aug/23/eurozone-brexit-ihsmarkit-gdp-growth (accessed 3 November 2016). 70 Jonathan Buck, ‘Europe’s Economy Will Rebound’, Barron’s, 22 July 2013, http://online. barrons.com/article/SB50001424052748704093404578613863100842212.html#articleTabs_ article%3D1 (accessed 2 September 2013); Clive Crook, ‘Opening Remarks: Who Lost the Euro?’ part of a ‘Special Euro Crisis’ section, Bloomberg BusinessWeek (May 28–June 3, 2012): 10–12; Dalibor Rohac, ‘The Never-Ending Greek Tragedy’, U.S. News and World Report (30 August 2013), http://www.usnews.com/opinion/articles/2013/08/30/greeceshows-the-eurozone-crisis-is-far-from-over (accessed 2 September 2013); Rebecca Clancy, ‘Rehn: Too Early to Say Eurozone Crisis Is Over’, The Telegraph, 29 August 2013, http://www.telegraph.co.uk/finance/economics/10273514/Rehn-Too-early-tosay-eurozone-crisis-is-over.html (accessed 2 September 2013); Thomas, ‘In Europe, a Risk-Filled Choice for Britain’; and Todd Buell, ‘Germans Believe Politicians Are Lying about Crisis, Says Study’, The Wall Street Journal, 15 August 2013, http://blogs.wsj.com/ eurocrisis/2013/08/15/germans-believe-politicians-are-lying-about-crisis-says-study/ (accessed 2 September 2013). 71 Vanessa Fuhrmans and Dana Cimilluca, ‘Business Braces for Europe’s Worst— Multinationals Scramble to Protect Cash, Revise Contracts, Tighten Payment Terms’, The Wall Street Journal, 1 June 2012, B1. 72 Rudolph, B. (10 August 1992). Megamarket. Time, 43–4. 73 Munroe, T. (9 January 2004). NAFTA Still a Work in Progress. Knight Ridder/Tribune News Service; J. Sparshott. (18 December 2003). NAFTA Gets Mixed Reviews. The Washington Times; and A. Borrus. (24 August 1992). A Free-Trade Milestone, with Many More Miles to Go. BusinessWeek, 30–31.

CHAPTER 4 E THICS, SOCIAL RESPONSIBIL IT Y AND SUS TAINABL E DE VELOPMENT

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define ethics and explain how ethical behaviour relates to behaviour governed by law and free choice

2 discuss why ethics is important for managers and identify recent events that call for a renewed commitment to ethical management

3 explain the utilitarian, individualism, moral rights, justice and practical approaches for making ethical decisions

4 describe the factors that shape a manager’s ethical decision making, including levels of moral development

5 define corporate social responsibility and how to evaluate it along

economic, legal, ethical and discretionary criteria

6 identify important stakeholders for an organisation and discuss how managers balance the interests of various stakeholders

7 explain the philosophy of sustainability and why organisations are embracing it

8 describe what is meant by ‘the triple bottom line’. Discuss how ethical organisations are created through ethical leadership and organisational structures and systems

9 explain particular issues of ethical behaviour and sustainable development applicable in Australia.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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MANAGEMENT CHALLENGE

MONSANTO’S ETHICAL CHALLENGES Over the past decade or so, Monsanto has been transformed from a chemicals firm into a biotechnology company. The organisation’s vast array of stakeholders around the world includes customers, investors, suppliers, partners, health and agricultural organisations, regulatory agencies, research institutes and governments. Monsanto experienced some big problems in recent years because of its failure to satisfy various stakeholder groups. For example, the company’s genetic seed business has been the target of controversy and protest. Small farmers were concerned about new dependencies that might arise for them when using the new seeds. European consumers rebelled against

a perceived imposition of unlabelled, genetically modified food ingredients. Research institutes and other organisations took offence at what they perceived as Monsanto’s arrogant approach to the new business. Activist groups accused the company of creating ‘Frankenstein foods’. To make matters even worse, in seeking to sell genetically modified seeds in Indonesia, managers allegedly bribed government officials, which got Monsanto into trouble with the regulatory authorities. QU E S T I O N When and how does a company manage the tradeoffs and conflicts between the requirements and desires of its different stakeholder groups, which are often pulling it in different and sometimes opposite directions? How can Monsanto best manage its stakeholder relationships and perceived problems?

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NEW MANAGER SELF-ASSESSMENT WHAT IS YOUR LEVEL OF ETHICAL MATURITY? Instructions – it probably won’t happen right away, but soon enough in your duties as a new manager, you will be confronted with a situation that will test the strength of your moral beliefs or your sense of justice. Are you ready? To find out, think about times when you were part of a student or work group. To what extent does each of the following statements characterise your behaviour when working with others in a group? Please answer each of the following items as mostly true or mostly false for you. MOSTLY TRUE

MOSTLY FALSE

1 I can clearly state the principles and values that guide my actions. 2 I quickly acknowledge my mistakes and take responsibility for them. 3 I am able to quickly ‘forgive and forget’ when someone has made a serious mistake that affected me. 4 When making a difficult decision, I take time to assess my principles and values. 5 I have a reputation among my friends and co-workers for keeping my word. 6 I am completely honest and can be trusted to tell the truth. 7 When someone asks me to keep a confidence, I always do so completely. 8 I hold others accountable for using ethical practices in their work. 9 I insist on doing what is fair and ethical even when it is not easy. 10 My coworkers would say that my behaviour is very consistent with my values. Scoring and Interpretation: Each of these questions pertains to some aspect of ethical maturity in a group situation, which also reflects a person’s level of moral development. Count the number of checks for mostly true. If you scored 7 or more, congratulations! That behaviour suggests you would be near Level 3 in EXHIBIT 4.3 of the levels of moral development. The postconventional level of development means that you consider principles and values, take personal responsibility, and do not blame others. You may have a highly developed ethical sense. A lower score suggests that you may be at the conventional or even preconventional level. A score below 5 indicates that you may avoid difficult issues or have not been in situations that challenged your ethical values. Study the specific questions for which you scored mostly true and mostly false to learn more about your specific strengths and weaknesses. Think about what influences your ethical behaviour and decisions, such as a need for success or approval.

The situation at Monsanto illustrates how difficult ethical issues can be and symbolises the growing importance of discussing ethics and social responsibility. Organisations around the world are rushing to adopt codes of ethics and develop socially responsible policies. Ethics consultants are doing huge amounts of business; unfortunately, the trend is necessary. In this chapter, we will examine the challenging issues of the ethical dilemmas that all managers will face during their careers, and the core ideas of the role and relationship of organisations and their

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stakeholders. We will particularly examine the three major outputs of organisations, namely the ‘triple bottom line’ of financial/economic outcomes, environmental (green) outcomes and the social/societal outcomes of organisations. An example of the environmental outcome of an organisation is its carbon footprint, and the social outcome can refer to the quantity and quality of jobs created in a community. The key point is that it is not enough for an organisation and its managers to simply be financially successful if it is not successful in satisfying the other two domains of environment and societal outcomes. Such a position is not ‘sustainable’ in the longer term. The term ‘sustainable development’ is introduced and discussed later in this chapter, and in the other chapters of this book. It relates to every aspect of management. It provides new opportunities and challenges for managers. ‘Stakeholder engagement’ must also be considered on a broader basis than past common practice has achieved. Every decade sees its share of corporate, political and social villains, but the pervasiveness of ethical lapses in the 2000s was astounding. Once-respected firms such as Enron, HIH, Arthur Andersen, Lehman Brothers, AWB, WorldCom, Tyco and HealthSouth became synonymous with greed, deceit and financial chicanery. No wonder a public poll found that 79 per cent of respondents believe questionable business practices are widespread. Fewer than one-third said they think most CEOs are honest.1 Moreover, more than 20 per cent of US-based employees surveyed report having first-hand knowledge of managers making false or misleading promises to customers, discriminating in hiring or promotions and violating employees’ rights.2 In China, fraud and corruption are reported to be widespread and to consume 15 per cent of the country’s GDP. The underground economy is reported to be worth another 20 per cent of GDP. Despite a variety of measures taken by authorities and international pressure, counterfeiting and piracy is widespread in China. Australia is not immune to such problems and practices, although they are not considered to be as widespread as in China and in countries such as Thailand, where rapidly developing See Chapters 2 and 3 for a discussion on environment, 3 economies seem to attract and even allow these unlawful practices to exist and flourish. corporate culture and the On the other hand, there also is positive news to report. The international pharmaceutical company, international environment. GlaxoSmithKline, slashed the price of the AIDS drug AZT in developing nations by as much as 75 per cent. Many major manufacturers, including DuPont, Electrolux and Shell are embracing environmental goals and developing eco-friendly products. Several years ago, Eastman Kodak Company took an unprecedented step by tying a percentage of managers’ pay to factors such as how well they treat their employees.4 A host of companies gave large amounts of their goods as well as cash to help victims of the Queensland floods and the Christchurch earthquake in 2011. Many of these companies did not seek publicity for these good deeds, they just gave in the same way that many individuals gave, taking a discretionary response to the situation. This chapter expands on the ideas about environment, corporate culture Goldman Sachs CEO Lloyd Blankfein was in the hot and the international environment discussed in Chapters 2 and 3. We first seat as he defended the firm’s role in creating Abacus, focus on specific ethical values that build on the idea of corporate culture. Then a mortgage-backed investment fund allegedly designed to fail. While Goldman bet against the fund as a way to we examine corporate relationships to the external environment as reflected in hedge against a weakening housing market, its trading side facilitated sales of Abacus to institutional customers. corporate social responsibility and sustainable development. We also discuss The manoeuvre helped Goldman weather the financial crisis but raised serious questions about its managerial fundamental approaches that help managers think through ethical issues. ethics. Blankfein said that the firm’s trading side is simply Ethics and sustainable development are hot topics in corporate Australia, New ‘a machine that lets people buy and sell what they want to buy and sell’. Despite this defence, Goldman agreed in Zealand and elsewhere. Understanding ethical approaches helps managers 2010 to pay US$550 million to settle federal claims that it misled investors. build a solid foundation on which to base future decision making.

Source: AAP Image/Ramin Talie

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4.1 ethics The code of moral principles and values that governs the behaviour of a person or a group with respect to what is right or wrong.

WHAT IS MANAGERIAL ETHICS?

Ethics is difficult to define in a precise way. In a general sense, ethics is the code of moral principles and values that governs the behaviours of a person or group with respect to what is right or wrong. Ethics sets standards as to what is good or bad in conduct and decision making.5 An ethical issue is present in a situation when the actions of a person or organisation may harm or benefit others.6 Yet ethical issues sometimes can be exceedingly complex. People may hold widely divergent views about the most ethically appropriate or inappropriate actions related to a situation.7 Consider the issue of competitive intelligence. Companies are increasingly using social media sites to learn more about their competition, some even going so far as to ‘friend’ customers or employees of rivals and post seemingly innocuous questions to gather information that can provide them with a competitive advantage.8 The laws regarding information gathering aren’t clear-cut, and neither are opinions regarding the ethics of such tactics. What do you think? Whereas some people think any form of corporate spying is wrong, others think it is an acceptable way of learning about the competition.9 Managers frequently face situations in which it is difficult to determine what is right. In addition, they might be torn between their misgivings and their sense of duty to their bosses and the organisation. Ethics can be more clearly understood when compared with behaviours governed by law and by free choice. EXHIBIT 4.1 illustrates that human behaviour falls into three categories. The first is codified law, in which values and standards are written into the legal system and enforceable in the courts. In this area, lawmakers set rules that people and corporations must follow in a certain way, such as obtaining licences for cars, paying corporate taxes or following other local, state and national laws. For example, former vice chairman of Walmart, Thomas Coughlin, pleaded guilty to fraud and tax evasion charges. Coughlin resigned in 2005 amid allegations that he defrauded the giant retailer out of hundreds of thousands of dollars, and the investigation was turned over to federal prosecutors.10 Behaviours such as fraud and tax evasion are clearly against the law. The domain of free choice is at the opposite end of the scale and pertains to behaviour about which the law has no say and for which an individual or organisation enjoys complete freedom. An example is a manager’s choice of where to buy a new suit, or an organisation’s choice of which of two well-qualified candidates to hire for an open position. Between these domains lies the area of ethics. This domain has no specific laws, yet it does have standards of conduct based on shared principles and values about moral conduct that guide an individual or company. For example, it is not illegal for a manager like Harry Stonecipher, former CEO of Boeing, to have an extramarital affair with a female executive, but his behaviour violated Boeing’s code of ethical conduct, and Stonecipher was replaced. However, a manager who commits sexual harassment is not just being unethical but is breaking the law. Steven J. Heyer was fired as CEO of Starwood Hotels & Resorts Worldwide Inc. after the board received an anonymous letter that accused Heyer of inappropriately touching female employees and creating a hostile work environment.11 Many companies and individuals get into trouble with the simplified view that decisions are governed by either law or free choice. This view leads people to mistakenly assume that if it’s not illegal, it must be ethical, as if there were no third domain.12 A better option is to recognise the domain of ethics and accept moral values as a powerful force for good that can regulate behaviours both inside and outside organisations.

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Domain of

Domain

Domain of

codified law

of ethics

(legal standard)

(social standard)

free choice (personal standard)

Amount of High

explicit control

Low

E T H I C A L M A NAG E M E N T T ODAY Every decade seems to experience its share of scoundrels, but the pervasiveness of ethical lapses during the early twenty-first century has been astounding. In a recent Gallup poll conducted in the United States regarding the perception of business leaders, just 15 per cent of respondents rated leaders’ honesty and ethical standards as ‘high’ or ‘very high’.13 More than 75 per cent of people surveyed agree with the statement that the corporate moral compass is ‘pointing in the wrong direction’; 69 per cent say that executives rarely consider the public good in making decisions; and a whopping 94 per cent say that executives make decisions based primarily on advancing their own careers.14 Another recent survey of Wall Street workers by the law firm Labaton Sucharow shows that those opinions might not be far off the mark. Almost 25 per cent of finance professionals say that they would cheat to make US$10 million if they could get away with it. Moreover, 52 per cent believe that it is likely that their competitors have engaged in illegal or unethical activity.15 Managers and organisations engage in unethical behaviour for any number of reasons, such as personal ego, greed, or pressures to increase profits or appear successful. Yet managers carry a tremendous responsibility for setting the ethical climate in an organisation and can act as role models for ethical behaviour.16 EXHIBIT 4.2 details the findings from one study that narrowed the range of ethical behaviours down to four primary ways in which managers can act to promote a climate in which everyone behaves in an ethical and socially responsible way. Ethical managers display honesty and integrity, communicate and enforce ethical standards through their behaviour are fair in their decisions and the distribution of rewards, and show kindness and concern for others.17 In Australia, 2013 brought a Royal Commission into child (sexual) abuse, focusing on institutions such as religious organisations, in which children should have been safe from harm, but as it turns out, were often not. In the business world, a series of corporate scandals have destroyed the reputations of a number of large companies including AIG, Lehman Brothers, Enron, Bear Stearns, Countrywide and WorldCom. Managers carry a tremendous responsibility for setting the ethical climate in an organisation and can act as role models for others.18 Managers are responsible for seeing that resources are used to serve the interests of stakeholders, including shareholders, employees, customers and society. EXHIBIT 4.2 details various ways that organisations sometimes behave unethically towards customers, employees and other stakeholders.19 Unfortunately, in today’s environment, an overemphasis on pleasing shareholders may cause some managers to behave unethically towards customers, employees and the broader society. Managers are under enormous pressure to meet short-term earnings goals, and some even use accounting gimmicks or other techniques to show returns that meet market expectations rather than ones that reflect true performance.

EXHIBIT 4.1 Three domains of human action

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Moreover, most executive compensation plans include hefty stock-based incentives, a practice that encourages managers to do whatever will increase the share price, even if it hurts the company in the long run. When managers ‘fall prey to the siren call of shareholder value’, all other stakeholders may suffer.20 Executive compensation has become a hot-button issue, particularly in the United States.21 In 2011, the average pay of CEOs at large US-based corporations was 380 times what the average employee was paid. A study by the Economic Policy Institute found that between 1978 and 2011, the average worker’s annual pay grew 5.7 per cent, while average CEO pay increased a whopping 726.7 per cent in the United States, and ratios similar to these occur in most developed Western nations.22 The question of whether it is ethical for managers to rake in huge sums of money compared to other employees is of growing concern, and in general, the widespread ethical lapses of the past decade have put managers under increasing scrutiny. Towards customers

EXHIBIT 4.2 Examples of unethical and illegal organisational behaviour

False or deceptive sales practices Submitting misleading invoices Fabricating product quality data

Towards employees

Towards financiers

Discriminating against employees Creating a hostile work environment Violating health and safety rules

Towards suppliers Accepting favours or kickbacks Violating contract terms Paying without accurate records or invoices

Falsifying financial reports Breaching database controls Using confidential information

Towards society Violating environmental standards Exposing public to safety risks Violating international human rights

Source: Based on Muel Kaptein. (October 2008). Developing a Measure of Unethical Behavior in the Workplace: A Stakeholder Perspective. Journal of Management, 34:5, 978–1008.

THE BUSI NE SS CASE FOR ETH ICS A ND SOCI AL RE SPONSI BI LIT Y Naturally, the relationship of ethics and social responsibility to an organisation’s financial performance concerns both managers and management scholars and has generated a lively debate.23 Hundreds of studies have been undertaken to determine whether heightened ethical and social responsiveness increases or decreases a

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company’s financial performance. Studies have provided varying results, but they have generally found a positive relationship between ethical and socially responsible behaviour and a firm’s financial performance.24 For example, a recent study of the top 100 global corporations that have made a commitment to sustainability, weaving environmental and social concerns into all their decisions, had significantly higher sales growth, return on assets, profits, and cash flow from operations in at least some areas of the business.25 The philosophy of sustainability will be discussed later in this chapter. Another review of the financial performance of large US-based corporations considered ‘best corporate citizens’ found that they enjoy both superior reputations and superior financial performance.26 Although results from these studies are not proof, they do provide an indication that using resources for ethics and social responsibility does not hurt companies.27 Companies are also making an effort to measure the nonfinancial factors that create value. For example, researchers find that people prefer to work for companies that demonstrate a high level of ethics and social responsibility; thus, these organisations can attract and retain high-quality employees.28 Customers pay attention too. A study by Walker Research indicates that, price and quality being equal, two-thirds of customers say that they would switch brands to do business with a company that is ethical and socially responsible.29 Another series of experiments by Remi Trudel and June Cotte of the University of Western Ontario’s Ivey School of Business found that consumers were willing to pay slightly more for products they were told had been made using high ethical standards.30

R EMEMBE R THIS ◗◗ ◗◗

Managers face many pressures that can sometimes tempt them to engage in unethical behaviour.

◗◗

People may hold widely divergent views about the most ethically appropriate or inappropriate actions related to a situation.

◗◗ ◗◗

Just because managers aren’t breaking the law doesn’t necessarily mean they are being ethical.

◗◗ ◗◗

Managers sometimes need courage to stand up and do the right thing.

◗◗ ◗◗ ◗◗

Unethical managers seek to serve their own needs and interests at the expense of stakeholders.

Ethics is the code of moral principles and values that governs the behaviours of a person or group with respect to what is right or wrong.

An ethical issue is present in any situation when the actions of an individual or organisation may harm or benefit others.

Managers are ethically responsible for seeing that organisational resources are used to serve the interests of stakeholders, including shareholders, employees, customers and the broader society.

Confidence in business managers and leaders in all walks of life is at an all-time low. One hot-button ethical issue concerns excessive executive compensation.

4.2

ETHICAL DILEMMAS – WHAT WOULD YOU DO?

Being ethical is always about making decisions, and some issues are difficult to resolve. Because ethical standards are often not codified, disagreements and dilemmas about proper behaviour often occur. An ethical dilemma arises in a situation in which each alternative choice or behaviour is undesirable because of potentially harmful ethical consequences and right and wrong cannot always be clearly or crisply identified.31

ethical dilemma A situation that arises when all alternative choices or behaviours have been deemed undesirable because of potentially negative ethical consequences, making it difficult to distinguish right from wrong.

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The individual who must make an ethical choice in an organisation could be termed the moral agent.32 Here are some dilemmas that a manager in an organisation might face. Think about how you would handle each one.

1 Your small company has clear procedures for providing supplies to employees who choose to work from home, as well as a strict code of conduct specifying that any employee caught taking supplies without authorisation will be fired. At the end of a long, hard day, you notice Sarah, one of your best employees, putting printer paper, highlighters and notepads in her laptop bag. According to company policy, you are required to report her immediately to your superior, who is the only one who can authorise employees taking supplies. But your boss has gone for the day, and you know Sarah often works from home.33

2 As a sales manager for a major pharmaceuticals company, you’ve been asked to promote a new drug that costs $2500 per dose. You’ve read reports that say the drug is only one per cent more effective than an alternative drug that costs less than $625 per dose. The vice president of sales wants you to promote the $2500-per-dose drug aggressively. He reminds you that if you don’t, lives could be lost that might have been saved with that one per cent increase in the drug’s effectiveness.

3 You work at a large corporation that requires a criminal background check for all new customers, which takes approximately 24 hours from the time an order is placed. You have the opportunity to close a lucrative deal with a potential long-term customer if you agree to ship the products overnight, even though that means the required check will have to be done after the fact.34

4 On the train ride from your home in Geelong to your office in Melbourne, your peaceful morning routine is disturbed by neighbouring passengers carrying on a loud mobile business meeting. After trying to quiet them with cold stares, you eventually decide to just listen in. Within minutes, you realise they are discussing a client that your own firm has been courting. Furthermore, you soon have the time, phone number and pass code for a conference call the consultants are having with the client later that day. It isn’t your fault that they gave out that information in a public place, but you wonder what you should do with it.35 These kinds of dilemmas and issues fall squarely in the domain of ethics. How would you handle each of the above situations? Now consider the following hypothetical dilemma, which scientists have used to study human morality:36

◗◗ A runaway trolley is heading down the tracks towards five unsuspecting people. You’re standing near a switch that will divert the trolley onto a siding, but there is a single workman on the siding who cannot be warned in time to escape and almost certainly will be killed. Would you throw the switch?

◗◗ Now, what if the workman is standing on a bridge over the tracks and you have to push him off the bridge to stop the trolley with his body in order to save the five unsuspecting people? (Assume that his body is large enough to stop the trolley, and yours is not.) Would you push the man, even though he almost certainly will be killed? These dilemmas show how complex questions of ethics and morality can sometimes be. In Time magazine’s readers’ poll, 97 per cent of respondents said they could throw the switch (which would almost certainly lead to the death of the workman), but only 42 per cent said they could actually push the man to his death.37

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R EMEMBE R THIS ◗◗ ◗◗ ◗◗

Ethics is about making choices. Most managers encounter ethical dilemmas that are tough to resolve. An ethical dilemma is a situation in which all alternative choices or behaviours have potentially negative consequences. Right and wrong cannot be clearly distinguished.

4.3

CRITERIA FOR ETHICAL DECISION MAKING

Most ethical dilemmas involve a conflict between the needs of the part and the needs of the whole – the individual against the organisation or the organisation against society as a whole. For example, should a company install mandatory alcohol and drug testing for employees, which may benefit the organisation as a whole but reduce the individual freedom of employees? Or should products that fail to meet tough safety standards be exported to other countries where government standards are lower, benefiting the company but being potentially harmful to world citizens? Sometimes ethical decisions entail a conflict between two groups; for example, should the potential for local health problems resulting from a company’s effluent take precedence over the jobs it creates as the town’s leading employer? Managers faced with these kinds of tough ethical choices often benefit from a normative strategy – one based on norms and values – to guide their decision making. Normative ethics uses several approaches to describe values for guiding ethical decision making. Five approaches that are relevant to managers are the utilitarian approach, individualism approach, moral-rights approach, justice approach and practical approach.38

U T I L I TA R I A N A P P ROA C H The utilitarian approach, espoused by the nineteenth-century philosophers Jeremy Bentham and John Stuart Mill, holds that moral behaviour produces the greatest good for the greatest number. Under this approach, a decision maker is expected to consider the effect of each decision alternative on all parties and select the one that optimises the benefits for the greatest number of people. In the ‘trolley dilemma’ described earlier in this chapter, for instance, the utilitarian approach would hold that it would be moral to push one person to his death in order to save five. The utilitarian ethic is cited as the basis for the recent trend among companies to monitor employee use of the Internet and police personal habits such as alcohol and tobacco consumption, because such behaviour affects the entire workplace.39

utilitarian approach The ethical concept that moral behaviour produces the greatest good for the greatest number.

I N D I V I D UA L I S M A P P ROA C H The individualism approach contends that acts are moral when they promote the individual’s best long-term interests.40 In theory, with everyone pursuing self-direction, the greater good is ultimately served because people learn to accommodate each other in their own long-term interest. Individualism is believed to lead to honesty and integrity because that works best in the long run. Lying and cheating for immediate self-interest just causes business associates to lie and cheat in return. Thus, proponents say, individualism ultimately leads to behaviour towards others that fits standards of behaviour that people

individualism approach The ethical concept that acts are moral when they promote the individual’s best long-term interests, which ultimately leads to the greater good.

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want towards themselves.41 However, because individualism is easily misinterpreted to support immediate self-gain, it is not popular in the highly organised and group-oriented society of today.

M O R A L R I G H T S A P P ROA C H

justice approach The ethical concept that moral decisions must be based on standards of equity, fairness and impartiality. distributive justice The concept that different treatment of people should not be based on arbitrary characteristics. In the case of substantive differences, people should be treated differently in proportion to the differences among them. procedural justice The concept that rules should be clearly stated, and consistently and impartially enforced. compensatory justice The concept that individuals should be compensated for the cost of their injuries by the party responsible and also that individuals should not be held responsible for matters over which they have no control. practical approach Bases decisions on prevailing standards of the profession and larger society, taking the interests of all stakeholders into account.

Source: Shutterstock.com/Vasin Lee

moral rights approach The ethical concept that moral decisions are those that best maintain the rights of those people affected by them.

The moral rights approach asserts that human beings have fundamental rights and liberties that cannot be taken away by an individual’s decision. Thus, an ethically correct decision is one that best maintains the rights of those affected by it. To make ethical decisions, managers need to avoid interfering with the fundamental rights of others, such as the right to privacy, the right of free consent or the right to freedom of speech. Performing experimental treatments on unconscious trauma patients, for example, might be construed to violate the right to free consent. A decision to monitor employees’ non-work activities violates the right to privacy. The right of free speech would support whistleblowers who call attention to illegal or inappropriate actions within a company.

J U ST I C E A P P ROA C H The justice approach holds that moral decisions must be based on standards of equity, fairness and impartiality. Three types of justice are of concern to managers. Distributive justice requires that different treatment of people not be based on arbitrary characteristics. For example, men and women should not receive different salaries if they have the same qualifications and are performing the same job. Procedural justice requires that rules be administered fairly. Rules should be clearly stated and consistently and impartially enforced. Compensatory justice argues that individuals should be compensated for the cost of their injuries by the party responsible. The justice approach is closest to the thinking underlying the domain of law in EXHIBIT 4.1 because it assumes that justice is applied through rules and regulations. Managers are expected to define attributes on which different treatment of employees is acceptable.

P R AC T I C A L A P P ROA C H The approaches discussed so far presume to determine what is ‘right’ or good in a moral sense. However, as has been mentioned, ethical issues are frequently not clear-cut and there are disagreements over what is the ethical choice. The practical approach sidesteps debates about what is right, good or just, and instead bases decisions on prevailing standards of the profession and the larger society, taking the interests of all stakeholders into account.42 With the practical approach, a decision would be considered ethical if it is one that would be considered acceptable by the professional community, one that the manager would not hesitate to publicise on the evening news, and one that a person would typically feel comfortable explaining to family and friends. One American Secret Service agency director offered this practical advice to his staff in a recent memo: ‘You should always assume you are being watched when on an official assignment. Do not put yourself in a situation in your personal or professional life that would cause embarrassment to you, your family,

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or the Secret Service.’43 Using the practical approach, managers may combine elements of the utilitarian, moral rights and justice approaches in their thinking and decision making. For example, one expert on business ethics suggests managers can ask themselves the following five questions to help resolve ethical dilemmas.44 Note that these questions cover a variety of the approaches discussed above.

1 2 3 4 5

What’s in it for me? What decision would lead to the greatest good for the greatest number? What rules, policies or social norms apply? What are my obligations to others? What will be the long-term impact for myself and important stakeholders?

R EMEMBE R THIS ◗◗

Most ethical dilemmas involve a conflict between the interests of different groups or between the needs of the individual versus the needs of the organisation.

◗◗ ◗◗

Managers can use various approaches based on norms and values to help them make ethical decisions.

◗◗

The individualism approach suggests that actions are ethical when they promote the individual’s best long-term interests, because with everyone pursuing self-interest, the greater good is ultimately served.

◗◗

The individualism approach is not considered appropriate today because it is easily misused to support one’s personal gain at the expense of others.

◗◗

Some managers rely on a moral-rights approach, which holds that ethical decisions are those that best maintain the fundamental rights of the people affected by them.

◗◗

The justice approach says that ethical decisions must be based on standards of equity, fairness and impartiality.

◗◗ ◗◗ ◗◗

Distributive justice requires that different treatment of individuals not be based on arbitrary characteristics.

◗◗

Many managers also use the practical approach, which sidesteps debates about what is right, good or just, and bases decisions on prevailing standards of the profession and the larger society, taking the interests of all stakeholders into account.

The utilitarian approach to ethical decision making says that the ethical choice is the one that produces the greatest good for the greatest number.

Procedural justice holds that rules should be clearly stated and consistently and impartially enforced. Compensatory justice argues that individuals should be compensated for the cost of their injuries by the party responsible, and individuals should not be held responsible for matters over which they have no control.

4.4

THE INDIVIDUAL MANAGER AND ETHICAL CHOICES

A recent study found that organisational factors such as an unethical corporate culture and pressure from superiors and colleagues can induce employees to behave unethically. Moreover, when people experience organisational pressure to go against their sense of what is right, they typically become frustrated and emotionally exhausted.45 Yet there are also personal factors that influence a manager’s ability to make ethical decisions. Individuals bring specific personality and behavioural traits to the job. Personal needs,

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family influence, and religious background all shape a manager’s value system. Specific personality characteristics, such as ego strength, self-confidence, and a strong sense of independence, may enable managers to make more ethical choices despite outside pressures and personal risks. One important personal trait is the stage of moral development.46 A simplified version of one model of personal moral development is shown in EXHIBIT 4.3. At the preconventional level, individuals are concerned with external rewards and punishments and obey authority to avoid detrimental personal consequences. In an organisational context, this level may be associated with managers who use an autocratic or coercive leadership style, with employees oriented towards dependable accomplishment of specific tasks. At level two, called the conventional level, people learn to conform to the expectations of good behaviour as defined by colleagues, family, friends and society. Meeting social and interpersonal obligations is important. Workgroup collaboration is the preferred manner of accomplishing organisational goals, and managers use a leadership style that encourages interpersonal relationships and cooperation. At the postconventional, or principled level, individuals are guided by an internal set of values based on universal principles of justice and right and will even disobey rules or laws that violate these principles. Internal values become more important than the expectations of significant others. One example of the postconventional or principled approach was the lifeguard working at Florida’s Hallandale Beach in the United States, who was fired for leaving his assigned zone to help a drowning man. Tomas Lopez rushed to offer assistance when he saw a man struggling, even though his supervisor ordered him not to leave his zone and to call Emergency instead. ‘What he did was his own decision,’ said manager Susan Ellis. ‘He knew the rules.’ The company cited liability issues as the reason for the rules, and later offered Lopez his job back (he refused).47 When managers operate from this highest level of development, they use transformative or servant leadership, focusing on the needs of followers and encouraging others to think for themselves and to engage in higher levels of moral reasoning. Employees are empowered and given opportunities for constructive participation in governance of the organisation. The great majority of managers operate at level two, meaning their ethical thought and behaviour is greatly influenced by their superiors, colleagues and other significant people in the organisation or industry. A few have not advanced beyond level one. Only about 20 per cent of adults reach the level-three postconventional stage of moral development. People at level three are able to act in an independent, ethical manner regardless of expectations from others inside or outside the organisation. Managers at level three of moral development will make ethical decisions whatever the organisational consequences are for them.

MANAGEMENT IN PRACTICE CHALLENGING THE BOSS ON ETHICAL ISSUES Many of today’s top executives put emphasis on ethics in light of serious ethical lapses that tarnished the reputations and hurt the performance of previously respected and successful companies. Yet keeping an organisation in ethical line is an ongoing challenge, and it requires that people at all levels be willing to stand up for what they think is right. Challenging

the boss or other senior leaders on potentially unethical behaviours is particularly unnerving for most people. Here are some tips for talking to the boss about an ethically questionable decision or action. Following these guidelines can increase the odds that you’ll be heard and your opinions will be seriously considered.

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✚✚ Do your research. Marshal any facts and figures that support

✚✚ Take care how you suggest your alternative solution. You

your position on the issue at hand, and develop an alternative policy or course of action that you can suggest at the appropriate time. Prepare succinct answers to any questions you anticipate being asked about your plan.

can introduce your plan with phrases such as ‘Here’s another way to look at this’ or ‘What would you think about … ?’ Check for your superior’s reactions both by explicitly asking for feedback and by being sensitive to body language clues. Point out the potential negative consequences of implementing decisions that might be construed as unethical by customers, shareholders, suppliers or the public.

✚✚ Begin the meeting by giving your boss the floor. Make sure you really do understand what the decision or policy is and the reasons behind it. Ask open-ended questions, and listen actively, showing through both your responses and your body language that you’re seriously listening and trying to understand the other person’s position. In particular, seek out information about what the senior manager sees as the decision or policy’s benefits as well as any potential downsides. It’ll give you information you can use later to highlight how your plan can produce similar benefits while avoiding the potential disadvantages.

✚✚ Pay attention to your word choice and demeanour. No matter how strongly you feel about the matter, don’t rant and rave about it. You’re more likely to be heard if you remain calm, objective and professional. Try to disagree without making it personal. Avoid phrases such as ‘You’re wrong’, ‘You can’t’, ‘You should’ or ‘How could you?’ to prevent triggering the other person’s automatic defence mechanisms.

✚✚ Be patient – don’t demand a resolution on the spot. During your conversation, you may realise that your plan needs some work, or your boss might just need time to digest the information and opinions you’ve presented. It’s often a good idea to ask for a follow-up meeting. If the decision or action being considered is clearly unethical or potentially illegal, and this meeting doesn’t provide a quick resolution, you might need to take your concerns to higher levels, or even blow the whistle to someone outside the organisation who can make sure the organisation stays in line. However, most managers don’t want to take actions that will harm the organisation, its people or the community. In many cases, questionable ethical issues can be resolved by open and honest communication. That, however, requires that people have the courage – and develop the skills – to confront their superiors in a calm and rational way.

SOURCES: Daley, K. (April 2004). How to Disagree: Go Up Against Your Boss or a Senior Executive and Live to Tell the Tale. T&D; Moore, D. (12 November 2003). How to Disagree with Your Boss – and Keep Your Job. Toronto Star; How to Disagree with Your Boss. WikiHow, http://wiki.ehow.com/Disagree-With-Your-Boss; (23–29 October 1996). How to Confront Your Boss Constructively. The Buzz, http://www.hardatwork.com/Buzz/ten.html.

Level 3: Postconventional

Level 2: Conventional Lives up to expectations of others. Fulfils duties and obligations of social system. Upholds laws.

Level 1: Preconventional

Follows self-chosen principles of justice and right. Aware that people hold different values and seeks creative solutions to ethical dilemmas. Balances concern for individual with concern for common good.

Follows rules to avoid punishment. Acts in own interest. Obedience for its own sake.

Leadership style: Employee behaviour:

Autocratic/coercive

Guiding/encouraging, team oriented

Transforming, or servant leadership

Task accomplishment

Work group collaboration

Empowered employees, full participation

Sources: Based on L. Kohlberg. Moral Stages and Moralization: The Cognitive-Developmental Approach. In Moral Development and Behavior: Theory, Research, and Social Issues, ed. T. Lickona (New York: Holt, Rinehart, and Winston, 1976), pp. 31–53; and Jill W. Graham. (January 1995). Leadership, Moral Development and Citizenship Behavior. Business Ethics Quarterly, 5:1, 43–54.

EXHIBIT 4.3 Three levels of personal moral development

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G I V E R S V E R S U S TA K E R S When managers operate from a higher level of development, they may use a form of servant leadership, focusing on the needs of followers and encouraging others to think for themselves. Research has shown that people will work harder and more effectively for people who put others’ interests and needs above their own.48 Adam Grant, an organisational psychologist at the Wharton School of the University of Pennsylvania in the United States, has been observing and studying the differences between ‘givers’ and ‘takers’ since he was an undergraduate student, and he says that changes in society and organisations make self-sacrifice for the sake of a larger purpose an increasingly beneficial characteristic. In one study, Grant found that the single biggest predictor of a team’s effectiveness was the amount of help and support that members gave to one another. Grant says that, in the past, takers (people who put their own interests first) could climb to the top over the backs of givers, but that is changing as the nature of work has shifted. For example, Howard Lee, who was heading the South China office for Groupon, received a flood of applications for sales jobs. By searching social media, he could identify that some candidates had a pattern of self-serving behaviour. He quickly weeded those out and focused on the applicants who demonstrated a track record as givers.49 The shift toward admiring and rewarding givers over takers can bring significant positive changes within organisations. The simple categories of giver and taker help people understand how they might contribute to or detract from an organisation’s ethical culture.

MANAGEMENT IN PRACTICE GUIDELINES FOR ETHICAL DECISION MAKING If a 60 Minutes crew was waiting on your doorstep one morning, would you feel comfortable justifying your actions to the camera? One young manager, when confronted with ethical dilemmas, gives them the ‘60 Minutes test’. Others say they use such criteria as whether they would be proud to tell their parents or grandparents about their decision, or whether they could sleep well at night and face themselves in the mirror in the morning. Managers often rely on their own personal integrity in making ethical decisions. But knowing what to do is not always easy. As a future manager, you will surely face ethical dilemmas one day. The following guidelines will not tell you exactly what to do, but taken in the context of the text discussion, they will help you evaluate the situation more clearly by examining your own values and those of your organisation. The answers to these questions will force you to think hard about the social and ethical consequences of your behaviour.

✚✚ Is the problem or dilemma really what it appears to be? If you

✚✚ Is the action you are considering legal? Is it ethical? If you are not sure, find out.

✚✚ Do you understand the position of those who oppose the action you are considering? Is it reasonable?

✚✚ Who does the action benefit? Who does it harm? How much? For how long?

✚✚ Would you be willing to allow everyone to do what you are considering doing?

✚✚ Have you sought the opinion of others who are knowledgeable on the subject and who would be objective?

✚✚ Would your action be embarrassing to you if it were made known to your family, friends, co-workers or superiors? There are no correct answers to these questions in an absolute sense. Yet, if you determine that an action is potentially harmful to someone or would be embarrassing to you, or if you do not know the ethical or legal consequences, these guidelines will help you clarify whether the action is socially responsible.

are not sure, find out. SOURCE: Pagano, A. M. and Verdin, J. A. (1988), The External Environment of Business, Chap. 5. New York: Wiley.

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Globalisation makes ethical issues even more complicated for today’s managers.50 For example, although tolerance for bribery is waning, bribes are still considered a normal part of doing business in many foreign countries. Transparency International, an international organisation that monitors corruption, publishes a report ranking leading export countries based on the propensity of international businesses to offer bribes. EXHIBIT 4.4 shows results of the organisation’s report. Country scores have improved from the 2006 data, when international businesses based in countries such as Russia and China were found to be using bribes ‘on an exceptional and intolerable scale’, with Russia scoring 5.2 and China 4.9 in the 2006 report.51 By 2011 Russia and China had maintained their improved scores but their ranking decreased (from 22 to 28 and 21 to 27 respectively) as other countries such as India, Brazil and South Korea made more significant improvements.52 It is not always easy to resolve international issues. There are, however, increasing calls for the development of global standards for ethical business conduct, which may help managers negotiate the difficult terrain of international ethics. Scores range from 0 to 10. The higher the score for the country, the lower the likelihood of companies from this country to engage in bribery when doing business abroad. RANK

SCORE

RANK

SCORE

1 Netherlands

8.8

11 Spain

8.0

1 Switzerland

8.8

13 South Korea

7.9

3 Belgium

8.7

14 Brazil

7.7

4 Germany

8.6

15 Hong Kong

7.6

4 Japan

8.6

15 Italy

7.6

6 Australia

8.5

15 Malaysia

7.6

6 Canada

8.5

15 South Africa

7.6

8 Singapore

8.3

19 Taiwan

7.5

8 United Kingdom

8.3

19 India

7.5

10 United States

8.1

19 Turkey

7.5

11 France

8.0

22 Saudi Arabia

7.4

Source: Reprinted from Bribe Payers Index. Copyright 2011. Transparency International: the global coalition against corruption. Used with permission. For more information, visit http://www.transparency.org.

R EMEMBE R THIS ◗◗

Organisational pressures can influence people to go against their own sense of right or wrong, and the resulting stress can lead to mental exhaustion and burnout.

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Personality characteristics, family influence, religious background and other factors influence a manager’s ability to make ethical choices.

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One important factor is whether a manager is at a preconventional, conventional or postconventional level of moral development.

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Most managers operate at a conventional level, conforming to standards of behaviour expected by society.

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Only about 20 per cent of adults reach the postconventional level and are able to act in an independent, ethical manner regardless of the expectations of others.

EXHIBIT 4.4 The Transparency International Bribe Payers Index, 2011

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4.5

corporate social responsibility (CSR) The obligation of organisation management to make decisions and take actions that will enhance the welfare and interests of society as well as the organisation.

See Chapter 2 to review how the organisation’s environment consists of several sectors in both the task and the general environment.

stakeholder Any group within or outside the organisation that has a stake in the organisation’s performance. stakeholder mapping Provides a systematic way to identify the expectations, needs, importance and relative power of various stakeholders.

WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

Now let us turn to the issue of social responsibility. In one sense, the concept of corporate social responsibility, like ethics, is easy to understand – it means distinguishing right from wrong, and doing right. It means being a good corporate citizen. The formal definition of corporate social responsibility (sometimes referred to as CSR) is management’s obligation to make choices and take actions that will contribute to the welfare and interests of society as well as the organisation.53 As straightforward as this definition seems, corporate social responsibility can be a difficult concept to grasp, because different people have different beliefs about which actions improve society’s welfare.54 To make matters worse, corporate social responsibility covers a range of issues, many of which are ambiguous with respect to right and wrong. For example, if a bank deposits the money from a trust fund into a low-interest account for 90 days, from which it makes a substantial profit, has it been unethical? How about rival companies engaging in intense competition, such as that between Telstra and Optus, or Qantas and Virgin Australia? Is it socially responsible for a stronger company to drive a weaker one into bankruptcy? Or consider US-based companies such as A. H. Robins, maker of the Dalkon shield; Manville Corporation, maker of asbestos; General Motors; or Texaco, the oil company. All declared bankruptcy – which is perfectly legal – to avoid mounting financial obligations to suppliers, unions or competitors. James Hardie is a long-standing Australian company that tried to use restructuring tactics to avoid, and then to severely limit, payouts to asbestos victims who contracted serious and often fatal diseases from James Hardie products. Most Australians would argue that these actions were unethical. These examples pose moral, legal and economic questions that make socially responsible behaviour hard to define. An organisation’s environmental impact also must be taken into consideration. Managers must ultimately decide, on behalf of their company, their position and actions in terms of sustainable development. They must consider their strategy, cultures, values and motivations for their actions on sustainable development issues that impact on the environment, society and the company’s bottom line.

O RGA N I S AT I O NA L STA K E H O L D E R S One reason for the difficulty in understanding corporate social responsibility is that managers must confront the question, ‘responsibility to whom?’ Recall from Chapter 2 that the organisation’s environment consists of several sectors in both the task and the general environment. From a social responsibility perspective, enlightened organisations view the internal and external environment as a variety of stakeholders. A stakeholder is any group or person within or outside the organisation that has some type of investment or interest in the organisation’s performance and is affected by the organisation’s actions (employees, customers, shareholders and so forth). Each stakeholder has a different criterion of responsiveness because it has a different interest in the organisation.55 There is growing interest in a technique called stakeholder mapping, which basically provides a systematic way to identify the expectations, needs, importance and relative power of various stakeholders, which may change over time.56 Stakeholder mapping helps managers identify or prioritise the key stakeholders related to a specific issue or project. For instance, as outlined in the following case study, Gap Inc., struggling to cope with the turmoil created after the company was targeted by protesters for using contractors that polluted the environment and engaged in child labour practices, decided to use mapping to identify key stakeholders with which the firm could develop deeper, transparent relationships.

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INNOVATIVE WAY GAP INC. In 2011, Bangladeshi and international labour groups put forth a detailed safety proposal, which entailed the establishment of independent inspections of garment factories. This plan, which was rejected by major European and North American-based companies, including Gap, called for inspectors to have the power to close unsafe factories. In 2013, an eight-storey commercial building named Rana Plaza, in the Savar Upazila of Dhaka in Bangladesh collapsed. The collapse is considered to be the deadliest garment-factory accident in history, as well as the deadliest accidental structural failure in modern human history, killing 1129 and injuring more than 2500 people. On 10 July 2013, a group of 17 major North Americanbased retailers, including Walmart, Gap, Target and Macy’s, announced a plan to improve factory safety in Bangladesh, drawing immediate criticism from labour groups who complained that it was less stringent than an accord reached among European companies. Unlike the accord joined mainly by European retailers, the plan lacks legally binding commitments to pay for those improvements. The Alliance for Bangladesh Worker Safety (ABWS) is a group of 28 major global retailers formed to develop and launch the Bangladesh Worker Safety Initiative, a binding, fiveyear undertaking with the intent of improving safety in Bangladeshi ready-made garment (RMG) factories following the Rana Plaza building collapse. One of the ABWS’s board of directors is Dana Veeder, Associate General Counsel, Legal, Gap. A similar crisis related to child labour and unsafe conditions ten years earlier had resulted in global protests that raged for months and tarnished Gap’s reputation, damaged employee morale, and devastated the firm’s

performance. In contrast, the 2013 Rana Plaza building collapse story died down quickly, possibly because Gap wasn’t the sole company involved in the incident. What happened in those ten years to make a difference? It’s certainly not that the public was less outraged by the stories of poor children being harmed by dangerous chemicals while playing near the river or scavenging through refuse. The result was different this time, because Gap managers had carefully cultivated open relationships with labour groups, human rights organisations, trade unions, nongovernmental organisations and other stakeholders that enabled them to swing into action immediately and take specific steps to solve the problem. In the past, managers’ approach would have been to deny responsibility and blame the subcontractor. Because of the relationships Gap had developed with numerous stakeholder groups, the company had the support of labour and human rights organisations, which praised managers’ commitment and actions. Gap embarked on the process of engaging with key stakeholders because even though the company had made a strong commitment to social and environmental responsibility since 1992, the previous approach wasn’t working. Multimillion-dollar efforts at solving ethical problems in the supply chain had failed. So, managers started by drawing a stakeholder map that listed as many stakeholders as possible, then ranked them by their importance. Starting with mapping gave managers a way to focus their efforts and join with the most influential stakeholders to improve labour practices. It was a long and difficult journey, but the results have been well worth it. The company has received awards and public recognition as a leader in ethics and social responsibility.

Sources: Butler, S. (23 June 2013). Bangladeshi factory deaths spark action among high-street clothing chains. The Guardian, https://www.theguardian. com/world/2013/jun/23/rana-plaza-factory-disaster-bangladesh-primark (accessed 3 November 2016). Greenhouse, S. and Clifford, S. (10 July 2013). U.S. retailers offer plan for safety at factories. The New York Times, http://www.nytimes.com/2013/07/11/business/global/us-retailers-offer-safety-planfor-bangladeshi-factories.html?_r=0 (accessed 3 November 2016). Mustafa, S. (10 May 2013). Bangladesh building collapse: How many still missing?, http://www.bbc.com/news/world-asia-22483914 (accessed 3 November 2016). Stangler, C. (10 March 2015). Bangladesh garment factories: Alliance For Bangladesh Worker Safety report claims ‘transformation’ in working conditions. International Business Times, http://www.ibtimes.com/bangladeshgarment-factories-alliance-bangladesh-worker-safety-report-claims-1842774 (accessed 3 November 2016). Alliance For Bangladesh Worker Safety (2016). Board of Directors. http://www.bangladeshworkersafety.org/en/who-we-are/leadership/board-of-directors (accessed 3 November 2016). Gap Inc. (2013). 2013 Annual Report. http://www.gapinc.com/content/attachments/gapinc/GPS_AR13.pdf (accessed 3 November 2016). Smith, N., Craig, A. S. and Erez, L. (22 June 2011). How Gap Inc. engaged with its stakeholders. MIT Sloan Management Rewiew, http://sloanreview.mit.edu/article/how-gap-inc-engagedwith-its-stakeholders/ (accessed 3 November 2016).

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The global supply chain is a source of ongoing challenges for managers today. As Dan Rees, former director of the Ethical Trading Initiative (ETI) said, ‘It is not a crime to find child labour in your supply chain. What is important is what you do about it when you find out.’ By using stakeholder mapping and cultivating open, trust-based relationships with key stakeholders, Gap has ensured that managers are able to do the right thing swiftly, sometimes even turning crises into opportunities.57 EXHIBIT 4.5 illustrates important stakeholders for a large organisation such as Gap. Most organisations are influenced by a similar variety of stakeholder groups. Investors and shareholders, employees, customers and suppliers are considered primary stakeholders, without whom the organisation cannot survive. Investors, shareholders and suppliers’ interests are served by managerial efficiency – that is, use of resources to achieve profits. Employees expect work satisfaction, pay and good supervision. Customers are concerned with decisions about the quality, safety and availability of goods and services. When any primary stakeholder group becomes seriously dissatisfied, the organisation’s viability is threatened.58 Other important stakeholders are the government and the community, which have become increasingly important in recent years. Most corporations exist only under the proper charter and licences and operate within the limits of safety laws, environmental protection requirements, antitrust regulations, antibribery legislation, and other laws and regulations in the government sector. Government regulations

EXHIBIT 4.5 Major stakeholders relevant to Gap Inc.

Regulatory authorities

Customers

Communities Stockholders

Non-governmental organisations (NGOs)

Employees

Gap Inc. Creditors Suppliers

Trade unions Governments Human rights organisations Partners

Special interest groups

Sources: Based on information in D. Wheeler, B. Colbert and R. E. Freeman. (Spring 2003). Focusing on Value: Reconciling Corporate Social Responsibility, Sustainability, and a Stakeholder Approach in a Networked World. Journal of General Management, 28:3, 1–28; J. E. Post, L. E. Preston and S. Sachs. (Fall 2002). Managing the Extended Enterprise: The New Stakeholder View. California Management Review, 45:1, 6–28; and N. Craig Smith, Sean Ansett and Lior Erex. (Summer 2011). How Gap Inc. Engaged with Its Stakeholders. MIT Sloan Management Review, 52:4, 69–76.

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affecting business are increasing because of recent events. The community includes local governments, the natural environment and the quality of life provided for residents. For many companies such as Gap, trade unions and human rights organisations are highly important stakeholders. Special interest groups may include trade associations, political action committees, professional associations and consumerists. One special interest group of particular importance today is the green movement. EXHIBIT 4.6 shows the stakeholders for an automobile manufacturer. In Australia, the United States and Asia, investment funds that limit themselves to investing in socially responsible companies have often done very well. Qualifying for such funds is becoming important for companies of all sizes so as not to reduce or restrict those who invest in them. In Australia, companies that are considered advanced in their corporate social responsibility include BHP Billiton, even though it mines uranium, and Southcorp (now part of Foster’s Group), a major supplier of alcoholic beverages. Socially responsible investing is not simply a matter of condemning companies as irresponsible because of the industry they participate in, but rather of measuring how they participate – their policies and practices within those industries.59 In the United States and Europe, screened investment funds, which avoid investing in companies that produce goods or services in tobacco, weaponry, gambling and similar industries, grew to have assets worth over US$4 trillion in 2011. By the end of 2012 the United States had US$13.6 trillion invested into environmental, social and governance considered funds, with 21.8 per cent of total assets invested responsibly. Europe is the largest region of screened investments with an incredible

OPEC

Community

Trade associations

Creditors

Domestic customers International customers

Environmentalists Specialinterest groups

Domestic competition Major car manufacturer

Courts

Media

Investors

Shareholders

Foreign governments Owners State/federal government

International competitors

Employees/ unions Foreign suppliers

socially responsible investment Socially responsible investment involves investing in companies which, in the judgement of the investor, do not harm people or the environment through their activities.

EXHIBIT 4.6 Stakeholders relevant to a car manufacturer

Environment

Domestic suppliers

Source: Based on Organizational Dynamics by Nancy C. Roberts and Paula J. King. Copyright 1989 by Elsevier Science & Technology Journals. Reproduced with permission of Elsevier Science & Technology Journals in the format Textbook via Copyright Clearance Center.

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65 per cent of assets managed.60 Investors have also discovered that socially responsible funds often perform better than the overall investment market. In Australia, responsible investment is now becoming mainstream. Responsible investment considers risk factors beyond purely financial risk when making investment decisions. Considerations might include the company culture or a measure of good corporate governance and ethics, health and safety records or carbon emissions, for example. Australian funds managed in responsible investment portfolios at the end of 2012 totalled AU$152 billion. The level of dollars invested increased an astounding 30 per cent from 2011 to 2012 and represents approximately 16 per cent of the total assets under management in Australia. Moreover, ethical and responsible investment funds returned on average 3 per cent more to investors than their rival, mainstream Australian share funds. This outperformance is consistent across global markets.61

AUSTRALIAN MANAGER PROFILE Source: Courtesy Susan Mizrahi

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SUSA N MIZR AHI, HUMA N RIGHTS A DVOCATE

‘The difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems,’ said Mahatma Gandhi, in one of his many statements that has inspired me both professionally and personally. Unlike many of my peers, I did not have a specific career goal in mind when finishing high school or even my undergraduate degree. My study of Public Relations at university led me to a position in the Victorian public service where I was privileged to work closely with Ministers on communications and high-profile events, but I felt I was capable of doing more. To the surprise of colleagues at the time, I exchanged my promising career for a backpack, and flew to Asia to work as a tour leader for an adventure travel company. In South-East and East Asia, I saw poverty and injustice first-hand, and sought to use and further develop my skills in political strategy and communications to address these. I volunteered with the Tibetan refugee community in northern India, which was eyeopening and rewarding, and then undertook post-graduate study in International Relations. These experiences opened up opportunities to work in Washington, DC, and across Europe, where I lobbied the United States Government, United Nations and European Union on the Sino–Tibet issue. Today, I manage a team of capable and motivated social justice campaigners at Australia’s largest aid organisation, World Vision Australia. To build a career and life that is impactful, exciting and satisfying, in my opinion you must ensure that your work and management style complements – and, ideally, advances –

your personal values and interests. Every day, individuals are appointed as managers, but it is a challenge to be a great manager every day. While the non-profit sector is full of passionate, knowledgeable and committed individuals, I have seen that too few non-profit managers listen, evaluate and respond effectively to their teams. This is an ongoing management challenge that the sector must overcome to help solve the world’s problems. World Vision Australia operates in over 60 countries, striving to improve human outcomes on matters such as:

➜➜ Community development. World Vision works within communities and across geographical areas to help individuals and groups improve the well-being of children and overcome poverty. This is done through long-term projects aimed at empowering communities to sustainably manage their own development.

➜➜ Humanitarian and emergency relief. When disasters strike, World Vision has staff and supplies positioned around the globe to respond to immediate needs like food, water, shelter and safe spaces for children. World Vision also works with communities to recover from disasters and reduce the impacts of future events through planning and capacity building.

➜➜ Tackling injustice through policy change and advocacy. We engage governments, institutions, donors, communities and the public to address the underlying issues that perpetuate poverty. World Vision aims to empower communities to speak up for their

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rights and influence change, both locally and globally.

➜➜ Engaging Australia. World Vision seeks to educate Australians about the causes of poverty and to challenge them to be involved in its alleviation, including by making

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financial and non-financial contributions to our work. With this ambitious and important program, World Vision Australia clearly needs to allocate its limited resources wisely and carefully, and this requires dedicated and capable managers. SOURCE: Contributed by Susan Mizrahi.

R EMEMBE R THIS ◗◗

Corporate social responsibility is the obligation of organisation management to make decisions and take actions that will enhance the welfare and interests of society as well as the organisation.

◗◗

Stakeholders are any group, inside or outside the organisation, who have a stake in the organisation’s activities.

◗◗

Managers can map their stakeholders’ interests as part of their planning processes.

4.6

THE GREEN MOVEMENT

The year was 2004, and Jeffrey Immelt, CEO of General Electric (GE), had just presented a plan for a ‘green’ business initiative to 35 top GE executives. They voted it down. But Immelt, in a rare move, overruled them, and Ecomagination was born. Today, GE’s Ecomagination is one of the world’s most widely recognised corporate green programs. It has not only cut GE’s greenhouse gas emissions by 30 per cent but also added innovative products that are generating billions of dollars in annual revenue.62 Going green has become a new business imperative, driven by shifting social attitudes, new governmental policies, climate change and information technology (IT) that quickly spreads any news of a corporation’s negative impact on the environment. A recent survey found that 90 per cent of Americans agree that there are important ‘green’ issues and problems, and 82 per cent think that businesses should implement environmentally friendly practices.63

S U STA I NA B I L I T Y A N D T H E T R I P L E BO T T O M L I N E As is discussed in the end-of-chapter sustainability examples throughout this textbook, many corporations have embraced the idea of sustainable development. Sustainability refers to economic development that generates wealth and meets the needs of the current generation while preserving the environment and society so future generations can meet their needs as well.64 With a philosophy of sustainability, managers weave environmental and social concerns into every strategic decision so that financial goals are achieved in a way that is socially and environmentally responsible. Managers in organisations that embrace sustainability measure their success in terms of a triple bottom line. The term triple bottom line refers to measuring an organisation’s social performance, its

sustainability Economic development that generates wealth and meets the needs of the current population while preserving the environment for the needs of future generations. triple bottom line Triple bottom line performance of an organisation involves measuring the three types of outcomes of an organisation’s activities, namely financial, environmental and community/social.

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environmental performance and its financial performance. This is sometimes called the three Ps – ‘people’, ‘planet’ and ‘profit’.65 The people part of the triple bottom line looks at how socially responsible the organisation is in terms of fair labour practices, diversity, supplier relationships, treatment of employees, contributions to the community and so forth. The planet aspect measures the organisation’s commitment to environmental sustainability. The third P, of course, looks at the organisation’s profit, the financial bottom line. Based on the principle that what you measure is what you strive for and achieve, using a triple bottom line approach to measuring performance ensures that managers take social and environmental factors into account, rather than blindly pursuing profit no matter the cost to society and the natural environment.

CASE STUDY

Source: Getty Images/Michael Springer

A LEADERSHIP DILEMMA AT TIMBERLAND

Jeffrey Swartz of Timberland

In the early 1990s, Jeffrey Swartz, the then chief operating officer of Timberland, and son, nephew, and grandson of the founders of the company, began transforming Timberland into a company known as much for philanthropy as for its boots. But Swartz found himself in a quandary when one of the company’s bankers implied that the focus on philanthropy was hurting the company and its stakeholders. Swartz’s transformation began when City Year, a non-profit agency involved in community projects such as violence prevention and AIDS education, asked for boots for its workers. Swartz convinced other Timberland executives to answer the call. Over time, Timberland provided free boots and uniforms for about 10 000 people. Visiting some of the community projects, Swartz was deeply moved by what volunteers were accomplishing. ‘I saw what real power was that day,’ Swartz recalls. ‘I didn’t realise how hungry I was for that kind of purpose.’ Timberland began shutting down operations one day each year so the company’s thousands of employees could get paid to take part in a variety of company-sponsored philanthropic projects – building homeless shelters or cleaning up playgrounds. The company also started giving employees 16 hours of paid leave annually to volunteer at charities of their choosing. But the emphasis on corporate social responsibility doesn’t come cheap. The all-day event alone costs about US$2 million a year in lost sales, project expenses and wages for employees. When Timberland’s profits were soaring, that seemed fine, but then the company hit a rough patch. It reported its first operating loss since going public, laid off some employees and shipped

some work overseas to cut costs. One of Timberland’s bankers bluntly told Swartz that the company needed to ‘cut this civic stuff out and get back to business’. Swartz wondered if he was right. Maybe managers were failing the organisation and its stakeholders by ploughing too many resources into philanthropic activities. Timberland decided to continue its commitment to social causes. In fact, later the same year when Swartz was faced with this dilemma, the company doubled the number of hours it underwrote for employees to do community service. Timberland, through its Path of Service employee volunteering program, offers employees up to 40 paid hours per year to service in their communities. In 2014, the program had racked up more than 1 000 000 hours since its launch. In order to help employees take advantage of their volunteer service hours, every year Timberland organises two annual global service days: Earth Day in April and ‘Serv-a-palooza’ in autumn. Both events unite the company and its partners to address pressing environmental and social needs. Projects have included planting trees in Thailand, restoring a wildlife reserve near London and helping build homes for families in need in the United States. Timberland’s commitment to discretionary responsibility has contributed to exceptional loyalty among many employees, because people feel good about the work they do. This resulted in Timberland featuring in Fortune magazine’s survey of the 100 Best Companies to Work For. However, some people felt that Timberland should have cut out the charity activities to focus on meeting its economic

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responsibilities when the company hit difficult times, which resulted in the company being sold to the VF Corporation in 2011. In addition, some felt that the company was not meeting its ethical responsibilities by spending money on community service when it was laying people off and shipping jobs overseas. ‘Some employees asked, ‘“Doesn’t charity begin at home?”‘ Swartz said. He believed, however,

that cutting out community service would damage morale and lower commitment without solving the financial problems. Fortunately, Timberland rebounded from its difficulties and continued to grow. However, managers will continue to face challenges concerning how to best meet their responsibilities to all stakeholders.

Sources: City Year, ‘Jeffery Swartz,’ https://www.cityyear.org/node/6885 (accessed 3 November 2016); VF Corporation (2016). ‘Volunteerism,’ http://sustainability.vfc.com/people/communities/volunteerism/ (accessed 3 November 2016); De La Merced, M. (13 June 2011). ‘VF Corporation to buy Timberland,’ The New York Times, http://dealbook.nytimes.com/2011/06/13/vf-corporation-to-buy-timberland/ (accessed 3 November 2016); Wahba, P. (13 October 2015). ‘Re-tooled: How Timberland got back on its feet,’ http://fortune.com/2015/10/13/retooled-timberland/ (accessed 3 November 2016); Pereora, J. (9 September 2003). ‘Doing good and doing well,’ The Wall Street Journal, http://www.wsj.com/articles/SB106306120285247900 (accessed 3 November 2016).

R EMEMBE R THIS ◗◗

Corporate social responsibility refers to the obligation of organisational managers to make choices and take actions that will enhance the welfare and interests of society, as well as the organisation.

◗◗

Research has shown that the values of an organisation or department strongly influence employee behaviour and decision making.

◗◗ ◗◗

Culture can be examined to see the kinds of ethical signals given to employees.

◗◗

The term stakeholder refers to any group or person within or outside the organisation that has some type of investment or interest in the organisation’s performance.

◗◗

Shareholders, employees, customers and suppliers are considered primary stakeholders, without whom the organisation could not survive.

◗◗ ◗◗

Government, the community and special interest groups are also important stakeholders.

◗◗

Socially responsible investment involves investing in companies, which, in the judgement of the investor, do not harm people or the environment through their activities.

◗◗ ◗◗

The green movement is a special interest group of particular importance today.

◗◗

Companies that embrace sustainability measure performance in terms of financial performance, social performance and environmental performance, referred to as the triple bottom line.

◗◗

A survey in the United States found that 90 per cent of people asked agreed that there are important ‘green’ issues and problems, and 82 per cent think that businesses should implement environmentally friendly practices.

Different stakeholders have different interests in the organisation and thus different criteria for social responsiveness.

Stakeholder mapping provides a systematic way to identify the expectations, needs, importance and relative power of various stakeholders.

Sustainability refers to economic development that generates wealth and meets the needs of the current population while preserving society and the environment for the needs of future generations.

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4.7

EVALUATING CORPORATE SOCIAL RESPONSIBILITY

A model for evaluating corporate social performance is presented in EXHIBIT 4.7. The model indicates that total corporate social responsibility can be divided into four primary criteria – economic, legal, ethical and discretionary responsibilities.66 These four criteria fit together to form the whole of a company’s social responsiveness. The first criterion of social responsibility is economic responsibility. The business institution is, above all, the basic economic unit of society. Its responsibility is to produce the goods and services that society wants and to maximise profits for its owners and shareholders. Economic responsibility, carried to the extreme, is called the profit-maximising view, advocated by Nobel economist Milton Friedman. This view argues that the corporation should be operated on a profit-oriented basis, with its sole mission to increase its profits so long as it stays within the rules of the game.67 The purely profit-maximising view is no longer

discretionary responsibility Organisational responsibility that is voluntary and guided by the organisation’s desire to make social contributions not mandated by economics, law or ethics.

considered an adequate criterion of social performance in Australia, the United States and Europe. This approach means that economic gain is the only responsibility and can lead companies into trouble, as events in the mortgage and finance industries have clearly shown. Legal responsibility defines what society deems as important with respect to appropriate corporate behaviour.68 That is, businesses are expected to fulfil their economic goals within the framework of legal requirements imposed by local town councils, state legislators and federal regulatory agencies. Examples of illegal acts by corporations include corporate fraud, intentionally selling defective goods, performing unnecessary repairs or procedures, deliberately misleading consumers and billing clients for work not done. Organisations that knowingly break the law are poor performers in this category. Walmart, for example, has been embroiled in a bribery scandal amid allegations that the company’s largest foreign subsidiary, Walmart de Mexico, paid bribes to local officials and covered up the wrongdoing to corner every edge of the market in that country. Investigators found ‘reasonable suspicion’ that Walmart managers had violated United States and Mexican laws and called for a broader inquiry into the allegations.69 Ethical responsibility includes behaviours that are not necessarily codified into law and may not serve the corporation’s direct economic interests. As described earlier in this chapter, to be ethical, organisation decision makers should act with equity, fairness and impartiality, respect the rights of individuals, and provide different treatment of individuals only when relevant to the organisation’s goals and tasks.70 Unethical behaviour occurs when decisions enable an individual or company to gain at the expense of other people or society as a whole. Managers at Volkswagen, for example, seriously damaged the company’s reputation after the United States Environmental Protection Agency (EPA) found that Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate certain emissions controls only during regulatory emissions testing. Volkswagen initially insisted that the discrepanices were mere technical glitches before acknowledging that they had manipulated the vehicle emission tests.71 Discretionary responsibility is purely voluntary and is guided by a company’s desire to make social contributions not mandated by economics, law or ethics. Discretionary activities include generous philanthropic contributions that offer no payback to the company and are not expected. For example, in 2012, MasterCard and the United Nations World Food Programme (WFP) entered into a partnership to deliver innovative solutions to meet the needs of the world’s hungry and vulnerable populations. The partnership links MasterCard’s expertise in technology and payment systems to WFP’s expertise in delivering food assistance and strengthens its delivery of ‘digital food’ that comes in the form of e-cards so refugees and other vulnerable people can better access the food they need from local markets.

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‘At MasterCard we believe that technology has the power to unlock innovation in food aid delivery, enabling a greater impact and helping achieve the vision that a world beyond cash builds a world beyond hunger,’ said Ann Cairns, MasterCard’s President of International Markets. ‘We are committed to working with the United Nations World Food Programme to end world hunger.’72 In 2016, Gap Inc., described earlier, celebrated their 10-year anniversary of becoming the founding apparel partner of (RED), raising US$10 million for the Global Fund since 2006. Product Red is a licensed brand that seeks to engage the private sector in raising awareness and funds to help eliminate HIV/ AIDS in Africa. Other examples include annual telethons held in Australia, including the Channel Seven Perth Telethon, which has raised more than AU$200 million in 2015 for the Princess Margaret Hospital for Children and the Telethon Kids Institute; NBN Newcastle’s live 24-hour telethons which have raised millions of dollars for local charities; the Good Friday Appeal, broadcast each year on Good Friday on Channel 7 Melbourne, which has raised more than AU$310 million for equipment, research, and education to support the work of The Royal Children’s Hospital in Melbourne; and Channel Nine Sydney’s Gold Week Telethon, which has raised over AU$24.5 million for the Sydney Children’s Hospital. Discretionary responsibility is the highest criterion of social responsibility because it goes beyond societal expectations to contribute to the community’s welfare.73

ilit sib on sp so te ora To tal

Legal responsibility

y ilit

sib

co rp

on

sp

l re

Ethical responsibility Be ethical. Do what is right. Avoid harm.

cia

so

cia

te

ora

orp

Contribute to the community; be a good corporate citizen.

lc

l re

Discretionary responsibility

ta To

y

EXHIBIT 4.7 Criteria of corporate social performance

Obey the law.

Economic responsibility Be profitable.

Sources: Based on Archie B. Carroll. A Three-Dimensional Conceptual Model of Corporate Performance. (1979). Academy of Management Review, 4, 499; A. B. Carroll. (July–August 1991). The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Corporate Stakeholders. Business Horizons, 34, 42; and Mark S. Schwartz and Archie B. Carroll. (2003). Corporate Social Responsibility: A Three-Domain Approach. Business Ethics Quarterly, 13:4, 503–30.

Discretionary responsibility is related to organisational virtuousness, which means that an organisation pursues a positive human impact, moral goodness, and unconditional society betterment for its own sake.74 For example, MAS Holdings, a family-owned apparel manufacturer in Sri Lanka, has made a commitment to contribute to economic development while also improving the lives of employees, their families, and the community.

organisational virtuousness A principle in which an organisation pursues a positive human impact, moral goodness, and unconditional society betterment for its own sake.

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In an era when clothing manufacturers are in the news every week for another ethical, labour relations, or safety violation, MAS Holdings is making news for its owners’ belief that businesses have the power to make a positive difference in the lives of employees and the community. MAS, the largest supplier for Victoria’s Secret, provides transportation to and from work, free meals and medical care to all of its 45 000 employees in 28 plants. More than 90 per cent of its workers are women, so MAS builds factories in rural areas with easy access so that women can work close to their homes and families.75

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The model for evaluating a company’s social performance uses four criteria – economic, legal, ethical and discretionary.

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Companies may get into trouble when they use economic criteria as their only measure of responsibility, sometimes called the profit-maximising view.

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Discretionary responsibility is purely voluntary and is guided by the organisation’s desire to make social contributions not mandated by economics, laws or ethics.

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Corporations that sent generous donations to Japan following the devastating earthquake and tsunami were practising discretionary responsibility.

MANAGING COMPANY ETHICS AND SOCIAL RESPONSIBILITY 4.8

An expert on the topic of ethics has said, ‘Management is responsible for creating and sustaining conditions in which people are likely to behave themselves.’76 EXHIBIT 4.8 illustrates ways in which managers create and support an ethical organisation. One of the most important steps managers can take is to practise ethical leadership. Ethical leadership means that managers are honest and trustworthy, fair in their dealings with employees and customers, and behave ethically in both their personal and professional lives. In response to recent ethical violations and critics of management education saying MBA stands for ‘Me Before Anyone’,77 some business schools and students are taking a fresh look at how future managers are trained. Changing how future managers are trained could be one key to solving the ethics deficit pervading organisations. Managers and first-line supervisors are important role models for ethical behaviour, and they strongly influence the ethical climate in the organisation by adhering to high ethical standards in their own behaviour and decisions. Moreover, managers are proactive in influencing employees to embody and reflect ethical values.78 This chapter’s management in practice describes an approach that some leading companies are taking to strengthen managers’ ethical and socially responsible underpinning. Managers can also implement organisational mechanisms to help employees and the company stay on an ethical footing. Some of the primary ones are codes of ethics, ethical structures and measures to protect whistleblowers.

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EXHIBIT 4.8 Building an ethical organisation

The ethical organisation

Ethical leadership Codes of ethics Ethics committee Chief ethics officer Ethics hotlines Ethics training Support for whistleblowers

Source: Adapted from Linda Klebe Treviño, Laura Pincus Hartman and Michael Brown. (Summer 2000). Moral Person and Moral Manager. California Management Review, 42:4, 128–42.

INNOVATIVE WAY CULTIVATING A SERVICE MINDSET Some of today’s best companies are taking a new approach to developing managers – global service programs that place employees with non-profit organisations or small businesses, often in developing countries, to provide free or low-cost technical and managerial assistance. In line with the growing emphasis on sustainability and the triple bottom line, organisations want managers who have a service and sustainability mindset rather than an attitude of getting all they can for themselves. In one survey, 88 per cent of top executives said it was important that future managers have the mindset and skills to address sustainability issues.

✚✚ Global service programs benefit everyone. Global service programs have been described as a ‘win-win-win’. It might seem obvious that the non-profit organisations served by these programs benefit, but the companies investing in them and the employees participating in them gain just as much. IBM credits its program with generating about US$5 billion in new business. Companies gain greater knowledge of emerging markets, develop social capital and goodwill, and get more wellrounded managers with the service and sustainability mindset needed in today’s world. Participants benefit in numerous ways, including increased self-awareness, new skills and greater cross-cultural understanding.

✚✚ Many managers view these opportunities as plum assignments. Laura Benetti of Dow Corning spent four weeks working nine-hour days with rural women in India, helping them learn how to price and market the garments they made. She and nine colleagues slept in a lodge with limited access to hot water and electricity. ‘It gives more meaning to your career,’ said Benetti. Participants in global service also appreciate the opportunity to expand their understanding of global issues. ‘We all know about things like poverty in Africa and corruption and bribery . . .,’ said one IBM participant who spent time in Nigeria. ‘This kind of experience really brings . . . things to life, you really feel it.’

✚✚ How widespread is the trend? In early 2012, at least 27 Fortune 500 companies, including PepsiCo, IBM, FedEx, Dow Corning and Pfizer, had some type of global service program, up from only six in 2006. Since 2008, IBM has sent more than 1400 employees to work with projects such as reforming Kenya’s postal system or developing ecotourism in Tanzania. Pfizer’s program lends employees to nongovernmental organisations (NGOs) to address health care needs in Asia and Africa. The Accenture Development Partnership has been involved in more

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than 200 projects in 55 countries, where Accenture’s professionals work at 50 per cent pay for up to six

months with organisations such as UNICEF and Freedom from Hunger.

Sources: Based on Philip Mirvis, Kevin Thompson and John Gohring. (Spring 2012). Toward Next-Generation Leadership: Global Service. Leader to Leader, 20–6; Matthew Gitsham. (2012). Experiential Learning for Leadership and Sustainability at IBM and HSBC. Journal of Management Development, 31:3, 298–307; and Anne Tergesen. (9 January 2012). Doing Good to Do Well. The Wall Street Journal, B7.

COD E O F E T H I C S code of ethics A formal statement of the organisation’s values regarding ethics and social issues.

A code of ethics is a formal statement of the company’s values concerning ethics and social issues – it communicates to employees what the company stands for. Codes of ethics tend to exist in two types: principle-based statements and policy-based statements. Principle-based statements are designed to affect corporate culture; they define fundamental values and contain general language about company responsibilities, quality of products and treatment of employees. Policy-based statements generally outline the procedures to be used in specific ethical situations. These situations include marketing practices, conflicts of interest, observance of laws, proprietary information, political gifts and equal opportunity. General statements of principle are often called corporate credos. One good example is Johnson & Johnson’s ‘The Credo’. Available in 36 languages, The Credo has guided Johnson & Johnson’s managers for more than 60 years in making decisions that honour the company’s responsibilities to employees, customers, the community and shareholders. Another example is Google’s Code of Conduct. Portions of the Google code are shown in the following innovative way.

INNOVATIVE WAY GOOGLE Google is one of the best-known companies in the world, and managers take seriously its reputation for both technological superiority and a commitment to ethics and social responsibility. Google’s Code of Conduct starts with these words – ‘Don’t be evil’. Googlers generally apply those words to how we serve our users. But ‘Don’t be evil’ is much more than that. Google uses a well-designed Code of Conduct to put the motto ‘Don’t be evil’ into practice. The code is divided into seven sections, with each subdivided into sections that describe specific values, policies and expectations. The code also clearly states that employees will be protected if they call attention to ethical violations or misconduct. Here are some excerpts from Google’s code:

Serve our users Our users value Google not only because we deliver great products and services, but because we hold ourselves to a

higher standard in how we treat users and operate more generally.

Respect each other We are committed to a supportive work environment, where employees have the opportunity to reach their fullest potential. Each Googler is expected to do his or her utmost to create a respectful workplace culture that is free of harassment, intimidation, bias and unlawful discrimination of any kind.

Preserve confidentiality We get a lot of press attention around our innovations and our culture, and that’s usually fine. However, company information that leaks prematurely into the press or to competitors can hurt our product launches, eliminate our competitive advantage and prove costly in other ways.

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Ensure financial integrity and responsibility

Conclusion

Financial integrity and fiscal responsibility are core aspects of corporate professionalism. . . .The money we spend on behalf of Google is not ours; it’s the company’s and, ultimately, our shareholders’.

Google aspires to be a different kind of company. It’s impossible to spell out every possible ethical scenario we might face. Instead, we rely on one another’s good judgement to uphold a high standard of integrity for ourselves and our company. And remember. . . don’t be evil, and if you see something that you think isn’t right – speak up!

Obey the law Google takes its responsibilities to comply with laws and regulations very seriously and each of us is expected to comply with applicable legal requirements and prohibitions.

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Source: (25 April 2012). Code of Conduct. Google Investor Relations, http://investor.google.com/corporate/code-of-conduct.html (accessed 28 September 2012).

Having a strong code of conduct or code of ethics doesn’t guarantee that companies won’t get into ethical trouble or be challenged by stakeholders on ethical issues. Codes of ethics in and of themselves do little to influence and ensure ethical behaviour among employees and managers.79 However, they are one key element of the organisation’s ethical framework. Codes of ethics state the values or behaviours expected and those that will not be tolerated. When top management supports and enforces these codes, including rewards for compliance and discipline for violation, ethics codes can boost a company’s ethical climate.80

E T H I C A L ST R U C T U R E S Ethical structures represent the various systems, positions and programs that a company can undertake to encourage and support ethical behaviour.81 An ethics committee is a group of executives (and sometimes lower-level employees as well) appointed to oversee company ethics. The committee provides rulings on questionable ethical issues and assumes responsibility for disciplining wrongdoers. Motorola’s Ethics Compliance Committee, for instance, is charged with interpreting, clarifying and communicating the company’s code of ethics and with adjudicating suspected code violations. Many companies set up ethics offices with full-time staff to ensure that ethical standards are an integral part of company operations. These offices are headed by a chief ethics officer, sometimes called a chief ethics and compliance officer, a company executive who oversees all aspects of ethics and legal compliance, including establishing and broadly communicating standards, ethics training, dealing with exceptions or problems, and advising senior managers in the ethical and compliance aspects of decisions.82 The title chief ethics officer was almost unheard of a decade ago, but highly publicised ethical and legal problems in recent years have sparked a growing demand for these ethics specialists. The Ethics and Compliance Officer Association, a trade group, reports that membership soared 70 per cent, to more than 1260 companies, in the five years following the collapse of Enron due to financial wrongdoing.83 Most ethics offices also work as counselling centres to help employees resolve difficult ethical issues. A toll-free confidential ethics hotline allows employees to report questionable behaviour, as well as seek guidance concerning ethical dilemmas.

ethics committee A group of executives assigned to oversee the organisation’s ethics by ruling on questionable issues and disciplining violators. chief ethics officer A manager who oversees all aspects of ethics and legal compliance.

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W H I ST L E B L OW I NG Employee disclosure of illegal, unethical or illegitimate practices on the employer’s part is called whistleblowing.84 No organisation can rely exclusively on codes of conduct and ethical structures to prevent all unethical behaviour. Holding organisations accountable depends to some degree on individuals who are willing to speak up if they detect illegal, dangerous or unethical activities. Whistleblowers often report wrongdoing to outsiders, such as regulatory agencies, politicians or newspaper reporters. Some firms have instituted innovative programs and confidential hotlines to encourage and support internal whistleblowing. For this practice to be an effective ethical safeguard, however, companies must view whistleblowing as a benefit to the company and make dedicated efforts to encourage and protect whistleblowers.85

TAKE A MOMENT Strive to be an ethical leader by adhering to high standards in your personal and business behaviour. As a new manager, use tools such as codes of ethics, ethics training programs and ethics officers to promote ethical behaviour in your unit and help people resolve ethical dilemmas. Treasure whistleblowers who have the courage to point out wrongdoing, and set up organisational systems to nurture and protect them.

CASE STUDY A CRISIS TO MILK The Mengniu Dairy in China was riding a wave. Producing some 10 000 tonnes of milk per day, it was not in control of its supply chain or its demand side operations, meaning that it did not own cows, nor did it control distribution of its milk, but essentially operated dairies. Growth was phenomenal when marketing coups meant that China’s first astronauts drank Mengniu milk on their flight, and the TV show that Mengniu sponsored, Super Girl, also became a big hit. Sales growth and the brand moved ahead faster than quality control in its supply chain. When the whole industry crashed in September 2008, Mengniu was also brought to its corporate knees. From contamination of milk thought to be by downstream distributors, hundreds of thousands of babies were poisoned, with six babies dying across the region. As a result, sales fell away completely. CEO Yang Wenjun played the classic crisis management moves, starting with a massive recall and offering full support to customers and staff. Even though milk wasn’t selling, he continued to buy milk from farmers during the crisis, to keep them afloat. At great expense, he invested in high-quality equipment and supply chain controls, restoring consumer confidence, albeit slowly. Eliminating middleman distributors is expected to eliminate the risk of

Source: Getty Images/VGC/Chen Jian

whistleblowing Disclosure by an employee of illegal, immoral or illegitimate practices by the organisation.

future contamination, and these investments are expected to lead to sales not only being restored, but significantly increased in the next few years. The company is diversifying into other dairy products, such as yoghurt, and at one of its plants, a large entry sign says ‘It takes you 20 years to set up a good reputation and five minutes to destroy it’. Arising from the crisis, this company has invested and set itself up to be milking its markets for many years to come. Source: Epstein, G. (17 September 2010), Golden Cow. Forbes Asia, 108–11.

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Managers are role models. One of the most important ways that managers create ethical and socially responsible organisations is by practising ethical leadership.

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A code of ethics is a formal statement of the organisation’s values regarding ethics and social issues.

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Some organisations have ethics offices headed by a chief ethics officer, a manager who oversees all aspects of ethics and legal compliance.

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Managers who want ethical organisations support whistleblowing, the disclosure by employees of unethical, illegitimate or illegal practices by the organisation.

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Companies that are ethical and socially responsible perform as well as – often even better than – those that are not socially responsible.

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One study found that sustainable companies have significantly higher sales growth, and return on assets and profits than companies that are not run on a philosophy of sustainability.

An ethics committee is a group of executives (and sometimes lower level employees as well) charged with overseeing company ethics by ruling on questionable issues and disciplining violators.

MANAGERIAL ETHICS AND SUSTAINABLE DEVELOPMENT IN AUSTRALIA 4.9

In a review of managerial and business ethics in Australia and New Zealand, J. Milton-Smith pointed out the mixed record of ethical standards.86 He asserted that the Royal Commissions that have been held in every state of Australia have identified that ‘in the 1980s, many senior people in Australian business and government were caught up in a culture of greed, opportunism and abuse of power’. There was ‘exposure and imprisonment of prominent politicians and corporate leaders’. Milton-Smith points to major ethical problems in companies such as BHP Billiton, CSR and Coles, with similar problems in most governments. Research at the St James Ethics Centre in Sydney has shown that the most pressing ethical issues facing executives in Australia are, in order of importance:

◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗

employment conflicts of interest environmental issues sexual harassment workplace safety employee privacy conflicts between company ethics and foreign business practices security of company records affirmative action employee health screening inappropriate gifts to corporate personnel unauthorised payments to foreign officials balancing work and family commitments.

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Many industries are becoming steeped in ethical challenges and problems, including tobacco, timber, alcohol, gambling, uranium, weapons and fossil fuels (coal and oil). The Australian community is becoming increasingly vocal about issues of false advertising, exploitation of children, and exploitation of workers in low-wage situations. New forces are gaining power, such as those of shareholders who are watching over the actions of organisations with ever-increasing vigilance. The Australian media is also vigilant in watching both business and government actions, and actively reporting any indiscretion, however small. Many organisations and professional associations have published standards of ethical behaviour to which employees or members are expected to conform. These include the legal, accounting, engineering and medical professional bodies.

O RGA N I S AT I O NA L S U STA I NA B L E D E V E L O P M E N T Almost every business magazine and newspaper exhorts managers to become active in sustainable development. In most industries, sustainable development efforts have proceeded in fits and starts. Many initiatives, some expensive, have not lasted nor provided any benefits. Success has at best been mixed, from spectacularly useful through to a complete waste of effort and resources. The lack of clarity in terms of what a firm should do is holding many executives and their businesses back from a substantial engagement in sustainable development practices. However, the set of practices and potential outcomes are indeed not a fad when they are done well. Companies which are leading in this area of activity have found ways to simultaneously improve all their three areas of output, namely their economic/financial output of wealth creation, their ‘environmental footprint’ output and their social output, meaning their impact on the communities in which they operate and beyond. They have found ways of adapting their practices and innovating which have not involved tradeoffs or compromises, but rather have achieved ‘win-win’ outcomes for a range of their stakeholders. Sustainable development practices are defined (after World Commission on Economic Development, 1987):87 Sustainable development practices manage technology and social organisation to make balanced and equitable progress on economic, environmental and social needs so that meeting these needs in the present does not compromise the ability of future generations to meet their own needs. The scope of the economic, environmental and social needs addressed by sustainable development practices is described in the Sustainability Reporting Guidelines 2002 published by the Global Reporting Initiative. Doing business has become a lot more complex in the last 30 years. A major aspect of this is the attainment of approval, cooperation and satisfaction of a range of stakeholders, including customers, suppliers, owners, employees, financiers and regulators. These groups are demanding a broader set of performance outcomes than just profit. In the past, it has been possible to be anything from reactive and minimalist in dealing with these requirements through to proactive, strategic and therefore ahead of the pack. From a practical perspective, businesses and their executives can and increasingly must make concrete decisions, other than ‘do nothing’, about why, what, when, how and how much they should engage in sustainable development.

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The ‘profile’ and importance of sustainable development has increased such that many companies now refer to their stance on sustainable development in their annual reports, or indeed specially publish a separate report on it. Leading organisations such as Westpac and BHP Billiton have paid great attention to their policies and strategies on sustainable development, in which they run their businesses to achieve a high level of ‘sustainability’ and openly measure and report these activities (see http://www.bhpbilliton.com/society/report and https://www.westpac.com.au/about-westpac/ sustainability/). More generally, many national and international systems of measuring and acknowledging the extent of progress made by organisations have been created. An example in Australia is the Banksia Awards (http://www.banksiafdn.com). These awards are in various categories, and are aimed at recognising and promoting their ‘sustainable development’ approach to business and management. Winners of the major Banksia Award have included the Torres Strait Regional Authority (2013 Banksia Gold Award) and Target 100 – Meat and Livestock Australia in 2012. Other winners have included Ferguson Plarre Bakehouses (2009 Gold Award winner), the World Wildlife Foundation, Westpac and Visy.88 Other specialised categories of these awards are in education, Indigenous activities, land and biodiversity, water, agriculture/food, transport, clean technology, leadership of sustainability and other important concerns. In short, the positive message for managers is that organisations must now take into full consideration a broad set of stakeholder requirements. For those who do this effectively, major advantages are available.

T H E ‘ W H Y ’ O F S U STA I NA B L E D E V E L O P M E N T Businesses should work to limit the downside and expose the upside of their strategic opportunities by including sustainable development practices for consideration in their business practices choices. They can substantially assist in delivering a complete strategy and satisfying a variety of stakeholders at a higher level than would otherwise be the case. Indeed, advanced companies are proactive and innovative in leading stakeholder expectations and creating new and different forms of value for all players. The motivation need not be altruism, voluntarism and so on. Rather, it is a deep-seated set of principles that guides the organisation to develop its interdependence with its stakeholders, and grows through successive implementation of sustainable development practices. This guiding set of principles is a ‘sustainability orientation’, comprising breadth of vision, stakeholder empowerment and being progressive, as outlined below. The sustainability orientation of a company helps business leaders make the connection between their sustainable development practices and pursuit of the distinctive character and strategic advantage of their business.

BREAD TH O F V ISIO N Although some leading companies in this domain are large and some are small, all are big-picture thinkers – in other words, they view the business in its broadest context and appreciate the needs, rights and interests of an extended array of stakeholders. This stakeholder approach goes far beyond a response model. Leading companies value highly the respect of their stakeholders and understand that they need to earn a community leadership position by establishing a reputation for trust and integrity that endures in the long term. Companies view this role as providing the opportunity for business to strive for performance beyond compliance, with the aim of generating sustainable futures for both the business and its stakeholders.

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STA KEHO LDER EM P O W E R ME NT Stakeholder empowerment is clearly much deeper than engaging in transactional relationships even if these are long term. Stakeholder empowerment is perhaps the ‘newest’ practice area of the sustainability orientation of leading companies. It describes businesses’ active and consistent efforts to build, lengthen and strengthen relationships with their stakeholders. Where stakeholder empowerment differs from more traditional approaches to stakeholder relations is in the profound degree to which power and influence become shared between the two parties. It is this sharing of power that underpins the shared future described by the principle ‘breadth of vision’ and is the objective of stakeholder empowerment.

BEING P ROGRESSIV E In keeping with their long-term vision and enthusiasm for change and new opportunities, the leading companies we studied also shared a commitment to progress through models such as excellence, best practice and high performance. How businesses operationalise the ‘being progressive’ principle depends on their business strategy. For companies like Eli Lilly, Multiplex and OneHarvest/Vegco, innovation is core to their competitiveness; whereas for companies like Blackmores, VicSuper and BHP Billiton, other forms of competitive advantage are supported by quality, service and reliability. These are all ‘being progressive’ practices that are chosen at the operational level to complement the strategy of the business.

T H E ‘ W H AT ’ O F S U STA I NA B L E D E V E L O P M E N T Given this sustainability orientation, sustainable development practices are a subset of business practices, engaged in to achieve sound strategy and performance outcomes. Every firm has a unique business strategy. In essence, three generic strategic requirements can be pursued, namely:

◗◗ stakeholder support ◗◗ efficiency ◗◗ market edge. These are critical to sustainable development.

STA KEHO LDER SUP P O RT This refers to all the stakeholders in the business. Their support as shareholders and debt-holders may be increased by: an improved organisational risk profile; recognition by socially responsible investment indices; or improved communication. Employee support may be increased not only through programs directly related to their employment such as training and wage negotiation, but also by support programs such as child care and health and fitness provisions, and further by involvement in philanthropic programs such as charitable donations from wages matched by the company, special leave for charity work and so on. The support of suppliers may be increased through evidence of mutuality or partnering in the supply chain, whereby the company promotes, supports and brokers their efforts to improve efficiency or standards and agrees to share the benefits.

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Customer support may be increased by efforts that recognise their needs and preferences such as environmentally friendly products, health information and product security and quality control. Finally, the support of regulators may be increased by evidence of responsible and consistent adherence to required performance and reporting, support for international relations such as inter-country aid programs, and support for local programs such as community liaison committees and customer training and support.

EFFICIE NC Y This refers to the range of sustainable development practices that makes a direct or indirect contribution to the company’s financial performance. Waste minimisation is an example of a practice that generates efficiency gains through reduced costs of raw materials, and reduced costs of treatment, storage, handling and disposal of wastes. Similar benefits apply to practices that reduce energy or water consumption and reduce greenhouse gas emissions. Areas of practice that are less commonly associated with efficiency gains, but which do have the potential to generate them, are multi-skilling and other forms of workforce training and support, and life-cycle analysis of products, whereby the costs of product maintenance and disposal are internalised to the business rather than being shifted to consumers and governments. Plastic bag bans and levies are a simple example of this kind of initiative, although much more complex versions are being developed in industries such as the information industry.

MARKET EDGE This describes those practices that contribute to the company’s market opportunities in terms of new markets, market share and profit opportunity. Research and development, innovation and supply chain improvements are all examples of practices that can have a sustainable development component and that can open up new markets for a company or assist it to be more responsive to existing ones. Practices that contribute to the reputation of the company or brand can also increase its market edge. These practices may also contribute to the strategies of stakeholder support and efficiency mentioned earlier, but the company’s market orientation is the driving force for their adoption.

TAKE A MOMENT What will your position be in terms of sustainable development practices, as a manager? Do you have a personal ‘sustainability orientation’? What actions will that lead to in your managerial life?

T H E ‘ W H E N ’ O F S U STA I NA B L E D E V E L O P M E N T Businesses derive long-term success from sustainable development practices that they are well placed to broker and benefit from. Specifically, sustainable development practices give businesses a greater opportunity for long-term success when they are:

◗◗ strategically congruent with the business – specifically, by contributing to the business strategic requirements of stakeholder support, efficiency and market edge

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◗◗ deep practices that achieve genuine improvements in sustainable development outcomes, rather than superficial tick-a-box efforts

◗◗ mature, leading-edge approaches that offer the best available value proposition for the business on the scale from comply through to transform

◗◗ well-integrated with other business practices, thus promoting efficiency and effectiveness in implementation.

R EMEMBE R THIS

SUSTAINABLE DEVELOPMENT TAKING MANAGERIAL ACTION ON SUSTAINABLE DEVELOPMENT

◗◗ ◗◗

Australian organisations face a wide range of ethical challenges.

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Sustainability involves economic development that generates wealth and meets the needs of the current population while preserving the environment for the needs of future generations.

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Australian companies have increased the attention that they are paying to the environmental and social bottom lines of their organisations.

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In Australia, many challenges exist in the domain of managerial ethics, such as conflict of interest.

Australian stakeholders are increasingly requiring higher standards of ethical and responsible behaviour from managers than ever before.

It is not possible to specify one single formula that connects sustainable development practices to business success. Further, there is no definitive set of sustainable development practices, nor is there a single persuasive argument or motivation for embarking on them. However, it is possible to recognise the high-level framework for sustainable development that is common to advanced companies. From our observations, companies that are successful: 1. review, recognise and acknowledge the company’s sustainability orientation as it develops as an integral part of the business strategy and culture 2. canvass their specific sustainable development issues and business activities for opportunities to make beneficial changes (implement sustainable development practices) 3. analyse the potential for these sustainable development practices to contribute to one or more of three strategic business requirements, namely stakeholder support, efficiency and market edge 4. choose, develop and implement their unique set of sustainable development practices 5. measure progress, adapt, review and extend their sustainable development practices within an evolving business environment, strategy, culture and business practice set. In short, companies can make the most of their sustainable development practices, not simply by reacting to a single stimulus like managing compliance or protecting their reputation. Rather, a stronger argument for sustainable development practices rests in the creation of business advantage and innovation.

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RESPONSE TO THE MANAGEMENT CHALLENGE

MONSANTO’S ETHICAL CHALLENGES In light of the stakeholder concerns about genetically modified food issues outlined in the chapter-opening management challenge, Monsanto CEO Hendrik Verfaillie offered an apology to some stakeholders at a Farm Journal Conference in Washington, DC, saying that Monsanto ‘was so blinded by its enthusiasm for this great new technology that it missed the

concerns the technology raised for many people’. Verfaillie also announced a five-part pledge that aims to restore positive stakeholder relationships. Each of the five commitments requires an ongoing dialogue between Monsanto managers and various stakeholder constituencies. The company paid US$1.5 million to settle the Securities and Exchange Commission (SEC) charges and voluntarily cooperated with regulatory investigators. Monsanto managers understood the importance of effectively managing critical stakeholder relationships.

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Monsanto has published a pledge to stakeholders and measures itself against this pledge: we want to make the world a better place for future generations. As an agricultural company, Monsanto can do this best by providing value through the products and systems we offer to farmers. With the growth of modern agricultural practices and crops that generate ever increasing yields, we are helping farmers around the world to create a better future for human beings, the environment, and local economies. Monsanto’s long term vision and sustainability strategy is that by 2030, Monsanto globally commits to help farmers produce more and conserve more by:

◗◗ developing improved seeds and traits that help farmers double yields from 2000 levels for corn, canola, soybeans and cotton, with a US$10 million grant also pledged to improve wheat and rice yields globally

◗◗ conserving resources through developing seeds and traits that use one-third fewer key resources per unit of output to grow crops while working to lessen habitat loss and improve water quality

◗◗ helping improve the lives of all farmers who use our products, including an additional five million people in resource-poor farm families by 2020. And specifically in Australia, support the long-term viability of rural communities for future generations. Sources: Wheeler, D., Colbert, B. and Freeman, R. E. (Spring 2003). Focusing on Value: Reconciling Corporate Social Responsibility, Sustainability, and a Stakeholder Approach in a Networked World. Journal of General Management, 28:3, 1–28; Post, J. E., Preston, L. E. and Sachs, S. (Fall 2002). Managing the Extended Enterprise: The New Stakeholder. California Management Review, 45:1, 6–28.; Fritsch, P. and Mapes, T. (5 April 2005). Seed Money; In Indonesia, a Tangle of Bribes Creates Trouble for Monsanto. The Wall Street Journal; Monsanto website, http://www. monsanto.com.au/sustainable_agriculture/default.asp,http://www.monsanto.com. au/who_we_are/our_pledge.asp.

DISCUSSION QUESTIONS 1 Is it reasonable to expect that managers can measure their social and environmental performance on the same level as they measure financial performance with a triple bottom line? Discuss. 2 In September 2013, Tokyo Electric Power Company (Tepco) reported highly contaminated water leaking from a storage tank at the Fukushima nuclear power plant crippled in the March 2011 earthquake and tsunami. From what you know of the ongoing Fukushima disaster, discuss the various stakeholder groups that Tepco should respond to in order to handle this latest crisis. 3 Imagine yourself in a situation of being encouraged by colleagues to inflate your expense account. What factors do you think would influence your decision? 4 Is it socially responsible for organisations to undertake political activity or join with others in a trade association to influence the government? Discuss. 5 Managers at some banks and mortgage companies have argued that providing subprime mortgages was based on their desire to give poor people a chance to participate in the dream of home

ownership. What is your opinion of this explanation in terms of ethics and social responsibility? 6 A noted business executive once said, ‘A company’s first obligation is to be profitable. Unprofitable enterprises can’t afford to be socially responsible’. Discuss why you agree or disagree with this statement. 7 Do you believe that it is ethical for organisational managers to try to get access to and scrutinise the Facebook pages of employees or job applicants? Discuss. 8 Which do you think would be more effective for shaping longterm ethical behaviour in an organisation, a written code of ethics combined with ethics training or strong ethical leadership? Which would have more impact on you? Why? 9 The technique of stakeholder mapping lets managers classify which stakeholders they consider more important and will invest more time in to satisfy. Is it appropriate for management to define some stakeholders as more important than others? Should all stakeholders be considered equal?

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10 Many people think cheating is more common today than it was a decade ago. Do you think cheating is more common, or does it just seem so? Why?

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their own. Why might this happen? Do you believe being more of a ‘giver’ than a ‘taker’ will translate into greater career success for these managers? Discuss.

11 This chapter described studies that show that people work harder and better for managers who put the interests of others above

ETHICAL CHALLENGE

WHAT IS RIGHT?

It is often hard for a manager to determine what is ‘right’ and even more difficult to put ethical behaviour into practice. A manager’s ethical orientation often brings him or her into conflict with people, policies, customers or bosses. Consider the following dilemmas. How would you handle them? 1 A well-liked member of your staff with an excellent record confides to you that he has acquired immune deficiency syndrome (AIDS). Although his illness has not affected his performance, you are concerned about his future health and about the reactions of his co-workers. You: a tell him to keep you informed about his health and say nothing to his co-workers b arrange for him to transfer to an area of the organisation where he can work alone c hold a staff meeting to inform his co-workers and ask them how they feel about his continued presence on your team d consult your human resources officer on how to proceed. 2 During a reorganisation, you are told to reduce staff in the department you manage. After analysing staffing requirements, you realise the job would be a lot easier if two professionals, who are both over age 60, would retire. You: a say nothing and determine lay-offs based purely on performance and length of service b schedule a meeting with both employees and ask if they would consider early retirement c schedule a meeting with all staff and ask if anyone is interested in severance or early retirement d lay off the older workers. 3 One of your colleagues has recently experienced two personal tragedies – her husband filed for divorce and her mother died. Although you feel genuine sympathy for her, her work is suffering.

A report you completed, based on inaccurate data she provided, has been criticised by management. Your manager asks you for an explanation. You: a apologise for the inaccuracies and correct the data b tell your manager that the data supplied by your colleague was the source of the problem c say your colleague has a problem and needs support d tell your manager that because of your work load, you did not have time to check the figures in the report. 4 Your firm recently hired a new manager who is at the same level you are. You do not like the man personally and consider him a rival professionally. You run into a friend who knows your rival well. You discover this man did not attend Sydney University, as he stated on his résumé, and that he in fact has not graduated from any institution. You know his supposed university background was instrumental in getting him hired. You: a expose the lie to your superiors b without naming names, consult your human resources officer on how to proceed c say nothing – the company obviously failed to check him out, and the lie probably will surface on its own d confront the man with the information and let him decide what to do. 5 During a changeover in the accounting department, you discover your company has been routinely overcharging members of the public for services provided to them. Your superiors say repayment of charges would wreak havoc on company profits. Your bosses say the problem will never come to light and they will take steps to correct the problem so it never happens again. You: a make the matter public, anonymously or otherwise b say nothing – it is now in the hands of the bosses

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c work with the bosses on a plan to recognise the company’s error and set up a schedule of rebates that would not unduly penalise the company. 6 In this morning’s mail, you received plans and samples for a promising new product from a competitor’s disgruntled employee. You: a throw the plans away b send the samples to your research department for analysis c notify your competitor about what is going on d call the police.

A D D I T I O NA L QU E S T I O N S 1 Use the guidelines described in Management in practice, ‘guidelines for ethical decision making’ to determine the appropriate behaviour in these cases. Do you have all the information you need to make an ethical decision? How would family or friends react to each alternative if you were in these situations? 2 Which approach to ethical decision making – utilitarian, individualism, justice or moral rights – seems most appropriate for handling these situations?

SOURCES: Game developed by Nelson, K. (Spring 1990). Board Games. Owen Manager, 14–16; Dreilinger, C. and Rice, D. (December 1991). Office Ethics. Working Woman, 35–9; Kelly, K. and Weber, J. (20 May 1991). When a Rival’s Trade Secret Crosses Your Desk. BusinessWeek, 48.

GROUP CHALLENGE

ETHICS AND BUSINESS COSTS

Your discussion group is the leadership team of a company called Aussie Furniture Imports, which imports lounge and dining suites from China and Vietnam and sells them to Australian retailers. Your biggest customer has recently sent you a letter of demand requiring that you provide them with documentary evidence that all the furniture you sell them comes from factories that apply high standards of ethics, workplace health and safety, and environmental performance. This is a noble ideal, but it costs extra to do these things, and those foreign

CASE FOR CRITICAL ANALYSIS

suppliers would not bear those costs. So you are stuck in the middle between a customer who is holding to high ideals and suppliers who will not comply. Switching suppliers will lead to higher costs and cut your profitability to the bone. What policy will you adopt? Generate some alternative responses to your customer’s demand and evaluate these, before making a decision. (This exercise is based closely on a real situation, one that is becoming increasingly common in Australian businesses.)

TOO MUCH INTELLIGENCE?

The rapid growth of InPace Solutions occurred in no small part because of sales manager Ken Bodine and the skills of the savvy young sales team he had assembled. Bodine prided himself on finding and hiring top graduates from two major business schools in the state. In addition to the top salaries offered by InPace, the graduates were attracted by Bodine’s energy, innovative thinking and can-do attitude. He was the embodiment of InPace culture – moving fast and ahead of the knowledge curve in high-tech. InPace’s sales force consistently stunned the competition with their high performance level. Among other things, InPace had the reputation for aggressive business intelligence. Competitors found both amusing and frustrating the company’s ability to outmanoeuvre others and capture accounts. Bodine enjoyed the air of mystery surrounding the

InPace organisation. Awareness that some competitor sat on the verge of a big sale always stirred Bodine’s passion for sales and ignited his desire to ‘one-up these guys’ and grab the sale out from under them. ‘If this was a poker game,’ one board member mused, ‘ InPace would win every hand. It’s like Bodine as well as his staff possess the uncanny ability to know the cards your company is holding. He keeps a straight face, a low profile throughout the game, and then suddenly he lays his cards on the table and you’re sunk. Here at InPace, we all love it.’ A former military intelligence officer, Bodine brought that ‘sneaky’ air into the InPace culture, adding a bit of excitement to the day-to-day business of sales. ‘With a great product, great staff, and great business intelligence,’ Bodine was fond of saying, ‘you can dominate the market.’ He wanted everyone – customers,

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competitors and the media – to see InPace everywhere. ‘Every time the competition holds a staff meeting,’ he said, ‘the first question should be, “What’s InPace doing?”’ The sales staff was a mirror image of Bodine – younger, but with the same air of invincibility, and very competitive with one another. This, too, Bodine encouraged. A chess player, he enjoyed observing and encouraging the competition within his own sales staff. And seeing the thrill it brought ‘the boss’, ambitious salespeople worked vigorously to prove their competitive worth. Bodine’s latest competitive ‘match’ pitted Cody Rudisell and Ali Sloan in an intellectual and strategic struggle for a coveted assignment to a potential major account with a company that had just expanded into the state. Bodine let it be known that Cody and Ali were being considered for the assignment and that each could submit a proposal to lure the account to InPace and away from its top rival, Raleigh-Tech. Both Cody and Ali eagerly grabbed the opportunity to expand their influence within the company and to build their reputations. Putting together their presentations within a short time period meant working long days and late nights. On the night before the presentations, Cody bounded into Ali’s office and dropped a file on her desk. ‘Top that!’ he said. Ali began thumbing through the file, and as she looked up in startled amazement, Cody slammed the folder and jerked it from her desk. ‘That’s like a watershed of Raleigh-Tech’s trade secrets,’ Ali said. ‘Where did you get that?’ ‘That’s for me to know and you to find out,’ Cody replied, taking a seat and noisily drumming his fingers on the folder. ‘With this information, R-T doesn’t have a chance. And neither do you.’

ON THE JOB VIDEO CASE

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‘You could get into all sorts of trouble’, Ali said, ‘When you lay that on Bodine’s . . .’ ‘Bodine’s espionage side will love it,’ Cody interrupted. ‘This is classic Bodine, classic InPace. You can’t tell me that with all the brilliant moves he’s made over the years, Bodine hasn’t done the same thing. This is business, cut-throat business, and I may have just topped the master. See you tomorrow.’ As he left, Ali sat in stunned silence. ‘Cut-throat, indeed,’ she whispered, reaching for the phone. She held the phone for a moment, wondering who she should call. This is unethical and illegal, she thought. She hung up the phone. Should I let him hang himself tomorrow? What if Bodine really does love it? If I call some manager tonight, will everyone see me as a sore loser and a crybaby? Is this really what it takes to win in the big leagues? Is this really the culture of this organisation? QU E S T I O N S 1 How has Ken Bodine shaped the sales culture at InPace Solutions? Do you consider this culture to be at a preconventional, conventional or postconventional level of ethical development? Why? 2 What should Ali Sloan do? What would you do if you were in her place? Explain. 3 How might Cody Rudisell’s decision differ if he based it on the utilitarian approach vs individualism approach vs practical approach to ethical decision making? Which approach does he appear to be using?

THEO CHOCOLATE: MANAGING ETHICS AND SOCIAL RESPONSIBILITY

For a real-world application of the management theories described in this chapter, log on to CourseMate Express to watch the On the Job video and answer the following questions. QUESTIO NS 1 What practices at Theo Chocolate reflect the concept of sustainability?

2 What does vice president Debra Music mean when she says that Theo is a ‘triple bottom line’ company? How is this different from any other company? 3 What does the term fair trade mean to the leaders at Theo? What happens if fair trade goals conflict with a company’s primary responsibility to be profitable?

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ENDNOTES 1 Wallington, P. (15 March 2003). Honestly?! CIO, 41–2; McLean, B. (24 December 2001). Why Enron Went Bust. Fortune, 58–68. 2 Kaptein, M. (2003). The Diamond of Managerial Integrity. European Management Journal, 21:1, 99–108. 3 Gilley, B. (30 August 2001). Jiang’s Turn Tempts Fate. Far Eastern Economic Review, 30. 4 Waldholz, M. (5 March 1998). AZT Price Cut for Third World Mothers-to-be. The Wall Street Journal, B1, B12; Arnst, 1997; Franchise Inc. (November 1997). Inc., 121; Kurschner, D. (September–October 1995). Tying Executive Pay to Social Responsibility. Business Ethics, 47. 5 Gordon F. Shea, Practical Ethics (New York: American Management Association, 1988); and Linda K. Treviño. (1986). Ethical Decision Making in Organizations: A Person-Situation Interactionist Model. Academy of Management Review, 11, 601–17. 6 Thomas M. Jones. (1991). Ethical Decision Making by Individuals in Organizations: An Issue-Contingent Model. Academy of Management Review, 16: 366–95. 7 Shelby D. Hunt and Jared M. Hansen. (2007). Understanding Ethical Diversity in Organizations. Organizational Dynamics 36: 2, 202–16. 8 Socialising for Intelligence. (2 November 2011). Computer News Middle East. 9 Justin Scheck. (11 August 2009). Accusations of Snooping in Ink-Cartridge Dispute. The Wall Street Journal Online, http://online.wsj.com/article/SB124995836273921661. html?KEYWORDS=%22Accusations+ of+Snooping+in+Ink-Cartridge+Dispute%22 (accessed 14 August 2009). 10 Kabel, M. (27 January 2006). Former Walmart Executive to Plead Guilty to Fraud. USA Today, http://www.usatoday.com/money/industries/retail/2006-01-27-retail-fraud_x.htm (accessed 2 July 2012); and A. Jones and N. Koppel. (7 August 2010). Ethical Lapses Felled Long List of Company Executives. The Wall Street Journal, http://online.wsj.com/article/SB1000142405 2748703309704575413842089375632.html (accessed 2 July 2012). 11 These examples are from Jones and Koppel. Ethical Lapses Felled Long List of Company Executives. 12 Rushworth M. Kidder. (30 January 1990). The Three Great Domains of Human Action. Christian Science Monitor. 13 Gallup Survey results reported in Martin, R. (2011). The CEO’s Ethical Dilemma in the Era of Earnings Management.,Strategy & Leadership 39, no. 6: 43–47. 14 Marist College Institute for Public Opinion and Knights of Columbus survey, results reported in Kevin Turner, ‘Corporate Execs: Nobody Trusts Us; U.S. Lacks Confidence in Business Ethics, Poll Says,’ Florida Times Union, 27 February, 2009. 15 Reported in Dan Kadlec, ‘Gordon Gekko Lives: New Evidence That Greed Is Rampant on Wall Street,’ Time, 17 July 2013, http://business.time.com/2013/07/17/gordon-gekko-livesnew-evidence-that-greed-is-rampant-on-wall-street/ (accessed 19 July 2013). 16 Gary R. Weaver, Linda Klebe Treviño, and Bradley Agle, ‘’Somebody I Look Up To’: Ethical Role Models in Organizations,’ Organizational Dynamics 34, no. 4 (2005): 313–330. 17 Gary Yukl et al., ‘An Improved Measure of Ethical Leadership,’ Journal of Leadership and Organizational Studies 20, no. 1 (2013): 38–48. 18 John Revill and Vanessa O’Connell. (23 October 2012). Armstrong Is Stripped of Titles in Cycling. The Wall Street Journal, A4; and A. Hartocollis. (26 March 2012). At Ailing Brooklyn Hospital, Insider Deals and Lavish Perks. The New York Times, A1. 19 Elizabeth Povoledo. (28 May 2012). Vatican Allows That Butler Scandal Is Hurting Trust. The New York Times, http://www.nytimes.com/2012/05/29/world/europe/vatican-says-scandalinvolving-popes-butler-erodes-trust.html (accessed 2 July 2012). 20 Marist College Institute for Public Opinion and Knights of Columbus survey, results reported in K. Turner. (27 February 2009). Corporate Execs: Nobody Trusts Us; U.S. Lacks Confidence in Business Ethics, Poll Says. Florida Times Union. 21 Gary R. Weaver, Linda Klebe Treviño and Bradley Agle. (2005). ‘Somebody I Look Up To:’ Ethical Role Models in Organizations. Organizational Dynamics, 34:4, 313–30. 22 These measures of unethical behaviour are from Muel Kaptein. (October 2008). Developing a Measure of Unethical Behavior in the Workplace: A Stakeholder Perspective. Journal of Management, 34:5, 978–1008. 23 Homer H. Johnson, ‘Does It Pay to Be Good? Social Responsibility and Financial Performance,’ Business Horizons (November–December 2003): 34–40; Jennifer J. Griffin and John F. Mahon, ‘The Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of Incomparable Research,’ Business and Society 36:1 (March

1997): 5–31; Bernadette M. Ruf et al., ‘An Empirical Investigation of the Relationship Between Change in Corporate Social Performance and Financial Performance: A Stakeholder Theory Perspective,’ Journal of Business Ethics 32:2 ( July 2001): 143ff; Philip L. Cochran and Robert A. Wood, ‘Corporate Social Responsibility and Financial Performance,’ Academy of Management Journal 27 (1984): 42–56. 24 Heli Wang, Jaepil Choi, and Jiatao Li, ‘Too Little or Too Much? Untangling the Relationship Between Corporate Philanthropy and Firm Financial Performance,’ Organization Science 19:1 ( January–February 2008): 143–159; Philip L. Cochran, ‘The Evolution of Corporate Social Responsibility,’ Business Horizons 50 (2007): 449–454; Paul C. Godfrey, ‘The Relationship Between Corporate Philanthropy and Shareholder Wealth: A Risk Management Perspective,’ Academy of Management Review 30:4 (2005): 777–798; Oliver Falck and Stephan Heblich, ‘Corporate Social Responsibility: Doing Well by Doing Good,’ Business Horizons 50 (2007): 247–254; J. A. Pearce II and J. P. Doh, ‘The High Impact of Collaborative Social Initiatives,’ MIT Sloan Management Review (Spring 2005): 31–39; Curtis C. Verschoor and Elizabeth A. Murphy, ‘The Financial Performance of Large U.S. Firms and Those with Global Prominence: How Do the Best Corporate Citizens Rate?’ Business and Society Review 107:3 (Fall 2002): 371–381; Johnson, ‘Does It Pay to Be Good?’; Dale Kurschner, ‘5 Ways Ethical Business Creates Fatter Profits,’ Business Ethics (March–April 1996): 20–23. 25 Rashid Ameer and Radiah Othman, ‘Sustainability Practices and Corporate Financial Performance: A Study Based on the Top Global Corporations,’ Journal of Business Ethics 108:1 (June 2012): 61–79. 26 Verschoor and Murphy, The Financial Performance of Large U.S. Firms. 27 Richard McGill Murphy, ‘Why Doing Good Is Good For Business,’ Fortune (February 8, 2010): 90–95; Jean B. McGuire, Alison Sundgren, and Thomas Schneeweis, ‘Corporate Social Responsibility and Firm Financial Performance,’ Academy of Management Journal 31 (1988): 854–872; and Falck and Heblich, ‘Corporate Social Responsibility: Doing Well by Doing Good.’ 28 Daniel W. Greening and Daniel B. Turban, ‘Corporate Social Performance as a Competitive Advantage in Attracting a Quality Workforce,’ Business and Society 39:3 (September 2000): 254–280; and Kate O’Sullivan, ‘Virtue Rewarded,’ CFO (October 2006): 47–52. 29 ‘The Socially Correct Corporate Business,’ in Leslie Holstrom and Simon Brady, ‘The Changing Face of Global Business,’ a special advertising section, Fortune (24 July 2000): S1–S38. Remi Trudel and June Cotte, ‘Does Being Ethical Pay?’ The Wall Street Journal, 12 May 2008. Roger Martin. (2011). The CEO’s Ethical Dilemma in the Era of Earnings Management. Strategy & Leadership, 39:6, 43–7. 30 Remi Trudel and June Cotte, ‘Does Being Ethical Pay?’ The Wall Street Journal, 12 May 2008. 31 Linda K. Treviño and Katherine A. Nelson. (1995). Managing Business Ethics: Straight Talk About How to Do It Right (New York: John Wiley & Sons, Inc), p. 4. 32 Jones. Ethical Decision Making by Individuals in Organizations. 33 This example is from Francis J. Flynn and Scott S. Wiltermuth. (2010). Who’s with Me? False Consensus, Brokerage, and Ethical Decision Making in Organizations. Academy of Management Journal, 53:5, 1074–89. 34 Based on a question from a General Electric (GE) employee ethics guide, reported in Kathryn Kranhold. (28 November 2005). U.S. Firms Raise Ethics Focus. The Wall Street Journal. 35 D. Wallis. (3 May 2012). Loose Lips Can Sink Trips. The New York Times, F1. 36 From Jeffrey Kluger. (3 December 2007). What Makes Us Moral? Time, 54–60. 37 The Morality Quiz. Time, http://www.time.com/morality (accessed 19 February 2008). 38 This discussion is based on Gerald F. Cavanagh, Dennis J. Moberg and Manuel Velasquez. (1981). The Ethics of Organizational Politics. Academy of Management Review, 6, 363–74; Justin G. Longenecker, Joseph A. McKinney and Carlos W. Moore. (Winter 1988). Egoism and Independence: Entrepreneurial Ethics. Organizational Dynamics: 64–72; Carolyn Wiley. (February 1995). The ABCs of Business Ethics: Definitions, Philosophies, and Implementation. IM, 22–7; Mark Mallinger. (August 1997). Decisive Decision Making: An Exercise Using Ethical Frameworks. Journal of Management Education, 411–17. 39 Michael J. McCarthy. (21 October 1999). Now the Boss Knows Where You’re Clicking; and Virtual Morality: A New Workplace Quandary. The Wall Street Journal; and Jeffrey L. Seglin. (8 August 2000). Who’s Snooping on You? Business 2.0, 202–3. 40 John Kekes. (1988). Self-Direction: The Core of Ethical Individualism. In Organizations and Ethical Individualism, ed. Konstanian Kolenda (New York: Praeger), pp. 1–18. 41 Tad Tulega. (1987). Beyond the Bottom Line (New York: Penguin Books).

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42 Bill Lynn. Ethics. Practical Ethics website, http://www.practicalethics.net/ethics.html (accessed 23 March 2010); Richard E. Thompson. (January 2003). So, Greed’s Not Good After All. Trustee, 28; and Dennis F. Thompson. What Is Practical Ethics? Harvard University Edmond J. Safra Foundation Center for Ethics website, http://www.ethics.harvard.edu/thecenter/what-is-practical-ethics (accessed 23 March 2010). 43 Anonymous official quoted in Carol D. Leonnig and David Nakamura. (23 May 2012). Four in Secret Service Fight Back. The Washington Post, A1. 44 Gerard L. Rossy. (2011). Five Questions for Addressing Ethical Dilemmas. Strategy & Leadership, 39:6, 35–42. 45 John D. Kammeyer-Mueller, Lauren S. Simon and Bruce L. Rich. (May 2012). The Psychic Cost of Doing Wrong: Ethical Conflict, Divestiture Socialization, and Emotional Exhaustion. Journal of Management, 38:3, 784–808. 46 L. Kohlberg. (1976). Moral Stages and Moralization: The Cognitive-Developmental Approach. In Moral Development and Behavior: Theory, Research, and Social Issues, ed. T. Lickona (New York: Holt, Rinehart and Winston), pp. 31–83; L. Kohlberg. (1969). Stage and Sequence: The Cognitive-Developmental Approach to Socialization. In Handbook of Socialization Theory and Research, ed. D. A. Goslin (Chicago: Rand McNally); Linda K. Treviño, Gary R. Weaver and Scott J. Reynolds. (December 2006). Behavioral Ethics in Organizations: A Review. Journal of Management, 32:6, 951–90; and Jill W. Graham. (January 1995). Leadership, Moral Development, and Citizenship Behavior. Business Ethics Quarterly, 5:1, 43–54. 47 Ihosvani Rodriguez. (3 July 2012). Hallandale Beach Lifeguard Fired After Participating in Beach Rescue. Sun Sentinel, http://articles.sun-sentinel.com/2012-07-03/news/fl-hallandalebeach-lifeguards-20120703_1_ lifeguard-services-jeff-ellis-beach-rescue (accessed 9 July 2012); and Gilma Avalos and Ari Odzer. (5 July 2012). Hallandale Beach Lifeguard Fired for Leaving His Zone to Rescue Drowning Man. NBCMiami.com, http://www. nbcmiami.com/news/local/Hallandale-Beach-Lifeguard-Fired-For-Leaving-His-Zone-ForRescue-161372785.html (accessed 9 July 2012). 48 Studies cited in Adam Grant, ‘Turning the Tables on Success,’ Strategy + Business (Summer 2013). 49 Adam Grant, ‘Givers Take All: The Hidden Dimension of Corporate Culture,’ McKinsey Quarterly, Issue 2 (2013): 52–65; and Grant, ‘Turning the Tables on Success.’ 50 Donaldson, T. and Dunfee, T. W. (Summer 1999). When Ethics Travel: The Promise and Peril of Global Business Ethics. California Management Review, 41:4, 45–63. 51 Transparency International (2004). Transparency International Releases New Bribe Payers Index, http://www.transparency.org (accessed 24 February 2004). 52 Transparency International (2011). Bribe Payers Index Report 2011, pp. 8 and 9, http://bpi. transparency.org/bpi2011/results/ (accessed 11 March 2014). 53 Szwajkowski, E. W. (1986). The Myths and Realities of Research on Organizational Misconduct, in J. E. Post (ed.) Research in Corporate Social Performance and Policy (Greenwich: JAI Press), 9:, 103–22; Davis, K., Frederick, W. C. & Blostrom, R. L. (1979). Business and Society: Concepts and Policy Issues (New York: McGraw-Hill). 54 Sherwin, D. S. (November–December 1983). The Ethical Roots of the Business System. Harvard Business Review, 61, 183–92. 55 Nancy C. Roberts and Paula J. King. (Winter 1989). The Stakeholder Audit Goes Public. Organizational Dynamics, 63–79; Thomas Donaldson and Lee E. Preston. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. Academy of Management Review 20:1, 65–91; and Jeffrey S. Harrison and Caron H. St. John. (1996). Managing and Partnering with External Stakeholders. Academy of Management Executive, 10:2, 46–60. 56 R. Mitchell, B. Agle and D. J. Wood. (1997). Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who or What Really Counts. Academy of Management Review, 22, 853–86; Virginie Vial. (September–October 2011). Taking a Stakeholders’ Approach to Corporate Social Responsibility. Global Business and Organizational Excellence, 37–47; and Martijn Poel, Linda Kool and Annelieke van der Giessen. (2010). How to Decide on the Priorities and Coordination of Information Society Policy? Analytical Framework and Three Case Studies. Info: The Journal of Policy, Regulation and Strategy for Telecommunications, Information, and Media, 12:6, 21–39. 57 N. Craig Smith, Sean Ansett and Lior Erex. (Summer 2011). How Gap Inc. Engaged with Its Stakeholders. MIT Sloan Management Review, 52:4, 69–76. 58 Max B. E. Clarkson. (1995). A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance. Academy of Management Review, 20:1, 92–117. 59 Thomson, J. (27 July 2001). Test of Virtue. Business Review Weekly, 60–5. 60 2013 Responsible Investment Benchmark Report, p. 25, http://www.responsibleinvestment.org/ wp-content/uploads/2013/07/2013-Benchmark-Report.pdf (accessed 15 July 2013). 61 Ibid. pp. 4,11,15,16.

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62 Rich Kauffeld, Abhishek Malhotra and Susan Higgins. (21 December 2009). Green Is a Strategy. Strategy + Business. 63 Reported in Dung K. Nguyen and Stanley F. Slater. (2010). Hitting the Sustainability Sweet Spot: Having It All. Journal of Business Strategy, 31:3, 5–11. 64 This definition is based on Marc J. Epstein and Marie-Josée Roy. Improving Sustainability Performance: Specifying, Implementing and Measuring Key Principles. Journal of General Management, 29:1 (Autumn 2003): 15–31; World Commission on Economic Development. (1987). Our Common Future (Oxford, UK: Oxford University Press; and A. W. Savitz and K. Weber. (2006). The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social, and Environmental Success (San Francisco: Jossey-Bass). 65 This discussion is based on Nguyen and Slater. Hitting the Sustainability Sweet Spot; Savitz and Weber. The Triple Bottom Line; and Triple Bottom Line, an article adapted from The Economist Guide to Management Ideas and Gurus, by Tim Hindle (London: Profile Books, 2008), The Economist (17 November 2009), http://www.economist.com/node/14301663 (accessed 5 July 2012). The ‘people, planet, profit’ phrase was first coined in 1994 by John Elkington, founder of a British consulting firm called SustainAbility. 66 Mark S. Schwartz and Archie B. Carroll. (2003). Corporate Social Responsibility: A ThreeDomain Approach. Business Ethics Quarterly, 13:4, 503–30; and Archie B. Carroll. (1979). A ThreeDimensional Conceptual Model of Corporate Performance. Academy of Management Review, 4, 497–505. For a discussion of various models for evaluating corporate social performance, also see Diane L. Swanson. (1995). Addressing a Theoretical Problem by Reorienting the Corporate Social Performance Model. Academy of Management Review, 20:1, 43–64. 67 Milton Friedman. (1962). Capitalism and Freedom (Chicago: University of Chicago Press, p. 133; and Milton Friedman and Rose Friedman. (1979). Free to Choose (New York: Harcourt Brace Jovanovich). 68 Eugene W. Szwajkowski. (1985). Organizational Illegality: Theoretical Integration and Illustrative Application. Academy of Management Review, 10, 558–67. 69 David Barstow. (21 April 2012). Vast Mexico Bribery Case Hushed up by Walmart After Top-Level Struggle. The New York Times, http://www.nytimes.com/2012/04/22/business/atwalmart-in-mexico-a-bribe-inquiry-silenced.html?pagewanted=all (accessed 6 July 2012). 70 David J. Fritzsche and Helmut Becker. (1984). Linking Management Behavior to Ethical Philosophy – An Empirical Investigation. Academy of Management Journal, 27, 165–75. 71 Kresge, Naomi (21 September 2015). Volkswagen drops 23% after admitting diesel emissions cheat, Bloomberg, http://www.bloomberg.com/news/articles/2015-09-21/ volkswagen-drops-15-after-admitting-u-s-diesel-emissions-cheat (accessed 3 November 2016); Plungis, Jeff and Hull, Dana (20 September 2015). VW’s emissions cheating found by curious clean-air group, Bloomberg, http://www.bloomberg.com/news/ articles/2015-09-19/volkswagen-emissions-cheating-found-by-curious-clean-air-group (accessed 3 November 2016). 72 MasterCard (10 October 2013). WFP launches e-cards for Syrian refugees in Lebanon with MasterCard’s support, http://newsroom.mastercard.com/press-releases/wfp-launches-ecards-for-syrian-refugees-in-lebanon-with-mastercards-support/ (accessed 3 November 2016); World Food Programme (2016). MasterCard. http://www.wfp.org/partners/privatesector/meet-our-partners/mastercard (accessed 3 November 2016). 73 (RED) (2016). About (RED). https://red.org/about/ (accessed 4 November 2016); (RED) (2016). Gap. https://red.org/partners/gap/ (accessed 4 November 2016); Knox, David (15 October 2015). Telethon raises $25.8m in WA. http://www.tvtonight.com.au/2015/10/telethon-raises25-8m-in-wa.html (accessed 4 November 2016); Murphy, Emma (11 June 2012). A look back at NBN’s Telethon efforts. http://media.nbnnews.com.au/index.php/2012/06/11/a-look-backat-nbns-telethon-efforts/ (accessed 4 November 2016); Good Friday Appeal (2015). About us. http://www.goodfridayappeal.com.au/about-us (accessed 4 November 2016). 74 D. Bright, K. Cameron, and A. Caza, ‘The Amplifying and Buffering Effects of Virtuousness in Downsized Organizations,’Journal of Business Ethics 64 (2006): 249–269; Mario Fernando and Shamika Almeida, ‘The Organizational Virtuousness of Strategic Corporate Social Responsibility: A Case Study of the Sri Lankan Family-Owned Enterprise MAS Holdings,’ European Management Journal 30 (2012): 564–576. 75 Fernando and Almeida, The Organizational Virtuousness of Strategic Corporate Responsibility. 76 Saul W. Gellerman. (Winter 1989). Managing Ethics from the Top Down. Sloan Management Review, 73–9. 77 Attributed to Philip Delves Broughton in David A. Kaplan. (26 October 2009). MBAs Get Schooled in Ethics. Fortune, 27–8. 78 Michael E. Brown and Linda K. Treviño. (2006). Ethical Leadership: A Review and Future Directions. The Leadership Quarterly, 17, 595–616; Weaver, Treviño and Agle. ‘Somebody I Look Up To’; and L. K. Treviño et al. (Winter 1999). Managing Ethics and Legal Compliance: What Works and What Hurts? California Management Review, 41:2, 131–51.

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79 M. A. Cleek and S. L. Leonard. (1998). Can Corporate Codes of Ethics Influence Behavior? Journal of Business Ethics, 17:6, 619–30. 80 K. Matthew Gilley, Chris Robertson and Tim Mazur. (January–February 2010). The BottomLine Benefits of Ethics Code Commitment. Business Horizons, 53, 31–7; Joseph L. Badaracco and Allen P. Webb. (Winter 1995). Business Ethics: A View from the Trenches. California Management Review, 37:2, 8–28; and Ronald B. Morgan. (February 1993). Self- and CoWorker Perceptions of Ethics and Their Relationships to Leadership and Salary. Academy of Management Journal, 36:1, 200–14. 81 Cheryl Rosen. (Summer 2006). A Measure of Success? Ethics After Enron. Business Ethics, 22–6. 82 Alan Yuspeh. (1 August 2000). Do the Right Thing. CIO, 56–8. 83 Reported in Rosen. A Measure of Success? Ethics After Enron. 84 Marcia P. Miceli and Janet P. Near. (1984). The Relationship Among Beliefs, Organizational Positions, and Whistle-Blowing Status: A Discriminant Analysis. Academy of Management Journal, 27, 687–705; and Michael T. Rehg et al. (March–April 2008). Antecedents and

Outcomes of Retaliation Against Whistleblowers: Gender Differences and Power Relationships. Organization Science, 19:2, 221–40. 85 Eugene Garaventa. (December 1994). An Enemy of the People by Henrik Ibsen: The Politics of Whistle-Blowing. Journal of Management Inquiry, 3:4, 369–74; Marcia P. Miceli and Janet P. Near. (1994). Whistleblowing: Reaping the Benefits. Academy of Management Executive, 8:3, 65–74. 86 Milton-Smith, J. (1997). Business Ethics in Australia and New Zealand. Journal of Business Ethics, 16:14, 1485–97. 87 World Commission on Economic Development (1987). Our Common Future. Oxford: Oxford University Press. 88 Banksia Foundation, http://www.banksiafdn.com/the-awards/42/239.html. The Banksia Gold Award: Torres Strait Regional Authority (TSRA), QLD (2013); Kimberly-Clark Australia and New Zealand Target 100 Meat & Livestock Australia, NSW (2012); Qantas – large organisation; Gippsland Water Factory – A new way to care for water Gippsland Water, VIC (2011); Fujitsu – large organisation.

PART THREE P L A N N ING

Chapter 5 Organisational planning and goal setting Chapter 6 Strategy formulation and implementation Appendix to Chapter 6 Managerial decision making

As is emphasised throughout this textbook, sporting teams are just like organisations in business or government. Both have specific goals that are best accomplished when things are wellplanned. Both have a need for coordination of tasks and activities; for example, a good bowler in cricket ‘bowls to the field’, in the sense that he or she knows each batter’s weaknesses, and can coordinate field positions in order to exploit those weaknesses for the team’s advantage. Similarly, in business, it is vital that marketing, production, human resources and financial functions are acting in a coordinated manner. Good planning and decision making are essential in sporting contests: it is crucial to have a game plan of strategies based on an analysis of the rules of the game and the opposing players’ strengths and weaknesses. Imagine the planning and strategising required for the Socceroos’ efforts for the 2018 FIFA World Cup, where qualification matches started in March 2015 at a regional level and conclude with inter-regional qualification play-offs in late 2017. Team managers like Ange Postecoglou must continually evaluate the mix of available talent and the strengths and weaknesses of competitors from one qualification round to the

next. Savvy managers ensure their teams have sufficient depth in their reserves and developing players to meet current and future demands in order to remain competitive across such a long qualification period. A plan provides a guide for the snap decisions that a football (soccer) player is always making during a match. Without a game plan, a lot of random actions would occur, and those teams would be far less effective than teams who have a focused plan and strategy. Managing an organisation is like sport, in that planning certainly helps but does not guarantee success, and requires managers to think about the decisions they face now, as well as those they will need to face in the future. Part 3 discusses goal setting, planning, strategy formulation and implementation, and the importance of good managerial decision making. This chapter discusses the process of planning. Chapter 6 looks at strategic planning in depth, and examines a number of strategic options managers can use in a competitive environment. In Appendix to Chapter 6, we look at management decision making. Effective decision-making techniques are crucial to selecting the organisation’s goals, plans and strategic options.

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L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define goals and plans, and explain the relationship between them

2 explain the concept of organisational mission and the way it influences goal setting and planning

3 describe the types of goals an organisation should have and why they resemble a hierarchy

4 define the characteristics of effective goals

5 describe the four essential steps

6 explain the difference between single-use plans and standing plans

7 discuss the benefits and limitations of planning

8 describe and explain the importance of contingency planning, scenario building and crisis planning for today’s managers

9 identify innovative planning approaches that managers use in a fast-changing environment.

in the process of management by objectives (MBO)

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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MANAGEMENT CHALLENGE

WELL-LAID PLANS AND THEIR VULNERABILITY TO EXTERNAL FORCES When Don Argus finished as CEO of the National Australia Bank (NAB), after its most successful decade ever, he accepted an invitation to join the Board of Directors of BHP, which has been a long-standing steel making company in Australia. BHP has been through some significant turmoil in recent years, and indeed it was becoming very difficult to be competitive and profitable in this industry in Australia, due to the high cost base and small domestic market relative to global conditions. Before and during the appointment of new CEO Marius Kloppers, a plan was hatched to transform BHP from a steel company with patchy performance into a resources company, based on forecasts of the upcoming growth in demand for materials such as iron ore, coal and gas-based energy from Asian growth markets, principally China. Growth was planned and executed via both ‘organic’ means and through mergers and acquisitions. A major success was the merger with the Billiton corporation, making the newly merged BHP Billiton the world’s biggest resources company, which created significant wealth for shareholders and led the mining boom from an Australian perspective.

Further significant plans were developed including two major initiatives of acquiring the second-biggest mining company in the world, Rio Tinto, and building the world’s biggest mining operation in South Australia, known as Olympic Dam. However, these well-laid plans did not come to fruition, due to circumstances beyond BHP Billiton’s control. Geopolitical and market forces led to the Rio Tinto acquisition being blocked and changes in prices and tax regimes caused the Olympic Dam investment to be shelved. BHP Billiton looked elsewhere for its next steps in continuing to grow its shareholder wealth creation path. This highly scrutinised company needed to plan some new initiatives to satisfy its shareholders who were used to and expecting continued double-digit shareholder value creation. QU E S T I O N How should Mr Argus and Mr Kloppers (and their successors Chairman Jacques Nasser and CEO Andrew Mackenzie) go about planning and executing further profitable growth initiatives? Should they stick to mining or diversify, and if so, where and into what? What geographical footprint should they pursue? How confident should they be that prices and demand for commodities such as iron ore and coal will remain at ‘high profit’ levels?

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NEW MANAGER SELF-ASSESSMENT DOES GOAL SETTING FIT YOUR MANAGEMENT STYLE? Are you a good planner? Do you set goals and identify ways to accomplish them? This questionnaire will help you understand how your work habits fit with making plans and setting goals. Answer the following questions as they apply to your work or study habits. Please indicate whether each item is Mostly true or Mostly false for you. MOSTLY TRUE MOSTLY FALSE

1 I have clear, specific goals in several areas. 2 I have a definite outcome in life that I want to achieve. 3 I prefer general to specific goals. 4 I work better without specific deadlines. 5 I set aside time each day or week to plan my work. 6 I am clear about the measures that indicate when I have achieved a goal. 7 I work better when I set more challenging goals for myself. 8 I help other people clarify and define their goals. Scoring and Interpretation: Give yourself one point for each item you marked as Mostly true except items 3 and 4. For items 3 and 4 give yourself one point for each one you marked Mostly false. A score of 5 or higher suggests a positive level of goal-setting behaviour and good preparation for a new manager role in an organisation. If you scored 4 or less you might want to evaluate and begin to change your goal-setting behaviour. An important part of a new manager’s job is setting goals, measuring results and reviewing progress for the department and subordinates. These questions indicate the extent to which you have already adopted the disciplined use of goals in your life and work. But if you scored low, don’t despair. Goal setting can be learned. Most organisations have goal setting and review systems that new managers use. Not everyone thrives under a disciplined goal-setting system, but as a new manager, setting goals and assessing results are tools that will enhance your impact. Research indicates that setting clear, specific, and challenging goals in key areas will produce better performance.

One of the primary responsibilities of managers is to decide where the organisation or department should go in the future and how to get it there. Without clear goals and plans, employees cannot perform to their potential and the organisation flounders. Lack of planning or poor planning can seriously hurt an organisation, but attention paid to developing adaptable plans that cover a range of possible scenarios can be effective when resources for detailed planning are not available. For example, when Chennai Airport was submerged in the highest floods for 100 years in December 2015, many travellers were immobilised, unable to depart the airport by land or air.1 Managers and decision makers cannot see the future, nor can they prevent natural disasters such as flooding, but proper planning can enable them to respond swiftly and effectively to such unexpected events. At Chennai Airport, flooding was sudden and it caught many airlines by surprise with planes partially submerged by the rising water. Stranded passengers had to be evacuated by helicopter to a nearby air force base to be put onto commercial jets, demonstrating that the private airlines were able to

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coordinate some actions with the Indian government to evacuate and move their passengers. This illustrates the utility of generic evacuation plans that can be implemented for a range of different scenarios. In some organisations, typically small ones, planning is informal. In others, managers follow a welldefined planning framework. The organisation establishes a basic mission and develops formal goals and strategic plans for carrying it out. Shell, IBM, ANZ Bank and Mazda undertake a strategic planning exercise each year – reviewing their missions, goals and plans to meet environmental changes or the expectations of important stakeholders such as the community, owners or shareholders. Many of these companies also develop contingency plans or scenarios for unexpected circumstances and disaster recovery plans for what the organisation would do in the event of a major disaster such as a cyclone, earthquake or terrorist attack. Setting in place sound goals and plans for achieving them is fundamental to good management, at all levels of all organisations. Of the four management functions – planning, organising, leading and controlling – described in Chapter 1, planning is considered the most fundamental. Everything else stems from planning. Yet planning is also the most controversial management function. How do managers plan in a constantly changing environment? The economic, political, and social turmoil of recent years has renewed interest in organisational planning, especially for crises and emergent disturbances, yet it also has some managers questioning whether planning remains a worthwhile activity for a world in constant state of change. Planning cannot read an uncertain future, nor can it tame a turbulent environment. A statement by former US Secretary of State Colin Powell offers a warning for managers: ‘No battle plan survives contact with the enemy’. No plan can be perfect, but without plans and goals, organisations and employees are left floundering. Good managers understand that plans should grow and adapt to meet changing conditions. In this chapter, we explore the process of planning and how it informs the other management functions. Special attention is given to goals and goal setting, for that is where planning starts. Then we discuss the types of plans organisations can use to achieve those goals. Approaches that help managers address uncertainty via contingency, scenario and crisis planning are also explored. Finally, we discuss new approaches to planning that emphasise the involvement of all employees (and sometimes other stakeholders) in strategic thinking and execution. Chapter 6 provides depth of understanding of strategic management, with an emphasis on identifying strategic options that managers can use to steer organisations in a competitive environment. In Appendix to Chapter 6, managerial decision-making techniques are discussed, which is crucial for the effective selection of an organisation’s goals, plans and strategic options.

5.1

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See Section 5.5 later in the chapter for more information on this area.

GOALS, PLANS AND PERFORMANCE

A goal is a desired future circumstance or condition that the organisation attempts to realise.2 Goals are important because organisations exist for a purpose, and goals define and state that purpose. A plan is a blueprint for goal achievement and specifies the necessary resource allocations, schedules, tasks and other actions. Goals specify future ends; plans specify today’s means. The concept of planning usually incorporates both ideas; it means determining the organisation’s goals and defining the means for achieving them.3 EXHIBIT 5.1 illustrates the levels of goals and plans in an organisation. The planning process starts with a formal mission that defines the basic purpose of the organisation, especially for external audiences. The mission is the basis for the strategic (organisation) level of goals and plans, which in turn shapes the tactical (divisional) level and the operational (departmental) level.4 In this way, the goals and plans at all levels of

goal A desired future state that the organisation attempts to realise. plan A blueprint specifying the resource allocations, schedules and other actions necessary for attaining goals.

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See Chapter 1 for a discussion around establishing strategic goals and plans that reflect a commitment to both organisational efficiency and effectiveness.

the organisation interweave, contribute to, and support each other. For example, at NightOwl, a franchise network of convenience stores that began in Brisbane in 1975, senior managers identified an opportunity to leverage the innovation of its franchisees for the benefit of the entire chain. Senior management were able to enhance the organisation’s ability to improve efficient service delivery (a strategic goal) by creating a (tactical) information-sharing process whereby the franchisees (at the operational level of the business) share their insights about the effectiveness of product bundling, process innovations and store management for the benefit of the entire franchise network. In this way, improvements at the front line for one franchisee can be mimicked and built upon by others in the network to create a culture of knowledge sharing – with the benefit of improving the profitability and competitiveness of every store in the network. Top managers are typically responsible for establishing strategic goals and plans that reflect a commitment to both organisational efficiency and effectiveness, as described in Chapter 1. Tactical goals and plans are the responsibility of middle managers, such as the heads of major divisions or functional units. A division manager will formulate tactical plans that focus on the major actions the division must take to fulfil its part in the strategic plan set by top management. Operational plans identify the specific procedures or processes needed at lower levels of the organisation, such as individual departments and employees. Front-line managers and supervisors develop operational plans that focus on specific tasks and processes and that help to meet tactical and strategic goals. Planning at each level supports the other levels.

EXHIBIT 5.1 Levels of goals or plans and their importance

Mission statement

External message Legitimacy for investors, customers, suppliers, community

Strategic goals/plans Senior management (Organisation as a whole)

Tactical goals/plans Middle management (Major divisions, functions)

Internal message Legitimacy, motivation, guides, rationale, standards

Operational goals/plans Lower management (Departments, individuals)

TAKE A MOMENT If you haven’t done so already, complete the self-assessment at the beginning of this chapter to learn about your personal goal-setting behaviour before you read on.

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M E S S AG E S A N D VA L U E S CO N TA I N E D I N GOA L S A N D P L A N S In addition to improving financial and operational performance, developing explicit goals and plans at each level illustrated in EXHIBIT 5.1 is important because of the external and internal messages they send. These messages go to both external and internal audiences, and provide important benefits for the organisation.5

LEGITIMA C Y An organisation’s mission describes what the organisation stands for and its reason for existence. To external audiences such as investors, customers and suppliers, it helps to establish legitimacy. The mission gives external stakeholders an opportunity to look on the organisation in a favourable light and thus accept its existence without prior direct contact with the organisation. A strong mission also has an impact on employees, enabling them to become committed to the organisation because they can identify with its general purpose and reason for existence.

SOU RCE OF MOTIVAT ION A ND C O MMI T ME NT Goals and plans facilitate employees’ identification with the organisation and help to motivate them by reducing uncertainty and clarifying what they should accomplish. Lack of a clear goal can damage employee motivation and commitment. A goal provides the ‘why’ of an organisation or subunit’s existence, a plan tells the ‘how’.

RESOU R C E A LLO C ATIO N Goals help managers decide where they need to prioritise the allocation of resources, such as employees, money and equipment. When Telstra, pursuing goals of expanding its international business, signed a joint-venture deal with Indonesian telecommunications company Telkom in 2013, Telstra was able to realise a new method of building a managed telecommunications network extremely fast by using a cloudbased, as opposed to an IT-based, infrastructure – prioritising resources to developing service systems over physical infrastructure due to Telkom’s existing network in Indonesia.6

GUID ES TO A C TIO N Goals and plans provide a sense of direction. They focus attention on specific targets and direct employees’ efforts towards important outcomes, and give shorter-term plans a sense of place within a broader set of long-term goals.

RATIONA LE FO R DEC ISIO NS Through goal setting and planning, managers learn what the organisation is trying to accomplish. They can make decisions to ensure that internal policies, roles, performance, structure, products and expenditures will be made in accordance with desired outcomes. Decisions throughout the organisation will be in alignment with the plan.

STANDA RD OF P ERFORMA NC E Because goals define desired outcomes for the organisation, they also serve as performance criteria. They provide a standard of assessment. If an organisation wishes to grow by 15 per cent, and actual growth is

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17 per cent, managers will have exceeded their prescribed standard. The overall planning process prevents managers from thinking merely in terms of day-to-day activities. When organisations drift away from goals and plans, they typically get into trouble.

AUSTRALIAN MANAGER PROFILE Source: Lonely Planet Publications

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When they began producing a travel guide, Maureen and Tony Wheeler did not realise that it would bloom and grow into a significant corporate empire from its base in Melbourne (see http://www. lonelyplanet.com).

MAUREEN AND TONY WHEELER, CO-FOUNDERS, LONELY PLANET PUBLICATIONS

After arriving in Sydney with 27 cents and a passion for travel, Maureen and Tony Wheeler started Lonely Planet Publications in 1973 in a basement flat. Since then, Lonely Planet has become a powerful brand right across the world, having printed over 100 million books in nine languages. The company’s website, http:// www.lonelyplanet.com, has become a gathering point for global travellers, and the business is now a mature success story. From its humble origins, Lonely Planet became the acknowledged leader in travel publications. In publishing, you pay for everything upfront – shipping, printing and research. There is a wait of months for a return on investment. The Wheelers’ operation grew from a do-it-yourself business to a global enterprise, with at one point over 450 staff working around the world and 200 authors contributing. Lonely Planet products have expanded to include phrasebooks, travel maps, pictorials, travel literature and reference books. The website receives millions of visitors per month and its active Thorn Tree forum receives 100 000 new posts each month. The books are now sold in many languages including French, Italian, Spanish, German, Chinese, Korean and Japanese. In reflecting on the company’s early life, Tony Wheeler says: ‘When Maureen and I put together Across Asia on the Cheap – that first amateurishly produced guidebook to kicking around Asia – we had no idea we were starting on the long road to running an amazingly successful business. First of all, we had a very good idea. Of course, we didn’t realise at the

time how clever we’d been – so clearly there was a major element of luck in that good idea. Secondly, once we’d had that good idea we ran with it for all we were worth; the 1 per cent inspiration was definitely followed by the 99 per cent perspiration. Then, when our dream began to take wing, we haven’t been afraid to let other people take the controls; in fact we’ve welcomed that because flying isn’t all fun and I’m only too happy to escape from the routine. ‘Way back down the evolutionary scale you can forget the little details. Will it fly or is it going to crash is all that matters. I’ve never been afraid to have a go at things; if it was something that I felt was going to work we’d try it. Gut feeling has always been just as important as careful analysis.’ In 1984, Lonely Planet opened its US office. In the late 1980s, it opened an office in England serving Africa, Europe, the Middle East and Great Britain. In late 2007, the Wheelers sold a majority interest in the Lonely Planet business to BBC Worldwide, the main commercial arm of the British Broadcasting Corporation (BBC). The company has moved forward and embraced digital media, continuing to lead its industry. In 2011 BBC Worldwide took total control of the company when the Wheelers sold their remaining 25 per cent share for $67 million. Both Maureen and Tony still travel and are concerned with charitable causes. Their Planet Wheeler Foundation, which is funded solely by the two of them, supports educational and health projects in developing countries.

SOURCES: Lonely Planet website, http://www.lonelyplanet.com (accessed 21 December 2013); Sweney, M. (21 February 2011). BBC to Buy the Rest of Lonely Planet. http://www.theage.com.au/business/bbc-to-buy-the-rest-of-lonely-planet-20110220-1b112. html (accessed 19 March 2014).

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Planning is the most fundamental of the four management functions.

◗◗

Developing explicit goals and plans at each level is important because of the external and internal messages they send.

A goal is a desired future state that the organisation wants to realise. Planning is the act of determining goals and defining the means of achieving them. A plan is a blueprint specifying the resource allocations, schedules and other actions necessary for attaining goals.

5.2

GOALS IN ORGANISATIONS

The overall planning process begins with a mission statement and strategic goals for the organisation as a whole. Goals don’t just appear on their own in organisations. Goals are socially constructed, which means they are defined by an individual or group. Managers typically have different ideas about what the goals should be. As A.G. Laflet, CEO of Procter & Gamble, puts it, ‘Everyone selects and interprets data about the world and comes to a unique conclusion about the best course of action. Each person tends to embrace a single strategic choice as the right answer.’ Therefore, the role of the top executive is to get people thinking as a team and negotiating about which goals are the important ones to pursue.7

O RGA N I S AT I O NA L M I S S I O N At the top of the goal hierarchy is the mission – the organisation’s reason for existence. The mission describes the organisation’s values, aspirations and reason for being. A well-defined mission is the basis for development of all subsequent goals and plans. Without a clear mission, goals and plans may be developed haphazardly and not take the organisation in the direction it needs to go. One of the defining attributes of successful organisations is that they have a clear mission that guides decisions and actions. The purpose of Brisbane’s Lady Cilento Children’s Hospital (LCCH) is to ‘provide children and young people with the best possible family-centred health care’.8 Through its opening years, this credo has guided decision making for executives, managers and front-line staff who all have to make difficult decisions allocating the limited resources available to the hospital. One of the best examples of how the organisation’s mission manifests in operations is to look at how the staff (nurses, doctors and support staff) approach their day-to-day work. The LCCH’s emergency department can be exceptionally busy, with tensions typically running high for parents waiting for their children to be treated. Despite long shifts and the relentless stream of children in need of attention, the staff diligently provide a friendly smile and a fun approach to consultation and treatment to ensure children feel less anxious and parents feel more informed about what is happening. Treatment is focused on the patient but includes the family, aligning with the mission of the organisation. When management actions and decisions go against the mission, organisations may get into trouble. By one estimate, more than half of all organisations in Australia now have a formal mission statement of some kind. The formal mission statement is a broadly stated definition of basic business scope and operations that distinguishes the organisation from others of a similar type.9 The content of a mission statement often

mission The organisation’s reason for existence.

mission statement A broadly stated definition of the organisation’s basic business scope and operations that distinguishes it from similar types of organisations.

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focuses on the market and customers, and identifies desired fields of endeavour. Some mission statements describe organisational characteristics such as corporate values, product quality, location of facilities and attitude towards employees. Mission statements are often short and straightforward, describing basic business activities and purposes as well as the values that guide the organisation. Some companies have developed statements of values, company charters and principles statements, either in addition to or instead of mission statements. These are also attempts to provide guidance to employees and signals of purpose to other stakeholders. An example from Tata Group is shown below. Tata group Purpose At the Tata group we are committed to improving the quality of life of the communities we serve. We do this by striving for leadership and global competitiveness in the business sectors in which we operate. Our practice of returning to society what we earn evokes trust among consumers, employees, shareholders and the community. We are committed to protecting this heritage of leadership with trust through the manner in which we conduct our business. Core values Tata has always been values-driven. These values continue to direct the growth and business of Tata companies. The five core Tata values underpinning the way we do business are: Pioneering: We will be bold and agile, courageously taking on challenges, using deep customer insight to develop innovative solutions. Integrity: We will be fair, honest, transparent and ethical in our conduct; everything we do must stand the test of public scrutiny. Excellence: We will be passionate about achieving the highest standards of quality, always promoting meritocracy. Unity: We will invest in our people and partners, enable continuous learning, and build caring and collaborative relationships based on trust and mutual respect. Responsibility: We will integrate environmental and social principles in our businesses, ensuring that what comes from the people goes back to the people many times over. Mission To improve the quality of life of the communities we serve globally through long-term stakeholder value creation based on Leadership with Trust. Source: Tata Leadership With Trust: Values and Purpose, http://tata.com/aboutus/articlesinside/Values-and-purpose

strategic goals Broad statements of where the organisation wants to be in the future, they pertain to the organisation as a whole, rather than to specific divisions or departments.

GOA L S A N D P L A N S Strategic goals, sometimes called official goals, are broad statements describing where the organisation

wants to be in the future. They pertain to the organisation as a whole rather than to specific divisions or departments. Samsung, for example, set a new strategic goal to become a ‘quality-based’ company rather than a ‘quantity-based’ company. The shift in strategic direction, with its focus on creativity and innovation rather than making inexpensive knock-off products, has led to amazing results. Samsung is

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now a leader in the electronics industry, competing head-to-head with Apple in the smartphone market.10 Several management scholars have suggested that business organisations’ goals must encompass more than profits, and that businesses actually suffer when profit and shareholder value become the primary goals. Peter Drucker suggests that organisations focus on eight content areas in developing goals: market standing, innovation, productivity, physical and financial resources, profitability, managerial performance and development, worker performance and attitude, and public responsibility.11 Strategic plans define the action steps by which the organisation intends to attain strategic goals. The strategic plan is the blueprint that defines the organisational activities and resource allocations – in the form of cash, personnel, space, time and facilities – required for meeting these targets. Strategic planning tends to be long term, and may define organisational action steps for between two and five years, and in some infrastructure-heavy organisations, such as airports and utilities, as long as 20 years. The purpose of strategic plans is to turn organisational goals into realities within that period. At Unilever, CEO Paul Polman set a strategic goal of doubling the company’s revenues by the year 2020. ‘Our business is not rocket science,’ said Paul Polman, the first-ever outsider to lead Unilever. ‘It’s about being a little bit better every day.’ A part of Polman’s strategic plan is to move Unilever into the higher-end personal care market. His initial goal was to send 80 per cent of product development employees into the field to see what upscale customers want and to work closely with suppliers, who Polman says now contribute seven of 10 new product ideas – improving Unilever’s ability to reach its goals.12 After strategic goals are formulated, the next step is defining tactical goals, which are the results that major divisions and departments within the organisation intend to achieve. These goals apply to middle management and describe what major subunits must do in order for the organisation to achieve its overall goals. Tactical plans are designed to help execute major strategic plans and to accomplish a specific part of the organisation’s strategy.13 Tactical plans typically have a shorter time horizon than strategic plans – typically for the next year or so. The word tactical comes from the military; for example, tactical weapon systems are designed to deliver specific, often crippling, harm to the enemy. These weapon systems, collectively, reflect an armed force’s overall strategic plan. Tactical weapon systems, such as fighter aeroplanes, are used to achieve just one part of the overall strategic plan. Similarly, in business, tactical plans define what the major departments and organisational subunits will do to implement the overall strategic plan. Generally, it is the middle manager’s job to take the broad strategic plan and identify specific tactical actions. The specific results expected from departments, work groups and individuals are the operational goals. They are precise and measurable. ‘Process 150 sales applications each week’, ‘achieve 90 per cent of deliveries on time’, ‘reduce overtime by 10 per cent next month’ and ‘develop two new online subjects in accounting’ are examples of operational goals. Operational plans are developed at the lower levels of the organisation to specify action steps towards achieving operational goals and to support tactical plans. The operational plan is the department manager’s tool for daily and weekly operations. Goals are typically stated in quantitative terms, and the department plan describes how goals will be achieved. Operational planning specifies plans for supervisors, department managers and individual employees. Schedules are an important component of operational planning. Schedules define precise time frames for the completion of each operational goal required for satisfying the organisation’s tactical and strategic goals. Operational planning must also be coordinated with the budget to ensure resources can be allocated for the desired activities.

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strategic plans The action steps by which an organisation intends to attain its strategic goals.

tactical goals Goals that define the outcomes that major divisions and departments must achieve in order for the organisation to reach its overall goals. tactical plans Plans designed to help execute major strategic plans and to accomplish a specific part of the organisation’s strategy.

operational goals Specific, measurable results expected from departments, work groups and individuals within the organisation. operational plans Plans developed at the organisation’s lower levels that specify action steps towards achieving operational goals and that support tactical planning activities.

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Schedules are an important component of operational planning. Schedules define precise time frames for the completion of each operational goal required for the organisation’s tactical and strategic goals. Operational planning must also be coordinated with the budget, because resources must be allocated for desired activities. One example of a company that is strong on operational planning is Boeing, an American company that has been in operation since 1916, and employs around 3000 people in Australia. Some of these make aeroplane components in Melbourne, while others are engaged in very high-tech software development in Brisbane. The systems analysis laboratory (SAL) in Brisbane conducts high-level, technical ‘systems of systems’ analysis work. SAL conducts military simulations, but it is also capable of many other applications, and is being used increasingly for non-Boeing applications. Boeing must plan and prioritise the way this line of business activity fits with its other mainstream businesses. Boeing is a major company by any standards, with more than 160 000 employees and revenues of more than US$96 billion in 2015.14 The SAL operation plans its activities separately from the main aeroplane manufacturing business, but must also fit strategically with the overall company mission and direction. Boeing sees such spin-offs as very positively adding value to its core capabilities.15

MANAGEMENT IN PRACTICE WHO SETS THE GOALS? MANAGER VERSUS COALITION Organisations perform many activities and pursue many goals simultaneously to accomplish an overall mission. But who decides what mission and goals to strive for? Pursuing some goals means that others have to be delayed or set aside, which means managers often disagree about priorities. After China’s Zhejiang Geely Holding Group bought Volvo Car Corporation, for example, the Chinese and European managers disagreed strongly. The European managers wanted to continue pursuing goals of providing safe, reliable, family-friendly vehicles for a stable market. The new Chinese owners and managers, on the other hand, wanted to expand aggressively into the super-luxury car market. The goals of the two sides were mutually exclusive, so managers had to negotiate and come to some agreement on which direction the company would take. Powerful, motivating goals that unite people are typically established not by a single manager, but by developing a coalition. Coalitional management involves building an alliance of people who support a manager’s goals and can influence other people to accept and work towards them. Being an effective coalitional manager involves three key steps:

✚✚ Talk to customers and other managers. Building a coalition requires talking to many people both inside and outside the organisation. Coalitional managers solicit the views of employees and key customers. They talk to other managers

all across the organisation to get a sense of what people care about and learn what challenges and opportunities they face. A manager can learn who believes in and supports a particular direction and goals, and who is opposed to them and the reasons for the opposition.

✚✚ Address conflicts. Good managers don’t let conflicts over goals simmer and detract from goal accomplishment or hurt the organisation. The University of South Australia and KPMG conducted a survey in 2015 that found that most conflict in family businesses come from differing managerial views of organisational goals, values and vision. As David Harland of SmartCompany.com.au notes, ‘if you want the business to survive and thrive beyond one owner, you need shared values’.

✚✚ Break down barriers and promote cross-silo cooperation. A final step is to break down boundaries and get people to cooperate and collaborate across departments, divisions, and levels. In a Forbes article discussing organisational silos, Brent Gleeson and Megan Rozo point out five ways to encourage senior managers to model the way for improving cooperation. 1 Create a unified vision among senior managers to demonstrate to others in the organisation that working together is the preferred way.

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2 Working towards achieving a common goal is important – 3 4

using the overarching goals of the organisation as a reference point. Motivating and incentivising the desired, cooperative behaviours reinforces the talk for new ways of working together. Measuring the effectiveness of achieving improved cooperation is important for understanding sticking points and wins in inter-departmental cooperation.

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5 Collaboration requires, by definition, the integration of ideas and resources to get things done. Creating projects that leverage the strengths of multiple business units or divisions provides a catalyst for breaking down silos by focusing on the sharing of knowledge and creativity.

SOURCES: Harland, D. (30 November 2016). Identifying the barriers for family business succession. smartcompany, http://www.smartcompany.com.au/business-advice/ strategy/79563-identifying-barriers-family-business-succession/ (accessed 12 December 2016). Gleeson, B. (2 October 2013). The Silo Mentality: How To Break Down The Barriers. Forbes, https://www.forbes.com/sites/brentgleeson/2013/10/02/the-silo-mentality-how-to-break-down-the-barriers/2/#4e88a30adf2e (accessed 12 December 2016); Stephen Friedman and James K. Sebenius. (January–February 2009). Organization Transformation: The Quiet Role of Coalitional Leadership. Ivey Business Journal, http:// www.iveybusinessjournal.com/topics/leadershiporganizational-transformation-the-quietrole-of-coalitional-leadership (accessed 27 January 2012); Gerald R. Ferris et al. (June 2007). Political Skill in Organizations. Journal of Management, 290–320; Norihiko Shirouzu. (7 June 2011). Chinese Begin Volvo Overhaul. The Wall Street Journal, B1; and Norihiko Shirouzu. (14 April 2010). Inside Toyota, Executives Trade Blame Over Debacle. The Wall Street Journal, A1.

A L I G N I NG GOA L S W I T H ST R AT E GY M A P S Effectively designed organisational goals are aligned; that is, they are consistent and mutually supportive so that the achievement of goals at low levels permits the attainment of high-level goals. Organisational performance is an outcome of how well these interdependent elements are aligned, so that individuals, teams, departments and divisions are working in concert to attain specific goals that ultimately help the organisation achieve high performance and fulfil its mission.16 An increasingly popular technique for achieving goal alignment is the strategy map. A strategy map is a visual representation of the key drivers of an organisation’s success. The strategy map shows how specific goals and plans in each area are linked, and provides a powerful way for managers to see the cause-and-effect relationships among goals and plans. The simplified strategy map in EXHIBIT 5.2 illustrates four key areas that contribute to a firm’s longterm success – learning and growth, internal processes, customer service, and financial performance – and how the various goals and plans in each area link to others. The idea is that learning and growth goals serve as a foundation to help achieve goals to excel at internal business processes. Meeting business process goals, in turn, enables the organisation to meet goals for customer service and satisfaction, which helps the organisation achieve its financial goals and optimise its value to all stakeholders. In the strategy map shown in EXHIBIT 5.2, the organisation has learning and growth goals that include developing employees, enabling continuous learning and knowledge sharing, and building a culture of innovation. Achieving them will help the organisation build internal business processes that promote good relationships with suppliers and partners, improve quality and flexibility of operations, and excel at developing innovative products and services. Accomplishing internal process goals, in turn, enables

strategy map A visual representation of the key drivers of an organisation’s success, showing the cause-andeffect relationships among goals and plans.

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EXHIBIT 5.2 A strategy map for aligning goals

Accomplish mission; create optimal value

Financial performance goals:

Customer service goals:

Internal business process goals:

Learning and growth goals:

Increase revenues in existing markets

Increase productivity and efficiency

Increase revenues in new markets and products

Build and maintain good customer relationships

Be the leader in quality and reliability

Provide innovative solutions to customer needs

Build good relationships with suppliers and partners

Improve cost, quality and flexibility of operations

Excel at innovative product development and next-generation market opportunities

Promote employee development via ongoing training

Enable continuous learning and knowledge-sharing

Cultivate a culture of innovation and high performance

Source: Based on Robert S. Kaplan and David P. Norton. (January 2008). Mastering the Management System. Harvard Business Review, 63–77; and R. S. Kaplan and D. P. Norton. (September–October 2000). Having Trouble with Your Strategy? Then Map It. Harvard Business Review, 167–76.

the organisation to maintain strong relationships with customers, be a leader in quality and reliability, and provide innovative solutions to emerging customer needs. At the top of the strategy map, the accomplishment of these lower-level goals helps the organisation increase revenues in existing markets, increase productivity and efficiency, and grow through selling new products and services and servicing new market segments. In a real-life organisation, the strategy map would typically be more complex and would state concrete, specific (often quantitative) goals relevant to the particular business. However, the generic map in EXHIBIT 5.2 gives an idea of how managers can map goals and plans so that they are mutually supportive. The strategy map is also a good way to communicate goals because all employees can see what part they play in helping the organisation accomplish its mission.

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R EMEMBE R THIS ◗◗ ◗◗

Planning starts with the organisation’s purpose or reason for existence, which is called its mission.

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Goals begin with broad strategic goals, followed by more specific tactical goals and then operational goals.

◗◗ ◗◗

Plans are defined similarly, with strategic, tactical and operational plans used to achieve the goals.

◗◗ ◗◗

Strategic plans are the action steps by which an organisation intends to attain strategic goals.

◗◗

Tactical plans are designed to help execute major strategic plans and to accomplish a specific part of the company’s strategy.

◗◗

Operational goals are specific, measurable results that are expected from departments, work groups and individuals.

◗◗

Operational plans specify the action steps towards achieving operational goals and support tactical activities.

◗◗ ◗◗

Goals and plans need to be in alignment so that they are consistent and mutually supportive.

A mission statement is a broadly stated definition of the organisation’s basic business scope and operations that distinguishes it from similar types of organisations.

Strategic goals are broad statements of where the organisation wants to be in the future and pertain to the organisation as a whole rather than to specific divisions or departments.

The outcomes that major divisions and departments must achieve for the organisation to reach its overall goals are called tactical goals.

A strategy map is a visual representation of the key drivers of an organisation’s success, showing the cause-and-effect relationship among goals and plans.

5.3

OPERATIONAL PLANNING

Managers use operational goals to direct employees and resources toward achieving specific outcomes that enable the organisation to perform efficiently and effectively. An important consideration is how to establish effective goals, because goal setting directly influences employee motivation and performance.17 Managers use goals in a number of planning approaches, including management-by-objectives (MBO), single-use plans and standing plans.

C R I T E R I A F O R E F F E C T I V E G OA L S Research has identified certain factors, shown in EXHIBIT 5.3, that characterise effective goals. First and foremost, goals need to be specific and measurable.18 When possible, operational goals should be expressed in quantitative terms, such as increasing profits by two per cent, having zero incomplete sales order forms or increasing average teacher effectiveness ratings from 4.0 to 4.5. Not all goals can be expressed in numerical terms, but vague goals have little motivating power for employees. By necessity,

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EXHIBIT 5.3 Characteristics of effective goals

Are specific and measurable

Are linked to rewards

Are challenging but realistic

key performance indicators (KPIs) Key performance indicators (KPIs) are the focused set of important metrics that describe the organisation’s performance in delivering its strategy.

Have a defined time period

Effective goals

Cover key result areas

goals are qualitative as well as quantitative. The important point is that the goals be precisely defined and allow for measurable progress. Effective goals also have a defined time period that specifies the date on which goal attainment will be measured. For instance, school administrators might set a deadline for improving teacher effectiveness ratings by the end of the current school year. When a goal involves a two- to three-year time horizon, setting specific dates for achieving parts of it is a good way to keep people on track towards the goal. Managers should design goals so that they can be translated into measurement of key result areas. Goals cannot be set for every aspect of employee behaviour or organisational performance; if they were, their sheer number would render them meaningless. Instead, managers establish goals based on the idea of measurement and clarity. A few carefully chosen goals with clear measures of success can focus organisational attention, energy, and resources more powerfully.19 The measurements are sometimes referred to as key performance indicators. Key performance indicators (KPIs) assess what is important to the organisation and how well the organisation is progressing toward attaining its strategic goal, so that managers can establish lower-level goals that drive performance toward the overall strategic objective.20 Managers should set goals that are challenging but realistic. When goals are unrealistic, they set employees up for failure and lead to a decrease in employee morale. However, if goals are too easy, employees may not feel motivated. Goals should also be linked to rewards that employees feel are important – that is, a monetary bonus is not always the most effective reward. The ultimate impact of goals depends on the extent to which salary increases, promotions and awards are based on goal achievement. Employees pay attention to what gets noticed and rewarded in the organisation.21

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CASE STUDY PLANNING AND IMPLEMENTING THE INFRASTRUCTURE OF THE FUTURE When it comes to planning for the future, few countries take as comprehensive an approach as the Netherlands. The Dutch Ministry of Infrastructure and Environment is largely responsible for informing and developing policies to improve the country’s long-term economic competitiveness, liveability, accessibility and safety. At the core of Dutch policy making is an ethos for robust decisions – plans that account for a broad array of potential futures, designed to achieve the government’s goals no matter what the future could bring. This requires policy making to include input from a broad array of stakeholders, with communities often the first port of call for feedback and ideas on how infrastructure should integrate with existing social and economic contexts. Decisions for what to build, where, when and how require comprehensive negotiations, engineering and design iterations, resulting in infrastructure that may take a long time to come about, but the end result is always what is needed and in a form that meets the needs of the most stakeholders possible. Goals for infrastructure development are currently focused towards the next 25 years of growth, with visions for what infrastructure will need to accommodate by the year 2040, demonstrating just how long the time horizons for comprehensive (yet modern) planning approaches can be. Comprehensive plans that focus on economic growth through major infrastructure development, such as the country’s Mainport Strategy, have led to decade upon decade of infrastructure growth and economic development centred around the shipping port of Rotterdam and the five runways of Amsterdam’s Schiphol Airport. Trunks of commercial development extend like a spider’s web

along the road and rail networks that converge on the ports, creating economies of scale for public transport and utilities development that keep development and living costs relatively low. By integrating the country’s transport infrastructure with its primary sources of economic growth – the ports – the relatively small country of the Netherlands has prospered. In contrast to the ‘steady and robust’ approach of the Netherlands, the Asia Pacific region has seen rapid and massive levels of infrastructure investment in similar infrastructures to the Netherlands. In particular, major cities throughout Asia Pacific have adopted the increasingly popular Aerotropolis land use model for interweaving land transport, business, residential and industrial development, centred around airports (which was developed from the urban growth patterns surrounding Amsterdam’s Schiphol Airport). Instead of using the slow but robust planning processes used in the Netherlands, airports like Taoyuan (Taiwan), Incheon (South Korea) and Pudong (China) have all grown rapidly with multiple phases of construction (i.e. new runways, terminals and connecting land transport infrastrucutre added) taking place within a decade, which for airports is very rapid indeed. This rapid approach to development requires a more centralised approach to planning and development, with speed coming at the expense of comprehensive feedback and input from stakeholders and community. This means that infrastructure growth isn’t necessarily as generally welcomed for these projects, but they do provide their regions with rapid economic growth – enabling their respective countries to compete with one another more readily for business investment.

Sources: Ministry of Infrastructure and Environment. March 2011. Summary National Policy Strategy for Infrastructure and Spatial Planning: Making the Netherlands competitive, accessible, liveable and safe; and Gi-Tae Yeo, Ying Wan & Whien-Chang Chou. (2013). Evaluating the competitiveness of the aerotropolises in East Asia. Journal of Air Transport Management 32, 24–31; and Yu-Hern Chang & Chung-Hsing Yeh. (2016). Managing corporate social responsibility strategies of airports: The case of Taiwan’s Taoyuan International Airport Corporation. Transportation Research Part A: Policy and Practice 92, 338–348.

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M A NAG E M E N T B Y O BJ E CT I V E S

management by objectives (MBO) A method of management whereby managers and employees define goals for every department, project and person, and use them to monitor subsequent performance.

Described by famed management scholar Peter Drucker in his 1954 book, The Practice of Management, management by objectives has remained a popular and compelling method for defining goals and monitoring progress towards achieving them. Management by objectives (MBO) is a system whereby managers and employees define goals for every department, project, and person and use them to monitor subsequent performance.22 A model of the essential steps of the MBO system is presented in EXHIBIT 5.4. Four major activities make MBO successful:23

◗◗ Set goals. Setting goals involves employees at all levels and looks beyond day-to-day activities to answer the question, ‘What are we trying to accomplish?’ Managers heed the criteria of effective goals described in the previous section and make sure to assign responsibility for goal accomplishment. However, goals should be decided jointly. Mutual agreement between employee and supervisor creates the strongest commitment to achieving goals. In the case of teams, all team members may participate in setting goals.

◗◗ Develop action plans. An action plan defines the course of action needed to achieve the stated goals. Action plans are made for both individuals and departments.

◗◗ Review progress. A periodic progress review is important to ensure that action plans are working. KPIs often provide the data for the review. These reviews can occur informally between managers and employees, where the organisation may wish to conduct three-, six- or nine-month reviews during the year. This periodic check-up allows managers and employees to see whether they are on target or whether corrective action is necessary. Managers and employees should not be locked into predefined behaviour and must be willing to take whatever steps are necessary to produce meaningful results. The point of MBO is to achieve goals. The action plan can be changed whenever goals are not being met.

◗◗ Appraise overall performance. The final step in MBO is to carefully evaluate whether annual goals have been achieved for both individuals and departments. Success or failure to achieve goals can become part of the performance appraisal system and the designation of salary increases and other rewards. The appraisal of departmental and overall corporate performance shapes goals for the next year. The MBO cycle repeats itself on an annual basis. The specific application of MBO must fit the needs of each organisation. Siemens is an example of one company that used MBO to improve its financial performance, as discussed in the following case study. MBO involves frank discussions with your boss about objectives and performance.

TAKE A MOMENT As a new manager, it’s important to establish operational goals that are in alignment with the tactical and strategic goals set at higher levels in the organisation. Make goals specific, measurable and challenging, but realistic. Remember that a few carefully chosen goals are powerful for directing employee energy and motivation. Reward people when they meet goals.

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Step 1: Set goals

Step 2: Develop action plans

EXHIBIT 5.4 Model of the MBO process

Corporate strategic goals Departmental goals

Action plans

Individual goals

Review progress Step 3: Review progress Take corrective action

Appraise performance

Step 4: Appraise overall performance

CASE STUDY SIEMENS Siemens of Germany, which has made everything from mobile phones to gas-turbine generators to light bulbs, has always had great engineers bent on making products of the highest quality. But in the late 1990s, managers learned that competing with the likes of US-based General Electric, Korea’s Samsung and Finland’s Nokia takes more than quality – it also requires speed to market, relentless innovation and ruthless attention to costs. Between 1996 and 1998, profits sank by two-thirds and company shares fell even faster. Former CEO Heinrich von Pierer developed a plan for getting Siemens back on track, with a specific goal (MBO Step 1) of strengthening the overall business to be in financial shape for listing on the New York stock exchange within three years. Managers developed an action plan (MBO Step 2) that included: (1) cutting the time it takes to develop and produce new products; (2) selling or closing poorly performing units and strengthening remaining businesses through acquisitions to achieve world leadership; (3) setting tough profit targets for managers and tying pay to performance; and (4) converting accounting practices to report results according to US accounting standards. Managers of the various business divisions then developed action plans for employees in their own units. Progress was reviewed (MBO Step 3) at quarterly meetings where

managers from the 14 business units reported on their advancements directly to von Pierer. Managers were required to explain if benchmarks weren’t met and how shortcomings would be corrected. At the end of each year of the turnaround plan, an overall performance appraisal was held for each business and the corporation as a whole (MBO Step 4). Managers who met goals were rewarded; those who had consistently failed to meet them were let go, with the poorest performers going first. After the plan was implemented, Siemens dramatically improved its speed and overall financial performance. For example, mobile phones that once took a painstaking 13 hours each to produce began sliding off the assembly line in five minutes. Many of Siemens’ businesses were transformed from money losers to profit drivers, and the stock performance took a sharp upturn. Since its reinvigoration from within, Siemens has focused on redefining the business it wishes to be in. Having seen opportunities in the energy and transport sectors, Siemens exited the telecommunications industry in 2013, allowing the business to focus on renewable energies, transportation and software to grow the firm’s stock market value by over 30% from 2013 to 2017. The MBO system has helped to energise manager and employee actions company-wide towards goals deemed critical by top management.

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Siemens performance management system is based on its high-level values, published in 2011 as: Our Values – responsible, excellent and innovative – have been the basis for Siemens’ success for over 160 years. Responsible: Committed to ethical and responsible actions At Siemens, we are determined to meet – and wherever possible, exceed – all legal and ethical requirements. Our responsibility is to conduct all business according to the highest professional and ethical standards and practices: there must be no tolerance for non-compliant behaviour. The principles related to ‘Responsible’ serve as the compass by which we navigate our way through our business decisions. We must also encourage business partners, suppliers and other stakeholders to adopt a similar standard of ethical behaviour. Excellent: Achieving high performance and excellent results We at Siemens set ourselves ambitious targets – derived from our vision and verified by benchmarks – and give our all to achieve them. We stand beside our customers in the search for perfect quality, coming up with solutions that exceed expectations.

Excellence demands we define a path of continuous improvement, constantly challenging existing processes. It also requires us to embrace change so we are in the right place when new opportunities open up. Excellence also means attracting the best talent in the marketplace and giving them the skills and opportunities they need to become high achievers. We are committed to living a high-performance culture. Innovative: Being innovative to create sustainable value Innovation is a cornerstone of Siemens’ success. We closely align R&D activities with business strategy, hold key patents and have a strong position in both established and emerging technologies. Our goal is to be a trendsetter in all of our businesses. We unlock the energy and creativity of our employees, embracing the new and different. We are also ingenious and we embrace this quality in all its varied meanings – original, inventive and resourceful. We are entrepreneurs whose innovations are successful on a global scale. We measure the success of our innovations by our customer’s success. We constantly renew our portfolio to provide answers to societies’ most vital challenges, enabling us to create sustainable value.

Sources: Peter Loscher, CEO (http://www.siemens.com/about/en/index/values.htm); Ewing, J. (5 June 2000). Siemens Climbs Back. BusinessWeek, 79–82; Siemens’s Annual Report 2012, http://www.siemens.com/investor/pool/en/investor_relations/siemens_ar_2012.pdf, pp. 18, 88 (accessed 20 September 2013); and Liezel Hill. 14 November 2016. Siemens to buy US software maker Mentor for $4.5 billion. Bloomberg (https://www.bloomberg.com/news/articles/2016-11-14/siemens-to-buy-mentor-graphics-of-the-u-s-for-4-5-billion).

BENEFIT S A ND PRO BL E MS W I T H MB O Many companies, including ANZ, Westpac, Woolworths, Intel, Black & Decker and DuPont, have used MBO, and most managers think that it is an effective management tool.24 Tim O’Shaughnessy, founder and CEO of LivingSocial, a daily-deal website with more than 5000 employees and 46 million members in 25 countries, used the principles of MBO to keep the fast-growing business on track. O’Shaughnessy met regularly with the heads of every department to set goals for items such as sales and membership growth and develop action plans for how to achieve them. Then, he would obsessively track metrics to see whether things were on target towards meeting the numbers. Each week, O’Shaughnessy would meet with department heads to talk about their key metrics and review their progress. ‘The more data you gather, the more likely you’ll be successful in the long term,’ he said.25 Most managers, like Tim O’Shaughnessy, believe they are better oriented towards goal achievement when MBO is used.

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MBO can provide a number of benefits, which are summarised in EXHIBIT 5.5. Corporate goals are more likely to be achieved when manager and employee efforts are focused on them. Using a performance measurement system such as MBO helps employees see how their jobs and performance contribute to the business, giving them a sense of ownership and commitment.26 Performance is improved when employees are committed to attaining the goal, are motivated because they help decide what is expected, and are free to be resourceful. Goals at lower levels are aligned with and enable the attainment of goals at top management levels.

EXHIBIT 5.5 MBO benefits

MBO

Focuses manager and employee efforts on activities that will lead to goal attainment.

Can improve performance at all company levels.

Improves employee motivation.

Aligns individual and departmental goals with company goals.

However, like any system, MBO can cause problems when used improperly. For example, an overemphasis on ‘meeting the goals’ can obscure the means that people use to get there. People may cut corners, ignore potential problems or behave unethically just to meet the targets. In addition, MBO cannot stand alone; it is only a part of effectively managing people to achieve goals. MBO is ‘like training wheels on a bicycle’.27 It gets you started, but it isn’t all you need. In the United States, for example, the implementation of rigorous MBO-type systems in urban police departments and school systems has led to cheating on the numbers, with people lying about their work performance in order to score well on the metrics. The means for achieving goals is just as important as the outcomes. A systematic approach that has emerged over the past decade is called management by means (MBM), which focuses attention on the methods and processes used to achieve goals. A term coined by H. Thomas Johnson and his co-authors in the book Profit Beyond Measures, MBM is based on the idea that when managers pursue their activities in the right way, positive outcomes will result. MBM focuses people on considering the means rather than just on reaching the goals.28 Volkswagen’s recent ‘Dieselgate’ emissions-fixing scandal demonstrates a departure from the ideals set in MBM, showing that if you do the wrong thing, bad things happen as a result – i.e. karma. Volkswagen confessed that around 11 million vehicles worldwide were fitted with devices that manipulated emissions test results – some cars fitted with the device produced as much as 40 times the legal limit of some pollutants. It appears that prolonged competition for meeting consumer preferences for ‘greener’ vehicles and strict emissions controls set by the EU led to the deceptive behaviour. Volkswagen doesn’t seem to be alone in misleading regulators, with other diesel vehicle manufacturers found to have discrepancies in their reported factory and on-the-road emissions, although there has been no formal discussion of ‘cheating’ for these other manufacturers. Since the scandal, sales in Volkswagen’s brands have dropped by approximately seven per cent, and the legal repercussions could lead to criminal charges being brought against the senior managers of the organisation.29 The company has had to look at its approach, and has developed a ‘Pact for the Future’ that incorporates a range of downsizing initiatives alongside a program of managerial and business reform that focuses employees and managers towards the efficient, competitive and successful achievement of goals.30

management by means (MBM) Focuses attention on the methods and processes used to achieve goals.

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single-use plans Plans that are developed to achieve a set of goals that are unlikely to be repeated in the future. standing plans Ongoing plans used to provide guidance for tasks performed repeatedly within the organisation. EXHIBIT 5.6 Major types of single-use and standing plans

S I NG L E - U S E A N D STA N D I NG P L A N S Single-use plans are developed to achieve a set of goals that are not likely to be repeated in the future. Standing plans are ongoing plans that provide guidance for tasks or situations that occur repeatedly

within the organisation. EXHIBIT 5.6 outlines the major types of single-use and standing plans. Single-use plans typically include both programs and projects. The primary standing plans are organisational policies, rules and procedures.

SINGLE-USE PLANS

STANDING PLANS

PROGRAM

POLICY

•  Plans for attaining a one-time organisational goal

• Broad in scope – a general guide to action

•  Major undertaking that may take several years to complete

•  Defines boundaries within which to make decisions

•  Large in scope; may be associated with several projects

•  Based on organisation’s overall goals/strategic plan •  Examples: Drug-free workplace policies; Sexual harassment policies; Continuous improvement Shewhart cycle

•  Examples: Boeing’s 7E7 aircraft; NASA space station PROJECT

RULE

•  Also a set of plans for attaining a one-time goal

• Narrow in scope

•  Smaller in scope and complexity than a program; shorter time horizon

• May apply to specific setting

•  Describes how a specific action is to be performed

• Often one part of a larger program

•  Examples: No-smoking rule in areas of plant where hazardous materials are stored

•  Examples: Development of a rocket booster for NASA space station; Development of external shell for NASA space station

•  Procedure (sometimes called a standard operating procedure) •  Defines a precise series of steps to attain certain goals •  Examples: Procedures for issuing refunds; Procedures for handling employee grievances

Standing plans generally pertain to matters such as employee illness, absences, smoking, discipline, hiring and dismissal. Many companies are discovering a need to develop standing plans regarding the use of social media, digital security and work–life balance programs.31 For example, Marisa Mayer, the new CEO of Yahoo!, created controversy when she abolished the company’s work-at-home policy in favour of a more traditional policy requiring people to work in the office. According to the Society for Human Resource Management, 40 per cent of organisations surveyed have a formal social media policy, and more than half of them include a statement about the company’s right to monitor social media usage. Good social media policies are clear, simple and specific. They define appropriate behaviour, clearly specify what is off-limits, let employees know the company can monitor their online activities and explain the consequences of breaking the rules.32

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Companies also have policies to guide relationships with customers, suppliers, or others outside the organisation. A famous example is the Petite Syrah café in Nice, France, pricing coffee at 1.40 euros for customers ordering with, ‘Bonjour, un café, s’il vous plait’, or 7 euros for ‘Un café’, effectively creating a standing plan to reward customers for politeness, and charging a premium for those who are rude.33

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Managers formulate goals that are specific and measurable, cover key result areas, are challenging but realistic, have a defined time period and are linked to rewards.

◗◗

Types of operational planning include management by objectives, single-use plans and standing plans.

◗◗

Management by objectives (MBO) is a method whereby managers and employees define goals for every department, project and person and use them to monitor subsequent performance.

◗◗

MBO includes the steps of setting goals, developing action plans, reviewing progress and appraising performance.

◗◗

A contemporary approach that focuses people on the methods and processes used to attain results, rather than on the results themselves, is called management by means (MBM).

◗◗

Single-use plans are plans that are developed to achieve a set of goals that are unlikely to be repeated in the future.

◗◗

Standing plans are ongoing plans that are used to provide guidance for tasks that occur repeatedly in the organisation.

5.4

BENEFITS AND LIMITATIONS OF PLANNING

Some managers believe planning ahead is necessary to accomplish anything, whereas others think planning limits personal and organisational performance. Both opinions have merit, because planning can have both advantages and disadvantages. Research indicates that planning generally positively affects a company’s performance.34 Here are some reasons why:35

◗◗ Goals and plans provide a source of motivation and commitment. Planning can reduce uncertainty for employees and clarify what they should accomplish. The lack of a clear goal hampers motivation because people don’t understand what they’re working towards.

◗◗ Goals and plans guide resource allocation. Planning helps managers decide where they need to allocate resources, such as employees, money and equipment. At Netflix, for example, a goal of having more video offerings online rather than in DVD format means allocating more funds for Internet movie rights and spending more of managers’ time developing alliances with other companies.36

◗◗ Goals and plans are a guide to action. Planning focuses attention on specific targets and directs employee efforts towards important outcomes. Planning helps managers and other employees know what actions they need to take to achieve the goal.

◗◗ Goals and plans set a standard of performance. Because planning and goal-setting define desired outcomes, they also establish performance criteria so managers can measure whether things are on- or off-track. Goals and plans provide a standard of assessment.

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Despite these benefits, some researchers also think planning can hurt organisational performance in some ways.37 Therefore, managers should understand the limitations to planning, particularly when the organisation is operating in a turbulent environment:

◗◗ Goals and plans can create a false sense of certainty. Having a plan can give managers a false sense that they know what the future will be like. However, all planning is based on assumptions, and managers can’t know what the future holds for their industry or for their competitors, suppliers and customers.

◗◗ Goals and plans may cause rigidity in a turbulent environment. A related problem is that planning can lock the organisation into specific goals, plans and time frames, which may no longer be appropriate. Managing under conditions of change and uncertainty requires a degree of flexibility. Managers who believe in ‘staying the course’ will often stick with a faulty plan even when conditions change dramatically.

◗◗ Goals and plans can get in the way of intuition and creativity. Success often comes from creativity and intuition, which can be hampered by too much routine planning. For example, during the process of setting goals in the MBO process described earlier, employees might play it safe to achieve objectives rather than offer creative ideas. Similarly, managers sometimes dismiss creative ideas from employees that do not fit with predetermined action plans.38

INNOVATIVE WAY PLANNING FOR A BIGGER TOLL

Source: Fairfax Syndication/Glenn Hunt

Since its beginnings in 1985, Paul Little has literally built a transport and supply chain empire in Australia. And he has realised his ambition of expansion well beyond his home country. This very busy last 20-plus years has involved both organic growth – growth in existing markets – and a series of well-planned and executed acquisitions of companies that can lead to a geographically diversified supply chain powerhouse. Mr Little’s strategy is to hold costs down by managing them carefully, while finding smart ways to provide innovative supply chain solutions to his clients. In recent years, Toll has expanded through buying businesses in the UK, US, Singapore, Japan and China. Toll is keenly aiming to participate fully in the growth of Asia, and expansion of supply chains from Asia into the Middle East and US, both being much bigger opportunities and markets than its Australian base. With about 20 per cent of

Paul Little

the company now owned outside Australia, and a similar proportion of revenue coming from outside Australia, Toll has plenty of potential for expansion and diversification. When a company is bought by Toll and brought into the group, the key challenge is how to create and add value, in order to provide a superior return on investment, and with that come the challenges of leadership and business integration. Mr Little has shown sound judgement and flexibility, in sometimes keeping the acquired companies’ leaders in place, and other times replacing them fast with proven Toll executives. Toll now employs 45 000 people and has revenue in excess of A$3.8 billion from operations in 50 countries across the globe. Mr Little has retired from the CEO position and is currently engaged in other entrepreneurial ventures worth over A$1 billion such as his Little Projects inner city apartment developments. He was also the chairman of Essendon Football Club in the Australian Football League (AFL) from 2013 to 2015.

Sources: Stensholt, J. (14–20 October 2010). Big things from Little. BRW, 32 and 33; Hawthorne, M. and Williams, R. (24 August 2013). Calm in a Crisis and Ready for a Fight. The Age, http://www.theage.com.au/afl/afl-newscalm-in-a-crisis-and-ready-for-the-fight-20130823-2sh9x.html (accessed 21 December 2013).

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Benefits of planning and goal setting include serving as a source of motivation, determining resource allocation, providing a guide to action and setting a standard for performance measurement.

◗◗

Limitations of planning and goal setting include the potential to create a false sense of certainty, create rigidity that hinders the response to a turbulent environment, and get in the way of creativity and intuition.

5.5

PLANNING IN A TURBULENT ENVIRONMENT

Considering the limitations of planning, what are managers to do? One way managers can gain benefits from planning and control its limitations is by using innovative planning approaches that are in tune with today’s turbulent environment. Three approaches that help brace the organisation for unexpected – even unimaginable – events are contingency planning, building scenarios and crisis planning.

CO N T I NG E N C Y P L A N S When organisations are operating in a highly uncertain environment or dealing with long time horizons, sometimes planning can seem like a waste of time. In fact, inflexible plans may even hinder rather than help an organisation’s performance in the face of rapid technological, social, economic or other environmental changes. In these cases, managers can develop multiple future scenarios to help them form more flexible plans. Contingency plans define organisation responses to be taken in the case of emergencies, setbacks or unexpected conditions. To develop contingency plans, planners identify important and uncontrollable factors such as recession, surging supply costs, technological developments or safety accidents. To minimise the impact of these potential factors, a planning team can forecast the worst-case scenarios and develop responses to minimise or negate their impact. For example, if sales fall 20 per cent and prices drop 8 per cent, what will the company do? Managers can develop contingency plans that might include lay-offs, emergency budgets, new sales efforts, or new markets.39 A real-life example comes from the airlines, which had to scramble to develop contingency plans after problems in the electrical system of the new Boeing 787 led to the grounding of the entire Dreamliner fleet. Some routes that had been designed to fit the 787’s capabilities for fuel efficiency, long-range, and seating capacity, had to be closed or redesigned when the Federal Aviation Administration (FAA) grounded the new plane. As uncertainty over when the Dreamliner would return to the skies lingered, airline managers began formulating contingency plans for what to do if the 787 remained out of commission for an extended period of time. Should they lease temporary aircraft to fill the gap? Should they substitute larger existing planes from their fleet and sell more seats at a discount to keep traffic and revenues moving, or shut down routes altogether? What kind of alternative marketing plans were needed to reassure passengers that the plane would be safe once it returned to service?40 The grounding of the Dreamliner and further delays to delivery meant many flights had to be cancelled while airlines decided how to fill the capacity gap – some leased aircraft, some cancelled orders and shifted to the Airbus A380, and others just waited for the aircraft to be reinstated. Today, the Dreamliner is back in the skies and airlines are creating new routes for the aircraft’s exceptionally long range (i.e. direct flights between Australia and London).

contingency plans Plans that define organisation responses to specific situations, such as emergencies, setbacks or unexpected conditions.

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S C E NA R I O P L A N N I NG scenario building Scenario building is the planning activity in which future possibilities are visualised by extrapolating current trends and considering future discontinuities.

An extension of contingency planning that is useful in highly uncertain environments is a forecasting technique known as scenario building.41 Scenario building involves looking at current trends and discontinuities and visualising future possibilities. Rather than looking only at history and thinking about what has been, managers think about what could be. The events that cause the most damage to companies are those that no one even conceived of, such as the 2001 collapse of the World Trade Center towers in New York due to terrorist attack. ‘Scenarios are meant to expand the range of future possibilities managers should consider and prepare for,’ says Stephen Millett, author of Managing the Future. In today’s tumultuous world, traditional planning can’t help managers cope with the many shifting and complex variables that might influence their organisations. Lyndon Bird, technical development director at the Business Continuity Institute, emphasises that broad plans are the answer. In a turbulent and interconnected world, he says, businesses ‘are going to be interrupted by something and they are probably not going to be able to predict what will happen except that they’ve got to be able to deal with the consequences’.42 Managers can’t predict the future, but they can rehearse a framework within which future events can be managed.43 Organisations can be disrupted by any number of events. A recent survey by the Chartered Management Institute and the Business Continuity Institute found that some of the top events that managers might need scenario plans for include extreme weather, loss of IT systems, loss of key employees, loss of access to offices or plants, failure of communication systems, and supply chain disruptions. Some managers use published global scenarios, such as debt problems in Europe, a slowdown in Asia, or global warming to analyse patterns and driving forces that might affect their industry as a starting point for scenario building. This abbreviated scenario thinking can give managers a head start on asking ‘What if…?’ leading to increased understanding even before any scenarios are written.44 Then a broad base of managers mentally rehearses different scenarios based on anticipating the varied changes that could influence the organisation. Scenarios are like stories that offer vivid alternative pictures of what the future will be like and how managers will respond. Typically, two to five scenarios are developed for each set of factors, ranging from the most optimistic to the most pessimistic view.45 For example, tourism companies and industry bodies that rely on the Great Barrier Reef could create three broad scenarios of what might happen – one negative, perhaps geared towards accelerated coral bleaching and rising sea levels; one neutral, showing no change to current trends; and one positive, perhaps geared towards a slow-down in global warming or a return of healthy reef ecologies – and develop plans for how to respond to each scenario. Scenario building forces managers to mentally rehearse what they would do if their best-laid plans collapse.

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Contingency plans define organisation responses to be taken in the case of emergencies, setbacks or unexpected conditions.

◗◗

To develop contingency plans, planners identify important and uncontrollable factors such as recession, surging supply costs, technological developments or safety accidents.

◗◗

Scenario planning looks beyond history and thinking about what has been, focusing managers to think about what could be.

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Managers can’t predict the future, but they can rehearse a framework within which future events can be managed.

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CRISIS PLANNING

Many firms also engage in crisis planning to enable them to cope with unexpected events that are so sudden and devastating that they have the potential to destroy the organisation if managers aren’t prepared with a quick and appropriate response. Sundance Resources, an Australian mining company with projects in Africa, suffered a tragic loss in 2010 when all members of the company’s board of directors were killed in a tragic air crash in western Africa. Share trading for the company was halted immediately, and the Chief Financial Officer had to step into the role of acting CEO to steward the company until a new board of directors and CEO could be found.46 The company’s ability to respond to the crisis and communicate effectively with its stakeholders resulted in an immediate 15 per cent increase in share price when trading resumed a month later, and adding a further 400 per cent value over the next six months.47 This demonstrates that a normally crippling event can be managed effectively to help an organisation survive, even thrive. As we have mentioned, managers can’t always anticipate future events and build scenarios to cope with them. In addition, some unexpected events are so sudden and devastating that they require immediate response. For managers to respond appropriately, they need carefully thought out and coordinated plans. Although crises may vary, a good crisis management plan can be used to respond to any disaster at any time of the day or night. In addition, crisis planning reduces the incidence of trouble; much as putting a good lock on a door reduces burglaries.48 EXHIBIT 5.7 outlines three primary stages of crisis; pre-event, response and recovery, and post-event. Within each stage of crisis, a range of crisis management functions are identified that aim to prepare Near-miss Embedding 10. Near-miss learning

Avoidance

Pre-event 1. Planning

2. Preparation

9. Near-miss review

3. Assessment

Activation

Response and recovery 4. Coordination and facilitation

5. Containment and limitation

6. Operational continuity

Embedding

Post-event 8. Learning

Resolution 7. Review

Source: Developed by Devine, M. J. (2014). Risk Management and High Reliability; A case study of Australian Airport Management (PhD thesis), p. 285.

EXHIBIT 5.7 Critical infrastructure disturbance process (CIDP)

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organisations for potential disturbances to operations, limit consequences and maintain organisational survival, and ensure that the organisation learns from its experiences over time. In addition to historical perspectives of crisis management, the process in EXHIBIT 5.7 also presents a stage of the near miss – where an organisation identifies a potential threat but, through prevention or serendipity, avoids a disturbance escalating to become a crisis for the organisation. The pre-event stage involves activities managers undertake to try to prevent crises from occurring and to detect warning signs of potential crises. The pre-event stage includes all the detailed planning to handle a crisis when it occurs. Response and recovery focuses on the organisation’s response to an actual crisis, and involves the activation of pre-planned response routines, coordinating actions with stakeholders, and focusing on the ability of the organisation to recover from the disturbance. Post-event processes aim to review the identified causes of the disturbance and evaluate the organisation’s ability to respond to and recover from the disturbance, and ensure that any critical learnings are embedded back into the organisation’s pre-event routines, such as developing new monitoring processes or adjusting crisis response protocols to improve prevention and response capabilities.

PRE-EVENT Although unexpected events and disasters will happen, managers should do everything they can to prevent crises. A critical part of the pre-event stage is building trusting relationships with key stakeholders such as employees, customers, suppliers, governments, unions and the community. By developing favourable relationships, managers can often prevent crises from happening and respond more effectively to those that cannot be avoided. For example, organisations that have open, trusting relationships with employees and unions may avoid crippling labour strikes. Open communication also helps managers identify problems early so they do not turn into major issues, and thus become near-misses that can be learned from.

P REPA RAT ION A ND P L A NNI NG Preparation is the most prevalent of the three pre-event functions, and requires the manager to designate a crisis management team and spokesperson, create a detailed crisis management plan and set up an effective communications system that is regularly practised and assessed to ensure the organisation is capable of implementing its plans effectively. Some companies are setting up crisis management offices, with high-level leaders who report directly to the CEO.49 For example, Monash University, one of Australia’s largest tertiary institutions, has created a permanent crisis management team and infrastructure, ready to move into action fast when the need comes to act decisively.50 Although these officers are in charge of crisis management, it is important that people throughout the company be involved. The crisis management team, for example, is a cross-functional group of people who are designated to swing into action if a crisis occurs. They are closely involved in creating the crisis management plan, and they’ll be called upon to implement the plan if a disaster hits. The US Office of Personnel Management in Washington, DC has nearly 200 people assigned and trained to take immediate action if a disaster occurs, including eight employees assigned to each of 10 floors to handle an evacuation.51 The organisation should also designate a spokesperson who will be the voice of the company during the crisis.52 The spokesperson in many cases is the top leader of the organisation. However, organisations typically assign more than one spokesperson so that someone else will be prepared if the top leader is not available.

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The crisis management plan (CMP) is a detailed written plan that specifies the steps to be taken, and by whom, if a crisis occurs. The CMP should include plans for dealing with various types of crises, such as natural disasters like fires or earthquakes, normal accidents like economic crises or industrial accidents, and abnormal events such as product tampering or acts of terrorism.53 The plan should include details for ensuring the well-being of employees and customers, procedures for back-up and recovery of computer systems and protecting proprietary information, details on where people should go if they need to be evacuated, plans for alternative work sites if needed, and guidelines for handling media and other outside communications. A key point is that a crisis management plan should be a living, changing document that is regularly reviewed, practised and updated as needed. A major part of the CMP is a communications plan that designates a crisis command centre and sets up a complete communications and messaging system. The command centre serves as a place for the crisis management team to meet, gather data and monitor incoming information, and disseminate information to the media, employees and the public.

R E S P O N S E A N D R E COV E R Y Some crises are inevitable no matter how well-prepared an organisation is. When crisis hits, a rapid response is crucial. The team should be able to immediately activate the crisis management plan, so training and practice are important. In addition, the organisation should ‘get the awful truth out’ to employees and the public as soon as possible.54 This is the stage where it becomes critical for the organisation to speak with one voice so people do not get conflicting stories about what’s going on and what the organisation is doing about it. After ensuring people’s physical safety in a crisis, the next focus should be on responding to the emotional needs of employees, customers and the public. Giving facts and statistics to try to downplay the disaster always backfires because it does not meet people’s emotional need to feel that someone cares about them and what the disaster has meant to their lives. After a devastating crisis, companies may provide counselling and other services to help people cope.

P O ST- E V E N T Once an organisation is considered to have recovered and be back to its normal operational capabilities (or as close as is possible after the disturbance), it is important for the organisation to reflect on what it has just experienced to ensure that any mistakes are not repeated, and improve the chances of the organisation avoiding the same type of disturbance happening again. Post-event reviews often require group workshops and one-on-one interviews, often called ‘wash-ups’, to gain feedback from employees and stakeholders as to the effectiveness of pre-event and response and recovery routines. Any new information gathered should be evaluated to identify critical learning points, which can then be prioritised for future embedding into pre-event routines. Resource constraints often force an organisation to choose only a select few learnings to embed back into the organisation’s crisis management process, so it is important that post-event functions are given adequate time and attention in order for effective decisions to be made.

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crisis management plan (CMP) A detailed written plan that specifies the steps to be taken, and by whom, if a crisis occurs.

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INNOVATIVE WAY JETBLUE Penny Neferis has been the ‘worrier in chief’ at American budget airline JetBlue Airways for more than 12 years. As director of care and emergency response, she leads a team that is always thinking about what could go wrong. Neferis’s team develops JetBlue’s emergency response plan and trains employees in handling a crisis, whether it be an accident, health scare, terrorist attack or natural disaster. Many organisations weren’t prepared when the swine flu outbreak hit the United States in 2009, but JetBlue had procedures in place that could be adapted to the crisis. They quickly set up training to help employees recognise symptoms, provided hand sanitiser and gloves for planes, established reporting procedures, and created a plan for how to operate if staff or headquarters personnel were affected. Regardless of where a crisis occurs in the world, Neferis and her team swing into action. Following the earthquake in Haiti, for instance, Neferis immediately set up a taskforce that coordinated with the Haitian consulate and the Red

Cross. The airport in Haiti was closed, but JetBlue, which flies to the Dominican Republic, was able to get supplies and people in. Neferis has always known that anything can happen in the airline business, but that was never clearer than on 11 September 2001. Neferis says she ‘went on autopilot’ during the emergency response at Kennedy Airport following the terrorist attacks. Because the airline had crisis plans in place, JetBlue was able to help passengers and ease some of the chaos. The team set up a passenger assistance centre that helped passengers from any carrier, not just JetBlue. ‘You’ve got to stay strong and grounded in a crisis,’ Neferis says, ‘but eventually you have to deal with what you’ve experienced.’ She adds, ‘You’re also never done with planning. The minute you get comfortable, think you’re ready for anything and become overconfident, it’s an indication that you’re not in the right field. You’ve got to stay humble.’

Source: Penny Neferis, as told to Patricia R. Olsen. (30 April 2011). Call Her the Worrier in Chief. The New York Times, http://www.nytimes.com/2011/05/01/jobs/01pre.html (accessed 20 July 2012).

TAKE A MOMENT As a new manager, get in the mindset of scenario planning. Go to http://www.shell.com/scenarios, where Shell Oil publishes the outline of its annual scenario planning exercise and http://gt2030.com, where America’s National Intelligence Council (NIC) pictures possible futures for the year 2030.

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Managers use innovative planning approaches to cope with today’s turbulent environment.

◗◗

With scenario building, managers look at trends and discontinuities and imagine possible alternative futures to build a framework within which unexpected future events can be managed.

◗◗ ◗◗

Scenarios are alternative vivid pictures of what the future might be like.

◗◗ ◗◗

Crisis planning involves the three major stages of pre-event, response and recovery, and post-event.

Contingency planning identifies important factors in the environment and defines a range of alternative responses to be taken in the case of emergencies, setbacks or unexpected conditions.

Many companies have increased their use of contingency and scenario planning because of the global financial crisis and volatile economic conditions.

Organisations should appreciate that managers can learn from near misses to crisis – you don’t have to experience a full crisis to learn how to improve your organisation’s systems.

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INNOVATIVE APPROACHES TO PLANNING

The process of planning changes over time, like other aspects of managing, to become more in tune with shifts in the environment and employee attitudes. A fresh approach to planning is to involve everyone in the organisation, and sometimes outside stakeholders as well, in the planning process. The evolution to a new approach begins with a shift to decentralised planning, which means that planning experts work with managers in major divisions or departments to develop their own goals and plans as is indicated in EXHIBIT 5.8. Managers throughout the company come up with their own creative solutions to problems and become more committed to following through on the plans. As the environment becomes even more volatile, top executives see the benefits of pushing decentralised planning even further by having planning experts work directly with line managers and front-line employees to develop dynamic plans that meet fast-changing needs. In a complex and competitive business environment, strategic thinking and execution become the expectation of every employee.55 Planning comes alive when employees are involved in setting goals and determining the means to reach them. The following sections provide some guidelines for innovative planning.

decentralised planning Managers work with planning experts to develop their own strategic plans.

EXHIBIT 5.8 Structural location of decentralised planning staff

Managing Director

Planning support staff members

Division Heads

Line Managers

Finance

Frozen foods

Breakfast cereals

Production

Marketing

Finance

Production

Canned goods

Marketing

Finance

Production

Marketing

S E T ST R E T C H GOA L S F O R E X C E L L E N C E Stretch goals are reasonable yet highly ambitious goals that are so clear, compelling and imaginative

that they fire up employees and engender excellence. Stretch goals are typically so far beyond the current levels that people have to be innovative to find ways to reach them. Consider the following example from Amazon.com.

stretch goal A reasonable yet highly ambitious and compelling goal that energises people and inspires excellence.

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INNOVATIVE WAY THE BIRTH OF THE KINDLE When Jeff Bezos, CEO of Amazon, first asked engineers in 2004 to create a lightweight, simple e-reader with built-in cellular access, systems engineer Jateen Parekh said, ‘I thought it was insane. I really did.’ At the time, nothing like that had ever been tried. But Bezos believed that configuring devices to wi-fi networks would be too complicated for many users, and he didn’t want people to have to connect to a personal computer. Essentially, he didn’t want people to even have to think about the wireless connection. The challenge eventually got Parekh and others fired up. It took the development group several years, but in 2007, the Kindle was born. It proved to be such a hit that the first batch sold out in just a few hours. Amazon had to scramble to find a key part that had been discontinued by a supplier to get more on the market. ‘You look at the history of the Kindle, they developed some real skills around the creation of that product. They cut their teeth, so to speak,’ said Brian Blair, an analyst with Wedge Partners. Building its own hardware – much less something that hadn’t been done before – was an audacious, high-stakes bet for Amazon, but

it paid off. Moreover, making four successive generations of the Kindle e-reader led down the path to the Kindle Fire, which became a serious competitor to Apple’s iPad. Asking a group of engineers to create the first Kindle e-reader might be considered what James Collins and Jerry Porras have called a big hairy audacious goal (BHAG). This phrase was first proposed by Collins and Porras in their 1996 article entitled ‘Building Your Company’s Vision.’ Since then, it has evolved to a term used to describe any goal that is so big, inspiring and outside the prevailing paradigm that it hits people in the gut and shifts their thinking. At the same time, however, goals must be seen as achievable or employees will be discouraged and demotivated, and some might resort to extreme or unethical measures to meet the targets. Stretch goals and BHAGs have become extremely important because things move fast. A company that focuses on gradual, incremental improvements in products, processes or systems will be left behind. Managers can use these goals to compel employees to think in new ways that can lead to bold, innovative breakthroughs.

Sources: Brad Stone. (3–9 October 2011). The Omnivore. Bloomberg Businessweek, 58–65; James C. Collins and Jerry I. Porras. (September–October 1996). Building Your Company’s Vision. Harvard Business Review, 65–77; Steven Kerr and Steffan Landauer. (November 2004). Using Stretch Goals to Promote Organizational Effectiveness and Personal Growth: General Electric and Goldman Sachs. Academy of Management Executive, 18:4, 134–8; and Lisa D. Ordóñez et al. (February 2009). Goals Gone Wild: The Systematic Side Effects of Overprescribing Goal Setting. Academy of Management Perspectives, 6–16; see Kenneth R. Thompson, Wayne A. Hockwarter and Nicholas J. Mathys. (August 1997). Stretch Targets: What Makes Them Effective? Academy of Management Executive, 11:3, 48.

USE P ERFORMA NC E D A S HB O A R DS People need a way to see how plans are progressing and gauge their progress towards achieving goals. Companies began using business performance dashboards as a way for executives to keep track of key performance metrics, such as sales in relation to targets, number of products on back order, or percentage of customer service calls resolved within specified time periods. Dashboards have evolved into organisation-wide systems that help align and track goals across the enterprise. EXHIBIT 5.9 shows an example of a business performance dashboard that can deliver real-time key performance metrics. The true power of dashboards comes from applying them throughout the company, even on the factory or sales floor, so that all employees can track progress towards goals, see when things are falling short and find innovative ways to get back on course towards reaching the specified targets. At Emergency Medical Associates, a physician-owned medical group that manages emergency rooms for hospitals, dashboards enable the staff to see when performance thresholds related to patient wait times, for example, aren’t being met at various hospitals.56 Some dashboard systems also incorporate software that lets users perform what-if scenarios to evaluate the impact of various alternatives for meeting goals.

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EXHIBIT 5.9 A performance dashboard for planning

Source: Sample Dashboard by TheSmallman.com, ‘Excel Dashboard Template Example Files’, http://www.thesmallman.com/dashboards

DEPLOY INTELLIGENC E TEA MS Anticipating and managing uncertainty and turbulence in the environment is a crucial part of planning, which means managers need good intelligence to make informed choices about goals and plans. A growing number of leading companies are using intelligence teams to manage this challenge. An intelligence team is a cross-functional group of managers and employees, usually led by a competitive intelligence professional, who work together to gain a deep understanding of a specific business issue, with the aim of presenting insights, possibilities and recommendations about goals and plans related to that issue.57 Intelligence teams are useful when the organisation confronts a major intelligence challenge. For example, consider a large financial services firm that learns that an even-larger rival is potentially moving to compete directly with one of its major profit-generating businesses. Top managers might form an intelligence team to identify when and how this might happen and how it might affect the organisation. Intelligence teams can provide insights that enable managers to make more informed decisions about goals, as well as to devise contingency plans and scenarios related to major strategic issues and crisis management routines.

intelligence team A cross-functional group of managers and employees who work together to gain a deep understanding of a specific business issue and offer insight and recommendations for planning.

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R EMEMBE R THIS

SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT AND GOAL SETTING

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Approaches to planning change with the times. In many companies today, planning is decentralised.

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Stretch goals are reasonable yet highly ambitious and compelling goals that energise people and inspire excellence.

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Business performance dashboards can help managers oversee plans and measure progress towards goals.

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An intelligence team is a cross-functional group of people who work together to gain a deep understanding of a specific competitive issue and offer insight and recommendations for planning.

Decentralised planning means that top executives or planning experts work with managers in major divisions or departments to develop their own goals and plans.

For organisations that wish to move up the ‘sustainability maturity’ curve, it is vitally important that the concepts of sustainable development be ‘mainstreamed’ by way of incorporating them into plans and goals. This means that business goals, which normally are primarily expressed in terms of financial, operational and market factors, need to be more broadly conceived. So, as well as perhaps setting goals for return on investment, sales revenue and profit, and perhaps customer satisfaction and product quality, sustainable organisations would set goals for their environmental performance. These might include goals such as reducing their carbon footprint by 20 per cent over three years, and community outcomes such as through job creation. It is generally important for an organisation to signal to all its stakeholders that it does have a strong sustainability orientation (see Chapter 4 for more on this term), through measuring and publicly reporting on its performance on all three bottom lines. This practice of embedding measures and goals of sustainable development into the organisation’s performance management systems can and should occur at all levels of the firm. There should be goals for the organisation as a whole, related to its policy on environmental outcomes and societal contributions. If it is a large multinational or multi-divisional organisation, these high-level goals would then be cascaded down to each business unit. Within each business unit, goals for the environment and community would accompany financial goals that are formulated for each functional activity, such as marketing activities, production systems, etc. Ultimately these goals would be cascaded down to work teams and to individuals at all levels in the system of management by objectives. This means that the breadth brought by sustainable development needs to infuse all aspects of performance management. In a company that is mature in this regard, we should expect to see everyone’s job description and performance measure couched in these broad terms. Hand in hand with the establishment of this broader set of goals, incorporating financial, environmental and societal goals at all levels of an organisation, comes the formulation of accompanying activity plans at all levels. For the company as a whole, if there are plans to cut carbon output by 20 per cent over three years, then this requires a set of stepped activities spelling out how this will be achieved. For business units, the same would apply, in the sense that just as a hierarchy of goals would be established, so should plans be created at all levels, from the individual, through to the aggregated plans for the chief executive to oversee. This systematic way of organising goals and plans for the implementation of progress in sustainable development is the best way to achieve systematic and disciplined implementation, for otherwise there might well be a lot of talk about it, and not nearly enough action and achievement. Setting goals and asking people to effect plans and be accountable for their implementation is likely to be the best way to achieve maturity in sustainable development.

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STUDY TOOLS

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Express CO UR SEMAT E EX PR ES S FO R MANAG E M E N T

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RESPONSE TO THE MANAGEMENT CHALLENGE

WELL-LAID PLANS AND THEIR VULNERABILITY TO EXTERNAL FORCES The new Chairman, Board of Directors, CEO and senior management team at BHP Billiton have had to reformulate their goals and plans as their business environment has changed quickly around them. The growth of the ‘mining boom’ in Australia and elsewhere has ended, although the company’s successful mining operations continue. The company is formulating its next generation of plans and goals on energy supply, especially gas, and on agricultural products such as fertiliser and related chemical products that complement

its existing capabilities and assets. The company has also restructured its business, and looked for cost savings in its overhead structure. An example is the establishment of a stateof-the-art servicing centre in Kuala Lumpur which replaces three lower-scale centres in other countries. It continues to build capabilities that match its business opportunities and environment. It is also examining opportunities to add value through involvement in some downstream businesses and services that complement its existing activities. Yet challenges remain in the near future, including a Board Chair transition, handling the fallout of the disaster at the 50 per centowned South American Samarco mine, and dealing with underperforming global asserts that have had some investors demanding big changes to the companies’ strategy and structure.

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DISCUSSION QUESTIONS 1 Write a brief mission statement for a local business with which you are familiar. How might having a clear, written mission statement benefit a small organisation?

7 Scenario planning requires organisations to think ahead to what the future might bring. Does this mean that the past should be ignored or downplayed in setting clear goals and plans for the future?

2 What plans have you made for your future beyond university study? How do your plans fit with your personal life goals? How do your personal strengths and weaknesses impact on your ability to meet these goals? Think about the steps you could take now to improve your ability to meet your goals and improve your planning for the future.

8 Assume that Southern University decides to do two things: (1) raise its admission standards, and (2) initiate a business fair to which local townspeople will be invited. What types of plans might it use to carry out these two activities?

3 One of the benefits of a strategy map is that goals and how they are linked can be communicated clearly to everyone in the organisation. Does a minimum-wage maintenance worker in a hospital really need to understand any goals beyond keeping the place clean? Discuss. 4 The MBO technique has been criticised for putting too much emphasis on achieving goals (ends) and not enough on the methods that people use to achieve them (means). Do you think this is a flaw in the technique, or in the way managers apply it? How would you place a balanced emphasis on ends and means? 5 A new business venture must develop a comprehensive business plan to borrow money to get started. Companies such as FedEx and Nike say they did not follow the original plan closely. Does that mean that developing the plan was a waste of time for these eventually successful companies? 6 How do you think planning in today’s organisations compares to planning 25 years ago? Do you think planning becomes more important or less important in a world where everything is changing quickly and crises are a regular part of organisational life? Why?

ETHICAL CHALLENGE

Explain your answer.

9 Some people say an organisation could never be ‘prepared’ for a disaster such as the Japan nuclear disaster, or the huge BP oil spill in the Gulf of Mexico. Discuss the potential value of crisis planning in situations like these, even if the situations are difficult to plan for. 10 Near misses are seen as a critical piece of intelligence gathering for organisations preparing for and trying to avoid crisis events. Think of a near miss you might have experienced in your everyday life (i.e. almost walking across the road in front of a car; almost making the wrong decision about the subjects you should study at university; etc.). Did you stop for a moment and identify why you almost made the wrong decision? What could you do to ensure you learn from your near misses in life? 11 Goals that are overly ambitious can discourage employees and decrease motivation, yet the idea of stretch goals is proposed as a way to get people fired up and motivated. As a manager, how might you decide where to draw the line between a ‘good’ stretch goal and a ‘bad’ one that is unrealistic? 12 Come up with a stretch goal for some aspect of your own life. How do you determine whether it makes sense to pursue a stretch goal?

INSPIRE LEARNING CORPORATION

When the idea first occurred to her, it seemed like such a win-win situation. Now she wasn’t so sure. Marge Brygay was a hardworking sales rep for Inspire Learning Corporation, a company intent on becoming the top educational software provider in five years. That newly adopted strategic goal translated into an ambitious, milliondollar sales target for each of Inspire’s sales reps. At the beginning of the fiscal year, her share of the sales department’s operational goal seemed entirely reasonable to Marge. She believed in Inspire’s

products. The company had developed innovative, highly regarded maths, language, science and social studies programs for the pre-school to Year 12 market. What set the software apart was a foundation in truly cutting-edge research. Marge had seen for herself how Inspire programs could engage whole classrooms of normally unmotivated kids; the significant rise in scores on those increasingly important standardised tests bore out her subjective impressions.

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But now, just days before the end of the year, Marge’s sales were $1000 short of her million-dollar goal. The sale that would have put her comfortably over the top fell through due to last-minute cuts in one large school system’s budget. At first, she was nearly overwhelmed with frustration, but then it occurred to her that if she contributed $1000 to Central High, the inner-city high school in her territory probably most in need of what she had for sale, they could purchase the software and put her over the top. Her scheme would certainly benefit Central High students. Achieving her sales goal would make Inspire happy, and it wouldn’t do her any harm, either professionally or financially. Making the goal would earn her a $10 000 bonus cheque that would come in handy when the time came to pay school fees for her oldest child.

GROUP CHALLENGE

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Initially, it seemed like the perfect solution all the way around. The more she thought about it, however, the more it didn’t quite sit well with her conscience. Time was running out. She needed to decide what to do. W H AT D O YO U D O ? 1 Donate the $1000 to Central High, and consider the $10 000 bonus a good return on your investment. 2 Accept the fact that you didn’t quite make your sales goal for the year. Figure out a way to work smarter next year to increase your odds of achieving your target. 3 Don’t make the donation, but investigate whether any other ways are available to help Central High raise the funds that would allow them to purchase the much-needed educational software.

COURSE GOAL SETTING

Step 1.  Make your goals for yourself regarding desired outcomes for this course explicit. What is your goal for a grade? Your goal for learning specific knowledge or skills? Define at least two goals for this course. Step 2.  The next step is to break down each goal into ‘goal behaviours’. These are the specific behaviours that will allow you to achieve each goal in Step 1. Examples of goal behaviours might include 100 per cent attendance, taking good class notes every day, reading assigned chapters before class, outlining chapters, writing definitions of new words, participating in class discussions, setting specific study times for exams, answering end-of-chapter questions, or completing ‘Workbook’ assignments. Define a minimum of four goal behaviours that will lead to the achievement of each goal in Step 1.

Step 3.  In groups of three to five students, compare your goals and goal behaviours. Students should take turns sharing goals and behaviours with the group. Step 4.  What did you learn from hearing the goals and goal behaviours of group members? How different were the goals and behaviours of group members? Which combination of goals and goal behaviours seems most likely to be successful? Step 5.  On the last day of class, meet again as a group. Each student should report on the degree of success following goal behaviours and achieving goals. Share what you learned from this experience. Your instructor may ask your group members to report their findings to the class.

SOURCE: Adapted by Dorothy Marcic from Nancy C. Morey. (1986–1987). Applying Goal Setting in the Classroom. The Organizational Behavior Teaching Review, 11:4, 53–9.

CASE FOR CRITICAL ANALYSIS

CENTRAL CITY MUSEUM

The recently completed new building to house the exhibits and staff of the Central City Museum was located adjacent to the campus of a university. The new building was financed by the generosity of local donors. The university provided the land and would cover the annual operating expenses with the understanding that the museum would provide a resource for student education. The new governing board would be

made up of key donors, as well as selected university administrators and faculty members. The planning committee of the governing board hired two business students to interview various stakeholders about the future direction of the museum in its new relationship with the university. These interviews were conducted in person, and the interviewees seemed uniformly

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interested and eager to help. The major questions pertained to the future mission and goals of the museum. Some excerpts from the interviews are listed here:

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A major donor: I think the museum should be a major community resource. My wife and I gave money for the new building with the expectation that the museum would promote visits from the public schools in the area, and particularly serve the outer-suburb children who don’t have access to art exhibits. We don’t want the museum to be snobbish or elitist. The focus should definitely be local.

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A university administrator: The important thing is to have lively contemporary exhibits that will attract both university students and community adults and provide new insight and dialogue about current events. We can bring attention to the museum by having an occasional controversial exhibit, such as on Islamic art, and exhibits that appeal to minority groups. This approach would entail bringing in travelling exhibitions from major museums, which would save the administrative costs and overhead of producing our own exhibits.

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Head of the art history department: The key thing is that the museum will not have the artistic resources or the financial resources to serve the community at large. We have a wonderful opportunity to integrate the museum with the academic faculty and make it a teaching institution. It can be a major resource for both undergraduate and graduate students in art education and art history. We can also work with engineering students, architecture students and arts students. This is a unique opportunity that will distinguish our art history department’s teaching mission from others in the country.

ON THE JOB VIDEO CASE

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A faculty member in the art history department: The best use of the museum’s relationship with the university is to concentrate on training PhD-level students in art history and to support scholarly research. I strongly urge the museum to focus on graduate education, which would increase the stature of the university nationally. Graduate students would be involved in the design of exhibits that would fit their research. Trying to make the museum popular on campus or in the community will waste our limited resources. Our PhD graduates will be sought after by art history departments throughout the country. The reason that you have been given this information from the interviews is that you have been invited to interview for the position of museum director. The previous director retired with the understanding that a new director would be hired upon the completion of fundraising and construction of the new building. You are thinking about what you would do if you took the job. QU E S T I O N S 1 What goal or mission for the Central City Museum do you personally prefer? As director, would you try to implement your preferred direction? Explain. 2 How would you resolve the underlying conflicts among key stakeholders about museum direction and goals? What actions would you take? 3 Do you think that building a coalition and working out stakeholder differences in goal preferences is an important part of a manager’s job? Why?

MI OLA SWIMWEAR: MANAGERIAL PLANNING AND GOAL SETTING

Watch the following video to see how Mi Ola approaches its management functions. QU E S T IO NS 1 Based on how this business owner describes her business, write a one- or two-sentence organisational mission statement for Mi Ola Swimwear.

2 Choose four of the following six categories: strategic goal, strategic plan, tactical goal, tactical plan, operational goal, and operational plan. Then, in the video, find one example to represent each of the four categories you’ve chosen. Describe your four examples and how they fit their respective categories. 3 What did you learn about some of the real benefits and limitations of planning by watching this video?

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ENDNOTES 1 Sinha, A. (5 December 2015). Chennai Floods: Flight Tickets Skyrocket to Rs. 50000 One Way. NDTV, http://www.ndtv.com/chennai-news/airlines-hike-fares-for-flights-landingand-departing-from-airports-near-chennai-1251232 (accessed 22 April 2016). 2 Etzioni, A. (1984). Modern Organizations (Englewood Cliffs, NJ: Prentice Hall), p. 6. 3 Ibid. 4 Richards, M. D. (1986). Setting Strategic Goals and Objectives, (2nd edn, St Paul: West). 5 Daft, R. L. and Steers, R. M. (1986). Organizations: A Micro/Macro Approach. (Glenview: Scott, Foresman); Saunders, C. B. and Tuggel, F. D. (1980). Corporate Goals. Journal of General Management, 5, 3–13; Simon, H. A. (1964). On the Concept of Organizational Goals. Administrative Science Quarterly, 9, 1–22. 6 Earl, G. (25 November 2015). Telstra plans to use Indonesia joint-venture as model for Asian expansion. Australian Financial Review, http://www.afr.com/business/telecommunications/ telstra-plans-to-use-indonesia-joint-venture-as-model-for-asian-expansion-20151123gl5vb3 (accessed 23 April 2016). 7 Lafley, A. G., and Martin, R. (2013). Instituting a Company-Wide Strategic Conversation at Procter & Gamble. Strategy & Leadership 41:4, 4–9. 8 Queensland Hospital and Health Service, About us, https://www.childrens.health.qld.gov. au/chq/about-us/ (accessed 23 April 2016). 9 Farnham, A. (1 May 1995). Brushing Up Your Vision Thing. Fortune, 129; Klemm, M., Sanderson, S. and Luffman, G. (1991). Mission Statements: Selling Corporate Values to Employees. Longrange Planning, 24:3, 73–8; Pearce, J. A. II and David, F. (1987). Corporate Mission Statements: The Bottom Line. Academy of Management Executive, 109–16; Want, J. H. (August 1986). Corporate Mission: The Intangible Contributor to Performance. Management Review, 46–50. 10 Chung, D. (July 2013). A Management 180. T+D: 56–59. 11 Doyle, P. (Winter 1994). Setting Business Objectives and Measuring Performance. Journal of General Management, 20:2, 1–19; Drucker, P. F. (1954). The Practice of Management. New York: Harper & Brothers, 65–83. 12 Boyle, M. (7–13 January 2013). Unilever: Taking on the World, One Stall at a Time. Bloomberg Businessweek: 18–20. 13 Meising, P. and Wolfe, J. (1985). The Art and Science of Planning at the Business Unit Level. Management Science, 31, 773–81. 14 Boeing. (2017). Boeing Overview. http://www.boeing.com/resources/boeingdotcom/ company/general_info/pdf/boeing_overview.pdf (accessed 24 April 2016). 15 Boeing website, http://www.boeing.com/boeing/companyoffices/aboutus (accessed 17 September 2013); http://www.boeing.com/assets/pdf/news/releases/2013/q1/130130_nr.pdf, p. 1 (accessed 17 September 2013). 16 Crotts, John C., Dickson, D. R. and Ford, R. C. (August 2005). Aligning Organizational Processes with Mission: The Case of Service Excellence. Academy of Management Executive, 19:3, 54–68; Rummler, G. A. and Morrill, K. (February 2005). The Results Chain. TD, 27–35. 17 Locke, E. A., & Latham, G. P. (2002). Building a practically useful theory of goal setting and task motivation: A 35-year odyssey. American Psychologist, 57(9), 705; Arumugam, V., Antony, J., & Linderman, K. (2016). The influence of challenging goals and structured method on Six Sigma project performance: A mediated moderation analysis. European Journal of Operational Research, 254:1, 202–13. 18 Kenny, G. (2012). From the Stakeholder Viewpoint: Designing Measurable Objectives. Journal of Business Strategy 33, no. 6: 40–46. 19 Chatterjee, S. (Winter 2005). Core Objectives: Clarity in Designing Strategy. California Management Review, 47:2, 33–49. 20 Piatt, J. (November 2012). 5 Rules for Selecting the Best KPIs to Drive Operational Improvement. Industry Week: 30. 21 Edwin A. Locke, Gary P. Latham and Miriam Erez. (1988). The Determinants of Goal Commitment. Academy of Management Review, 13, 23–39. 22 Drucker, P. F. (1954). The Practice of Management (New York: Harper & Row); George S. Odiorne. (October 1978). MBO: A Backward Glance. Business Horizons, 21, 14–24; and William F. Roth. (May–June 2009). Is Management by Objectives Obsolete? Global Business and Organizational Excellence, 36–43.

23 Jan P. Muczyk and Bernard C. Reimann. (1989). MBO as a Complement to Effective Leadership. Academy of Management Executive, 3, 131–38; and W. Giegold. (1978). Objective Setting and the MBO Process, vol. 2 (New York: McGraw-Hill). 24 John Ivancevich et al. (Winter 1978). Goal Setting: The Tenneco Approach to Personnel Development and Management Effectiveness. Organizational Dynamics, 48–80. 25 Tim O’Shaughnessy, as told to Liz Welch. (March 2012). The Way I Work: Tim O’Shaughnessy, LivingSocial. Inc., 1048. 26 Eileen M. Van Aken and Garry D. Coleman. (July–August 2002). Building Better Measurement. Industrial Management, 28–33. 27 This analogy is from Jeffrey K. Liker and Timothy N. Ogden. (November–December 2011). The Toyota Recall: Missing the Forest for the Trees. Ivey Business Journal, http://www. iveybusinessjournal.com/topics/marketing/the-toyota-recall-missing-the-forest-for-thetrees (accessed 19 July 2012). 28 Reylito A. H. Elbo. (11 June 2012). MBM: Management by Means, Not Results. The Manila Times, http://www.manilatimes.net/index.php/business/business-columnist/24633-mbmmanagement-by-means-not-results (accessed 8 August 2012); and Liker and Ogden. The Toyota Recall. 29 Schmitt, B. (12 December 2016). Report: Volkswagen’s Dieselgate Criminal Settlement To Be Decided By Trump’s Hardliners. Forbes. https://www.forbes.com/sites/ bertelschmitt/2016/12/12/report-volkswagens-dieselgate-criminal-settlement-to-bedecided-by-trumps-hardliners/#7207434275f8 (accessed 12 December 2016). 30 Volkswagen. (30 November 2016). Press release: Works meeting at the main plant in Wolfsburg: implementation of the pact for the future begins, https://www.volkswagen-media-services.com/ en/detailpage/-/detail/Works-meeting-at-the-main-plant-in-Wolfsburg-implementation-ofthe-pact-for-the-future-begins/view/4293053/7a5bbec13158edd433c6630f5ac445da?p_p_ auth=lRfuZb6o (accessed 12 December 2016). 31 Gale, S. F. (21 June 2012). Big Brother Is Watching: Why Social Media Policies Make Good Business Sense. Workforce, http://www.workforce.com/2012/06/21/big-brother-is-watchingwhy-social-media-policies-make-good-business-sense/ (accessed 18 July 2012). 32 Gale, S. F. (21 June 2012). Five Things Every Social Media Policy Should Do. Workforce, http://www.workforce.com/article/20120621/NEWS02/120629995 (accessed 18 July 2012). 33 ‘French cafe causes a stir by rewarding “polite” clients. (12 December 2015). BBC News, http://www.bbc.com/news/world-europe-25347423 (accessed 25 April 2016). 34 C. Chet Miller and Laura B. Cardinal. (1994). Strategic Planning and Firm Performance: A Synthesis of More than Two Decades of Research. Academy of Management Journal, 37:6, 1649–85. 35 These are based on E. A. Locke and G. P. Latham. (1990). A Theory of Goal Setting & Task Performance (Englewood Cliffs, NJ: Prentice Hall); Richard L. Daft and Richard M. Steers (1986). Organizations: A Micro/Macro Approach (Glenview, IL: Scott, Foresman), pp. 319–321; Herbert A. Simon. (1964). On the Concept of Organizational Goals. Administrative Science Quarterly, 9, 1–22; and Charles B. Saunders and Francis D. Tuggel. (1980). Corporate Goals. Journal of General Management, 5, 3–13. 36 Nick Wingfield. (23 June 2009). Netflix Boss Plots Life After the DVD. The Wall Street Journal. 37 These are based on Henry Mintzberg. (1994).The Rise and Fall of Strategic Planning (New York: The Free Press); H. Mintzberg. (1994). Rethinking Strategic Planning, Part I: Pitfalls and Fallacies. Long Range Planning, 27, 12–21; and H. Mintzberg. (1993). The Pitfalls of Strategic Planning. California Management Review, 36, 32–47. 38 Roth. Is Management by Objectives Obsolete? 39 Small Business (August 1987). Corporate Planning: Drafting a Blueprint for Success, 40–4. 40 Doug Cameron, Jeffrey Ng, and Jack Nicas, ‘Post Jet Grounding, Airlines Scramble to Develop Plan Bs,’ The Wall Street Journal, 18 January 2013, B4; and Gustav Sandstrom, ‘Norwegian Airlines Encounter Additional Dreamliner Tech Issues’, The Wall Street Journal Online, 9 September 2013, http://online.wsj.com/article/BT-CO-20130909-701299.html (accessed 12 September 2013). 41 This section is based on Steven Schnaars and Paschalina Ziamou, ‘The Essentials of Scenario Writing,’ Business Horizons ( July–August 2001): 25–31; Peter Cornelius, Alexander Van de Putte, and Mattia Romani, ‘Three Decades of Scenario Planning in Shell,’ California Management Review 48, no. 1 (Fall 2005): 92–109; Audrey Schriefer and Michael Sales,

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‘Creating Strategic Advantage with Dynamic Scenarios,‘ Strategy & Leadership 34, no. 3 (2006): 31–42; William J. Worthington, Jamie D. Collins, and Michael A. Hitt, ‘Beyond Risk Mitigation: Enhancing Corporate Innovation with Scenario Planning,‘ Business Horizons 52 (2009): 441–450; Gill Ringland, ‘Innovation: Scenarios of Alternative Futures Can Discover New Opportunities for Creativity,‘ Strategy & Leadership 36, no. 5 (2008): 22–27; and Stephen M. Millett, ‘Four Decades of Business Scenarios: What Can Experience Teach?‘ Strategy & Leadership 41:1 (1013): 29–33. 42 Quoted in Claire Churchard, ‘Tales of the Unexpected,‘ People Management (February 2012). 43 Syed H. Akhter. Strategic planning, hypercompetition, and knowledge management. Business Horizons, 46:1, 19–24; Schnaars, S. and Ziamou, P. (July–August 2001). The Essentials of Scenario Writing. Business Horizons; Colvin, G. (6 March 2000). Managing in the Info Era. Fortune, F-5–F-9. 44 Kathleen Wilburn and Ralph Wilburn, ‘Abbreviated Scenario Thinking,‘ Business Horizons 54 (2011): 541–550. 45 Schnaars and Ziamou. The Essentials of Scenario Writing. 46 ‘Former BHP chief Brian Gilbertson to help after death of mining executives’. The Australian Business Review, http://www.theaustralian.com.au/business/mining-energy/ former-bhp-chief-brian-gilbertson-to-help-after-death-of-mining-executives/storye6frg9df-1225882690770 (accessed 25 April 2016). 47 Review of ASX share prices for the Sundance Resources Limited stocks, 25 April 2016.

48 Ian Mitroff with Gus Anagnos, Managing Crises Before They Happen (New York: AMACOM, 2001); Ian Mitroff and Murat C. Alpaslan, ‘Preparing for Evil,‘ Harvard Business Review (April 2003): 109–115 49 Mitroff, I. and Alpaslan, M. C. (April 2003). Preparing for Evil. Harvard Business Review, 109–15. 50 Monash University website, http://www.adm.monash.edu/audit/risk/crisismanagement.html. 51 Grimsley, K. D. (October 2001). Many Firms Lack Plans for Disaster. The Washington Post, E1; Grimsley, K. D. (8 October 2001). Many Firms Lack Plans for Disaster. Girding Against New Risks: Global Executives Are Working to Better Protect Their Employees and Businesses from Calamity. Time, B8+. 52 Pearson, C. (January–February 2002). A Blueprint for Crisis Management. Ivey Business Journal, 69–73. 53 Mitroff and Alpaslan. Preparing for Evil. 54 Argenti, P. (December 2002). Crisis Communication: Lessons from 9/11. Harvard Business Review, 103–9; Ucelli, L. (2002). The CEO’s How To Guide to Crisis Communications. Strategy & Leadership, 30:2, 21–4; Mitroff. Crisis Leadership. 55 Harari, O. (July 1995). Good News/Bad News about Strategy. Management Review. 56 Doug Bartholomew. (Summer 2005). Gauging Success. CFO-IT, 17–19. 57 This section is based on Liam Fahey and Jan Herring. (2007). Intelligence Teams. Strategy & Leadership, 35:1, 13–20.

CHAPTER 6 S T R AT EGY F O R M U L AT ION A N D I M P L E M E N TAT ION

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define the components of strategic management and discuss the three levels of strategy that help focus strategic thinking for managers

2 describe the strategic planning process and summarise how SWOT analysis can be used to evaluate an organisation’s strengths, weaknesses, opportunities and threats

3 explain three approaches to corporate-level strategy: portfolio; the Boston Consulting Group (BCG) Matrix; and diversification

4 describe business-level strategies, including Porter’s competitive forces

and strategies, and cooperative strategies

5 summarise how functional-level strategies support the implementation of business-level strategy

6 discuss emerging and models of strategy and their benefits for business growth

7 compare and contrast the globalisation, multidomestic, and transnational strategies for global business

8 discuss the organisational dimensions used for implementing strategy.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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NETFLIX: PROOF THAT COMPANIES NEED TO ADAPT, OR FAIL The Friday night ritual of casually strolling up and down the aisles of a video store in search of the perfect movie fix are now only a distant memory, preserved as a historical artefact in the 1996 slasher film ‘Scream’. The demise of the video rental store is not a mystery – Netflix is squarely to blame. Advances in telecommunications infrastructure made it possible for Internet speeds to stream video content directly to our homes, and Netflix was already successful by the time Internet speeds made this possible. The strategy of Netflix, which launched in 1998, has focused on connecting consumers with video rentals without the high prices and exorbitant late fees that had been associated with bricks-and-mortar video rental companies. To do this, they began by sidestepping the need for physical retail locations, and instead mailed DVDs directly to customers. The initial business model was far from perfect. In an attempt to gain market share and consumer acceptance, Netflix offered rental prices that were significantly cheaper than competitors, but this resulted in losses in their first years of trading. As it turned out, the costs of maintaining distribution warehouses were greater than expected and undermined the effectiveness of the company’s strategy to forgo physical retail locations. It wasn’t until the company transitioned from a company that rented individual videos to a company that offered a subscription to customers for unlimited borrowing and zero late fees that Netflix made its first profitable year of trading. The company posted a 2.3 per cent profit margin on around US$270 million in revenue in 2003. This slim profit margin indicates just how competitive the video rental market had become. It would be another 10 years before the Blockbuster chain of video rental stores would file for bankruptcy. By 2007, Netflix had one of the best online retail platforms for browsing and ordering video content. It used algorithms designed to predict an individual customer’s preference based on past movie ratings, thereby showing content that individual subscribers were most likely wanting to watch. By changing the way that customers review, choose and access rented video content, Netflix began forcing its competitors to change the

way they did business, or face the consequences of ignoring a rapidly changing environment. Netflix began offering video on demand (streaming via Internet) to its almost 7 million subscribers in 2007, and over a period of four years the company’s reliance on efficient warehousing and mail deliveries would diminish significantly. By the end of 2011, Netflix boasted 23 million streaming subscribers, and since deciding to go global, the company’s rate of acquiring new subscribers has skyrocketed. At the end of 2016, Netflix recorded around 90 million streaming subscribers in more than 40 countries. Despite its massive following and multi-billion dollar revenues, the video rental industry remains highly competitive, with companies such as Hulu, Amazon and Stan vying for market share. In 2015 Netflix recorded US$6.77 billion in revenues, but a net income of only US$122 million (1.81 per cent profit margin). The slim margins demonstrate that competitors can keep pace with Netflix’s ability to reinvent itself by taking advantage of changing technologies. Perhaps it is time for the company to consider alternative approaches to remaining at the top of the video rental industry. Sources: Nocera, J. (19 June 2016). Can Netflix survive in the new world it created? The New York Times Magazine. https://www.nytimes.com/2016/06/19/ magazine/can-netflix-survive-in-the-new-world-it-created.html?_r=0; ElBennie, A., & Fox, M. (2011). An analysis of the United States video rental industry with a focus on legal issues: Part One. Entertainment Law Review, 4(11), 107–111; The Victoria Advocate. (26 February 2007). Netflix reaches milestone with delivery of 1 billionth DVD, https://news.google.com/newspapers?id=Qqc_AAAAIBAJ&sjid=p1YMAA AAIBAJ&pg=2709,435491&dq=netflix+1+billionth+dvd&hl=en; Statista. (2016). Number of Netflix streaming subscribers from 3rd quarter 2011 to 3rd quarter 2016, https://www.statista.com/statistics/250934/quarterly-number-of-netflixstreaming-subscribers-worldwide/; Netflix, Inc. (2016). Consolidated statements of operations, 2015–2016. Retrieved from https://ir.netflix.com/financials. cfm?CategoryID=282.

QU E S T I O N Imagine you are in charge of renewing the corporate strategy for Netflix. The threat of new entrants to the industry is high, although it’s unlikely that a new company could make a significant impact on Netflix’s market share in the short term. Take into consideration that Netflix is largely an intermediary for content – sitting between content creators and consumers (they produce little of their own content, so the power of suppliers is high). What should Netflix be most concerned about in the next two to five years? How can they invest in new things, change what they do or how they do it, in response to these concerns?

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NEW MANAGER SELF-ASSESSMENT WHAT IS YOUR STRATEGY STRENGTH? As a new manager, what are your strengths concerning strategy formulation and implementation? To find out, think about how you handle challenges and issues in your university or job. Then mark (a) or (b) for each of the following items, depending on which is more descriptive of your behaviour. There are no right or wrong answers. Answer each item as it best describes how you respond in work situations. 1 When keeping records, I tend to: a be careful about documentation b be haphazard about documentation. 2 If I run a group or a project, I: a have the general idea and let others figure out how to do the tasks b try to figure out specific goals, timelines, and expected outcomes. 3 My thinking style could be more accurately described as: a linear thinker, going from A to B to C b thinking like a grasshopper, hopping from one idea to another. 4 In my office or home things are: a here and there in various piles b laid out neatly or at least in reasonable order. 5 I take pride in developing: a ways to overcome a barrier to a solution b new hypotheses about the underlying cause of a problem. 6 I can best help strategy by encouraging: a openness to a wide range of assumptions and ideas b thoroughness when implementing new ideas. 7 One of my strengths is: a commitment to making things work b commitment to a dream for the future. 8 I am most effective when I emphasise: a inventing original solutions b making practical improvements. Scoring and Interpretation: Managers have differing strengths and capabilities when it comes to formulating and implementing strategy. Here’s how to determine yours. For strategic formulator strength, score one point for each (a) answer marked for questions 2, 4, 6 and 8, and for each (b) answer marked for questions 1, 3, 5 and 7. For strategic implementer strength, score one point for each (b) answer marked for questions 2, 4, 6 and 8, and for each (a) answer marked for questions 1, 3, 5 and 7. Which of your two scores is higher and by how much? The higher score indicates your strategy strength. Formulator and implementer are two important ways new managers bring value to strategic management. New managers with implementer strengths tend to work within the situation and improve it by making it more efficient and reliable. Managers with the formulator strength push towards out-of-the-box strategies and like to seek dramatic breakthroughs. Both styles are essential to strategic management. Strategic formulators often use their skills in creating whole new strategies, and strategic implementers often work with strategic improvements and implementation. If the difference between your two scores is two or less, you have a balanced formulator/implementer style and work well in both arenas. If the difference is four or five points, you have a moderately strong style and probably work best in the area of your strength. And if the difference is seven or eight points, you have a distinctive strength and almost certainly would want to work in the area of your strength rather than in the opposite domain. Source: This questionnaire is adapted from Dorothy Marcic and Joe Seltzer, Organizational Behavior: Experiences and Cases (Cincinnati, OH: South-Western, 1998), pp. 284–87, and William Miller, Innovation Styles (Global Creativity Corporation, 1997).

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How important is strategic management? It largely determines which organisations succeed and which ones struggle. The effectiveness of the strategies that managers chose and how effectively they implemented them help explain why companies such as Netflix is thriving and Blockbuster is struggling; how Facebook and Instagram all but killed MySpace in social networking; and why Samsung has risen to challenge Apple’s dominant market share in mobile phones. Every organisation is concerned with strategy. McDonald’s has succeeded in overhauling their strategy by adding McCafe-branded product lines, health-conscious menu options, and an increasing range of premium burger options to meet changing demands from consumers. Strategies aren’t always successful, and strategic blunders can hurt. For instance, Kodak stopped manufacturing cameras in 2012 and still hasn’t recovered from its managers’ failure to plan for the rapid rise of digital photography. Organisations formulate and implement strategies, not just tactics. They find ways to respond to competitors, cope with difficult environmental changes, meet changing customer needs and effectively use available resources. Managing strategy has taken on new importance in today’s business environment because managers are responsible for positioning their organisations for success in a world that is constantly changing. Top organisations thrive by changing the rules of an industry to their advantage or by creating entirely new industries.1 For example, Ruslan Kogan took advantage of the emergence of online retailing to change the way the public purchase electronic consumer goods. By supplying its own brand of budget priced PCs, TVs and other electronic consumer goods (with functionality comparable to leading competitor brands) Kogan.com grew rapidly by selling direct to customers rather than making its products available in retail outlets. Chapter 5 gave an overview of the types of goals and plans that organisations use. In this chapter, we explore strategic management, which serves as a specific type of planning in organisations. First we define the components of strategic management and then we discuss the purposes and levels of strategy. Next, we examine several models of strategy formulation at the corporate, business and functional levels. Finally, we discuss the tools managers use to implement their strategic plans.

6.1

THINKING STRATEGICALLY

What does it mean to think strategically? Strategic thinking means to take the long-term view and to see the big picture, including the organisation and competitive environment, and consider how they fit together. Strategic thinking is important for both for-profit and non-profit organisations. In for-profit organisations, strategic planning typically pertains to competitive actions in the marketplace. In most nonprofit organisations such as the Red Cross or the Salvation Army, strategic planning pertains to events in the external environment, although some may focus more on their operating (or task) environment, such as the Royal Flying Doctor Service.

TAKE A MOMENT As a potential new manager, practise thinking strategically by studying your department’s or your organisation’s environment, market and competitors. Think about what the long-term future might hold and how you think the company can best be positioned to stay competitive.

See Chapter 5 for an overview of the types of goals and plans that organisations use.

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Research has shown that strategic thinking and planning positively affect a firm’s performance and financial success.2 Most managers are aware of the importance of strategic planning, as evidenced by a McKinsey Quarterly survey. Fifty-one per cent of responding executives, whose companies had no formal strategic planning process, said they were dissatisfied with the company’s development of strategy, compared to only 20 per cent of those at companies that had a formal planning process.3 CEOs at successful companies make strategic thinking and planning a top management priority. For an organisation to succeed, the CEO must be actively involved in making the tough choices and trade-offs that define and support strategy.4 However, senior executives at today’s leading companies want middle- and low-level managers to think strategically as well – encouraging all levels of the organisation to inform, support and align with the organisation’s goals and objectives. Understanding the strategy concept and the levels of strategy is an important start towards strategic thinking.

W H AT I S ST R AT E G I C M A NAG E M E N T ? strategic management The set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organisation and its environment so as to achieve organisational goals.

Strategic management refers to the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between an organisation and its environment so as to achieve organisational goals.5 Managers ask questions such as: What changes and trends are occurring in the competitive environment? Who are our customers? What products or services should we offer? How can we offer those products and services most efficiently? What does the future hold for our industry, and how can we change the rules of the game? Answers to these questions help managers make choices about how to position their organisation in the environment with respect to rival companies.6 Superior organisational performance is not a matter of luck; it is determined by the choices managers make.

P U R P O S E O F ST R AT E GY strategy A plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage and attaining goals. competitive advantage What sets the organisation apart from others and provides it with a distinctive edge in the marketplace.

The first step in strategic management is to define an explicit strategy, which is the plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage and attaining the organisation’s goals. Competitive advantage refers to those characteristics that set the organisation apart from others and provides it with a distinctive edge for meeting customer or client needs in the marketplace. Competitive advantages can include physical things such as store location or a product’s design, through to intangible things such as employees’ experience in working on complex tasks or the loyalty of customers to a brand. The essence of formulating strategy is choosing how the organisation will be different.7 Managers make decisions about whether the company will perform different activities, or do similar activities to its rivals but in a superior way. Strategy necessarily changes over time to fit environmental conditions, but to achieve competitive advantage, companies develop strategies that incorporate the elements illustrated in EXHIBIT 6.1: they target specific customers, focus on core competencies, provide synergy and create value.

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EXHIBIT 6.1 The elements of competitive advantage

Target customers

Exploit core competence

Competitive advantage

Achieve synergy

Create value

TAKE A MOMENT As a new manager, can you identify the core competency of your team or department and identify ways that it can contribute to the organisation’s overall strategy? Who are your team’s or department’s customers and how can you deliver value?

TARGET C USTOM ERS An effective strategy is to target customers by defining them and identifying which of their needs are to be served by the company.8 Managers can define a target market: geographically, such as serving people in a certain part of a country; demographically, such as targeting people of a particular age or gender or income bracket; or by a variety of other means. Some firms target people who purchase primarily over the Internet, whereas others aim to serve people who like to shop in small stores with a limited selection of high-quality merchandise. When Night Owl, an Australian franchise chain of ‘always open’ convenience stores began selling coffee in its stores in 2016, it targeted customers who were seeking regular consumption of good quality coffee. Rather than competing with the more premium service of barista-brewed coffee, Night Owl chose a high quality, machine-based brewing process to deliver coffee for consumers that were both price and quality sensitive. This allowed the company to target a niche of consumers that fell between those seeking high quality, high price, full service barista-made coffee and low price, mass-produced coffee. Volvo provides another example. Volvo’s new owners and managers are shifting the company’s strategy towards a new target customer. Li Shufu, the company’s Chinese owner, is no longer aiming for people who appreciate the brand’s reputation for safe, reliable family vehicles. Rather he is aiming to expand aggressively into the luxury car market, in particular the emerging class of rich consumers in China and other overseas markets. Li wants Volvo to offer innovative, electrifying designs that appeal to luxury-minded customers who have flashy tastes.9

target customer An effective strategy defines the customers to be targeted and which of their needs are to be served by the company.

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EXPLO IT C ORE C OM P E T E NC E core competence A business activity that an organisation does particularly well in comparison to competitors.

A core competence is something the organisation does especially well in comparison to its competitors. A core competence represents a competitive advantage because the company acquires expertise that competitors do not have. A core competence may be in the area of superior research and development (R&D), expert technological know-how, process efficiency or exceptional customer service.10 At VF Corporation, a large apparel company that owns Vanity Fair, Nautica, Wrangler and The North Face, among other brands, strategy focuses on the company’s core competencies of operational efficiency and merchandising know-how. When Flensburger Shipbuilders (FSG) built their design and engineering department on the same grounds as its ship building yard, the company was able to leverage its colocation to reduce the time required to make design modifications as each ship was being built. This has created an exceptional level of reliability in the company’s forecasts for ship building time and costs, allowing the company to produce custom-designed ships on time and within budget – boosting the company’s reputation as one of the world’s leading ‘roll-on roll-off’ passenger and vehicle ferry manufacturers.11 Robinson Helicopter succeeds through superior technological know-how for building small, two-seater helicopters used for everything from police patrols in Los Angeles to herding cattle in Australia.12 In such cases, leaders identified what their company does especially well and built strategy around it.

BUILD SYNERGY synergy The condition that exists when the organisation’s parts interact to produce a joint effect that is greater than the sum of the parts acting alone.

When organisational parts interact to produce a joint effect that is greater than the sum of the parts acting alone, synergy occurs. The organisation may attain a special advantage with respect to cost, market power, technology or management skill. When properly managed, synergy can create additional value with existing resources, providing a big boost to the bottom line.13 For instance, synergy was the motivation for Kraft to buy Cadbury and for Verizon to buy struggling Internet search engine Yahoo!. Kraft can use Cadbury’s established distribution network in emerging markets to share trucks, store contacts and sell more Kraft products. Verizon’s purchase of Yahoo! is an opportunity to merge the email and advertising strengths of AOL (another organisation within Verizon’s portfolio of companies) with the expertise in mobile platforms and the patents underpinning Yahoo!’s search engine business. Commentators have identified the merge of AOL and Yahoo! as a way of growing a sufficient inventory of clients and users to compete with the two leading Internet megabrands, Google and Facebook.14 In the small companies segment, Dryen Australia is attempting to achieve synergies by using its supply chain and marketing core competencies and applying these to new categories of goods that would allow it to fulfil its business strategy of ‘further profitable growth’.

DELIV ER VA LUE Delivering value to the customer is at the heart of strategy. Value can be defined as the combination of benefits received and costs paid. Managers help their companies create value by devising strategies that exploit core competencies and attain synergy. For example, to compete with the rising threat of satellite television, cable companies such as Telstra and Optus are offering value packages that provide a combination of Foxtel television (including optional digital premium channels), video on demand, high-speed Internet and digital phone service for a reduced cost. Value can mean different things to different consuming groups in a market. For example, consider how Aldi is positioned to offer different

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elements of value at different prices to Coles and Woolworths, which are different again from offerings of convenience stores such as 7-Eleven and Night Owl. The benefits are different in these cases and so are the prices.

CASE STUDY MYOB MYOB is clearly a great Australian business success story. MYOB develops and publishes award-winning software solutions that have revolutionised the way small- and medium-sized businesses do their accounting and solve their financial management problems. The introduction of the GST (goods and services tax) in Australia in 2000 helped MYOB’s growth. Craig Winkler established MYOB in 1997 and is its CEO and managing director. He was able to bring together computing skills and the accounting expertise needed to produce a user-friendly accounting package. The original MYOB software was produced by a US-based company called BestWare, and Winkler secured the rights to develop and provide the Australian, New Zealand, Malaysian, South African and Singaporean versions. This required significant development, as accounting standards and tax laws are different across countries. In 1996, the Australian company took a big risk and seized the opportunity to buy BestWare and become the worldwide owners and controllers of the MYOB software package. MYOB offers ongoing product support for its software and upgrades. Businesspeople can join the MYOB cover plan, which provides telephone support and upgrades as well as training. In July 1999, MYOB listed on the Australian Stock Exchange, which enabled the company to accelerate product development and fund increased

growth in the business. MYOB has also diversified through acquiring other software products and companies such as RetailManager. MYOB has a focused strategy of helping small business achieve better results by providing solutions that greatly simplify business operations and management. By 2008, MYOB was selling and servicing its software to 500 000 businesses and over 10 000 accounting firms, and a large amount of revenue had been re-invested into further product and market development. By 2010, new CEO Tim Reed had taken MYOB back into private ownership through a buyout, and had expanded sales to well over AU$200 million, with operations becoming increasingly global and over 1 200 000 businesses using it every day to run their accounts and other information infrastructure. Bain Capital purchased MYOB in 2011 for more than AU$1 billion, in Australia’s third-biggest private equity deal. The company has broadened its product base from essentially book keeping and accounting software to other business applications and now offers a wide range of accounting solutions through their recent union with BankLink and development of cloud facilities. MYOB is focused on convincing the remaining 40 per cent of SMEs (small and medium enterprises) to move away from Microsoft’s Excel and use their highly efficient cloud product instead.

Sources: Bingemann, M. (10 September 2012). MYOB chief Tim Reed says life under Bain Capital ownership has been good. The Australian. http://www.theaustralian.com.au/business/mergers-acquisitions/myob-chief-tim-reed-says-life-under-bain-capital-ownership-has-beengood/story-fn91vdzj-1226468520756 (accessed 23 September 2013); Carter, B. (17 September 2013). MYOB looks to Libs for confidence lift. The Australian, http://www.theaustralian.com.au/business/companies/myob-looks-to-libs-for-confidence-lift/story-fn91v9q3-1226720479137 (accessed 26 September 2013); MYOB website, http://www.myob.com.au; Moran, S. (24 July 2013). Sage ups the ante in archers MYOB case. The Australian, http://www.theaustralian.com.au/business/companies/sage-ups-the-ante-in-archers-myob-case/story-fn91v9q3-1226683993127 (accessed 7 October 2013).

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INNOVATIVE WAY AMAZON PRIME It’s hard to believe Amazon was once a struggling online bookseller. Today, it is ‘an existential threat’ to every retailer, as Fiona Dias, executive vice president of GSI Commerce, put it. Amazon targets customers who want to find good deals and purchase products conveniently over the Internet. Those customers can find just about anything they want on Amazon.com. They often pay less for it there than they would anywhere else. And if they belong to Amazon Prime, they get free two-day shipping. Amazon wants to provide ‘premium products at nonpremium prices’. To do that, it has developed an extensive network of third-party merchants – partners with whom it maintains close, mutually beneficial relationships, is constantly honing its operational efficiency, and has created one of the most finely tuned distribution systems around. As if all that wasn’t enough, along came Prime. For US$79 a year, customers get free two-day shipping,

as well as free streaming video and other perks. Prime allows Amazon to capitalise on its core competencies of wide selection, cost efficiency and slick distribution. When asked how they decided on the $79 price tag, a member of the Prime team said it ‘was never about the $79. It was really about changing people’s mentality so they wouldn’t shop anywhere else’. Prime was conceived as a way to further cement the loyalty of Amazon’s best customers and it has been more successful than even CEO Jeff Bezos imagined. Amazon Prime, said one recent business article ‘turns casual shoppers . . . into Amazon addicts’. It provides value to customers, but it also increases sales for Amazon. According to some estimates, customers increase their purchases on the site by about 150 per cent after joining Prime. It is credited for helping Amazon’s sales zoom 30 per cent during the global financial crisis while other retailers struggled to attract customers.

Sources: Brad Stone. (29 November–5 December 2010). What’s in the Box? Instant Gratification. Bloomberg Businessweek, 39–40; and S. Levy. (December 2011). CEO of the Internet: Jeff Bezos Owns the Web in More Ways than You Think. Wired, http://www.wired.com/magazine/2011/11/ ff_bezos/ (accessed 24 July 2012).

L E V E L S O F ST R AT E GY Another aspect of strategic management concerns the organisational level to which strategic issues apply. Strategic managers normally think in terms of three levels of strategy, as illustrated in EXHIBIT 6.2.15

◗◗ What business are we in? This is the question managers address when they consider corporate-level strategy The level of strategy concerned with the question ‘What business are we in?’ It relates to the organisation as a whole and the combination of business units and product lines that make it up. business-level strategy The level of strategy concerned with the question: ‘How do we compete?’ It relates to each business unit or product line within the organisation.

corporate-level strategy. Corporate-level strategy pertains to the organisation as a whole and the combination of business units and product lines that make up the corporate entity. Strategic actions at this level usually relate to: the acquisition of new businesses; additions or divestments of business units, plants or product lines; and joint ventures with other corporations in new areas. For Verizon, the core business is communication technologies (both mobile and Internet), for Austal, it is designing and building a particular type of boat. It is often risky to venture too far from your core business area.

◗◗ How do we compete?

Business-level strategy pertains to each business unit or product line. Strategic decisions at this level concern the amount of advertising, direction and extent of R&D, product changes, new-product development, equipment and facilities, and expansion or contraction of product and service lines. At Garmin, the company that first became known for selling standalone global positioning satellite navigation devices (GPS) to consumers, sales dropped due to the convergence of GPS functionality into smartphones. In response, Garmin’s consumer products division decided to create a phone of its own. The company partnered with computer maker Asus to

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Corporate-level strategy:

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EXHIBIT 6.2 Three levels of strategy in organisations

What business are we in? Corporation

Business-level strategy: How do we compete? Textiles unit

Auto parts unit

Chemicals unit

Functional-level strategy: How do we support the business-level strategy? Finance

R&D

Manufacturing

Marketing

Sources: Milton Leontiades, Strategies for Diversification and Change (Boston: Little, Brown, 1980): 63; and Dan E. Schendel and Charles W. Hofer, eds., Strategic Management: A New View of Business Policy and Planning (Boston: Little, Brown, 1979): 11–14.

develop a Garmin-branded smartphone with built-in GPS. In addition, Garmin’s consumer division created its own app for smartphones to enable users to do everything from check for traffic jams, to look up their destinations on Wikipedia, even track fitness goals and exercise activities.16

◗◗ How do we support the business-level strategy?

Functional-level strategy pertains to the

major functional departments within the business unit. Functional strategies involve all of the major functions, including finance, research and development, marketing and manufacturing. For example, the functional-level strategy for Garmin’s marketing department is to sponsor large sporting events, such as the Gold Coast Airport Marathon,17 in order to better associate its new line of wearable technology with the exercise and fitness market.

functional-level strategy The level of strategy concerned with the question: ‘How do we support the business-level strategy?’ It relates to all of the organisation’s major departments.

CASE STUDY

Apple Inc. has become an extremely successful retailer in the last decade, with its Apple stores surpassing expectations in retail performance by a huge margin. The most important performance measure for retail stores is sales revenue per square metre, and Apple stores average sales per square metre better than famed brand name retailers such as Tiffany and Company, Nieman Marcus, Saks and Best Buy. People just seem to love visiting Apple stores – especially Apple ‘fans’. With over 415 retail stores in total globally (including 22 in Australia and 40 in

China), the most remarkable statistic is that Apple stores each attract on average nearly 14 000 people per week and the Fifth Avenue store in New York averages over 50 000 people per week. In retailing terms, Apple’s astonishing growth goal was to reach US$1 billion in retail per year, being faster than any other retailer at that level. Former Apple CEO, the late Steve Jobs, who led Apple’s strategies through both good and not-so-good times, had a platform to move the newest product from his Apple innovation engine, iPhone, into the mainstream of retailing. In

Source: Getty Images/Brian Kersey

APPLE INC.’S STRATEGY: MUCH MORE THAN IPOD, IPHONE, IPAD AND MAC

Apple stores are distinctive in their offerings and style.

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2010, Apple’s capital (shareholder) value jumped from previously being not in the world’s top 10 to being the biggest company in the world, on a par with the giant oil company Exxon Mobil, and well ahead of its rivals. By 2011, Apple had achieved a massive 10 billion downloads by consumers. Apple rapidly expanded its online and offline presence, with its 49 000 employees creating a remarkable US$14 billion of profit on US$65 billion of revenue. The company’s share price tripled during and after the GFC from US$100 to US$300. Sadly, the company’s hands-on CEO, who was widely recognised as a key to this company’s spectacular success, passed away in October 2011. Apple’s move in retail was a very deliberate strategy as led by Jobs. First it came from the realisation of the strategic threat that Apple was increasingly becoming dependent on large, powerful retailers; in response, the company decided to move down the value chain and enter the retailing segment itself in order to reduce this dependence. Apple put one of the world’s most highly respected retailers, Mickey Doexler, on to its board of directors. Doexler had been successfully running The Gap chain at the time. Being a computer company, Apple built a prototype store near its campus in California. The Apple store Version 0.0 was built in a warehouse and it was experimented with in the same way one would experiment with an electronic gadget. The prototype store was redesigned a few times and after a lot of redesign and brainstorming, Apple came up with innovations such as the ‘Genius Bar’ in the back of the store, which doesn’t dispense alcoholic beverages but dispenses advice of a very high level for anyone who has questions about any of Apple’s products. Apple has

attempted to give its customers and potential customers outstanding service in terms of very fast repair times and it deploys technical people with real know-how. Stores are very much designed to eliminate clutter. The design is brilliant in its simplicity with the stores being made of only glass, stainless steel and wood and carefully designed lighting, which fits the Apple high-quality image of ‘nice design’. Apple’s profits increased year on year for nine years until the first quarter of 2013. In 2012 Apple earned over US$40 billion in profit from revenue of nearly US$155 billion and in September 2012 their share price peaked at an astounding US$700 per share. Its share price has reduced since then but Apple’s dominance continues. Apple now has over 72 500 full-time employees, a market value estimated at about US$416 billion and projections of an unheard of US$156 billion in cash and investments in 2013. In 2013 Apple became the world’s most valuable brand (based on Interbrand’s annual report), finally dislodging Coca-Cola from the number one spot – a position that company had held since the report’s inception in 2000. An example of Apple’s astonishing market success is demonstrated with the release of new versions of iPhones: in 2011 Apple recorded 4 million sales of the 4S in its first three days on the market, in 2012 sales of the iPhone 5 topped five million over the first three days and in 2013 the release of the 5S and 5C sold over 9 million in the same time period – a record-breaking number. Serious challenges to Apple’s market dominance have finally come from Samsung with their Galaxy smartphones topping annual sales and Apple’s own challenges to maintain healthy margins.

Sources: Useem, J. (19 March 2007). Fortune, pp. 55–60, http://www.businessweek.com/news/2010-05-26/apple-overtakes-microsoft-inmarket-capitalization-update3-.html; marketwatch.com; Apple Annual Report 2012; Jones, C. (12 December 2012). How Much Extra Cash Does Apple Really Have? Forbes, http://www.forbes.com/sites/chuckjones/2012/12/12/how-much-extra-cash-does-apple-really-have (accessed 26 September 2013); Elliot, S. (29 September 2013). Apple Passes Coca-Cola as Most Valuable Brand. The New York Times, http://www. nytimes.com/2013/09/30/business/media/apple-passes-coca-cola-as-most-valuable-brand.html?_r=0 (accessed 8 October 2013); http://investorplace. com; Oleaga, M. (15 August 2013). Apple vs Samsung Sales Figures 2013 Q2: Samsung Extends Lead Against Apple Inc., LG Electronics; Smartphones Top Feature Phones, Says Gartner. Latinos Post, http://www.latinospost.com/articles/25603/20130815/apple-vs-samsung-salesfigures-2013-q2-extends-lead-against.htm (accessed 26 September 2013); Apple Retail Store, http://www.apple.com/retail/storelist/ (accessed 27 September 2013).

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To think strategically means to take the long-term view and see the big picture.

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Strategic management refers to the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organisation and its environment so as to achieve organisational goals.

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A strategy is the plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage and attaining goals.

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Competitive advantage refers to what sets the organisation apart from others and provides it with a distinctive edge in the marketplace.

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Four elements of competitive advantage are the company’s target customer, core competencies, synergy and value.

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A core competence is something that the organisation does particularly well in comparison to others.

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The heart of strategy is to deliver value to customers.

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Business-level strategy pertains to each business unit or product line within the organisation.

Managers in all types of organisations, including businesses, non-profit organisations, and government agencies, have to think about how the organisation fits with its environment.

Synergy exists when the organisation’s parts interact to produce a joint effect that is greater than the sum of the parts acting alone.

Corporate-level strategy pertains to the organisation as a whole and the combination of business units and products that make it up.

Functional-level strategy pertains to the major functional departments within each business unit, such as manufacturing, marketing and research and development

6.2

THE STRATEGIC MANAGEMENT PROCESS

The overall strategic management process is illustrated in EXHIBIT 6.3. It begins when executives evaluate their current position with respect to the company’s mission, goals and strategies. They then scan the organisation’s internal and external environments and identify strategic issues that might require change. Managers at BP didn’t have to look far to see a need for change after a giant drilling rig exploded and sank in April 2010, killing 11 crew members and spilling massive amounts of oil into the Gulf of Mexico. BP’s strategy had been based on being a leader in pushing the frontiers of the oil industry, such as drilling the world’s deepest wells, scouting for oil in the Arctic and other aggressive efforts. The strategy succeeded. BP steadily increased production and overtook Royal Dutch Shell PLC in market capitalisation in January 2010.18 However, a few months later disaster struck, presenting a crisis that required a new approach to strategy for the oil giant. BP managers evaluated whether the company’s strategy fitted the environment and its own capabilities, and shifted strategic goals to focus on safety and consistency. For all organisations, internal or external events sometimes indicate a need to redefine the mission or goals or to formulate a new strategy at the corporate, business or functional level. Factors that alter a company’s ability to achieve its goals are called strategic issues, as described in Chapter 2. In turbulent

Factors that alter a company’s ability to achieve its goals are called strategic issues and are described in Chapter 2.

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Scan external environment:

EXHIBIT 6.3 The strategic management process

Identify strategic factors:

national global

opportunities threats

Evaluate current:

Define new:

mission goals grand strategy

mission goals grand strategy

SWOT

Scan internal environment: core competence

Formulate strategy: corporate business functional

Implement strategy via changes in: leadership/culture structure human resources information and control systems

Identify strategic factors: strengths weaknesses

synergy value creation Sources: Based on Stevenson, H. H. (Spring 1976). Defining Corporate Strengths and Weaknesses. Sloan Management Review, 17, 51–68; Kastens, M. L. (1976), Long-range Planning for Your Business. New York: American Management Association.

environments and fast-changing industries, managers have to stay alert to strategic issues that require a shift in strategy to stay in line with both internal and external changes.19 This chapter’s Management in practice discusses some trends in strategy formulation and execution. The final stage in the strategic management process outlined in EXHIBIT 6.3 is the implementation of the new strategy.

MANAGEMENT IN PRACTICE WILL STR ATEGY EVER BE THE SAME? ‘Strategy, as we knew it, is dead,’ said Walt Shill, head of management consulting in North America for Accenture Ltd. It might be an overstatement, but during the economic turmoil of the past few years many managers have discovered they need new approaches to strategy.

✚✚ Managers build flexibility into strategic plans. Management scholar and strategic thinker Gary Hamel uses the term strategic decay to describe the fact that the value of even the most brilliant strategy declines over time. Static long-range strategic plans can be a liability in an ever-changing world. What was a strength yesterday might be the beginnings of a weakness today. To overcome the natural tendency to depend on what has worked in the past, managers at organisations such as McKinsey & Company

build a culture of inquiry, healthy debate and constructive conflict.

✚✚ Strategy is built actively and interactively. Managers don’t sit at their desks and dream up strategy. They get out and talk to employees, customers, suppliers and other stakeholders. In the early days of Hewlett-Packard, for example, Dave Packard and Bill Hewlett were seldom at their desks. They were out talking to people and gaining a solid, realistic grounding for the creation of effective strategy.

✚✚ Strategic partnerships are key components of strategy. Collaboration with other organisations is an important part of how successful companies enter new areas of business. To find new ways to make money as e-books, which

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provide less revenue per unit than traditional hardcover books, become more popular, Random House is striking deals with video game publishers to write original stories for games and offer advice to developers on their own storylines.

✚✚ Strategy comes to life with creative execution. Creative execution is the implementation of a strategy that is so well conceived, compelling and embraced by everyone throughout the organisation that it practically guarantees

a successful outcome. For example, Google’s strategy of focusing on search rather than content – on organising existing information and making it accessible and useful – was so clear and compelling that employees rallied behind it. Managers use visionary leadership, open and honest communication, and bold action to drive strategy. Ignoring the seemingly impossible nature of the task, Google managers have inspired people with a strategic goal to digitise every book in the world’s libraries.

SOURCES: Gary Hamel. (21 October 2009). Outrunning Change – The CliffsNotes Version. Gary Hamel’s Management 2.0, WSJ Blogs, http://blogs.wsj.com/ management/2009/10/21/outrunningchange-the-cliffsnotes-version/ (accessed 31 July 2012); Eric Beaudan. (March–April 2010). Creative Execution. Ivey Business Journal, http:// www.iveybusinessjournal.com/article.asp?intArticle_ID=891 (accessed 26 March 2010); Jeffrey A. Trachtenberg. (1 March 2010). Random House Harnesses Skills to Venture into Videogame Action. The Wall Street Journal; and Don Tapscott. (Third Quarter 2001). Rethinking Strategy in a Networked World. Strategy & Business, 24, 34–41.

INNOVATIVE WAY Dell has long been known for its rapid build and delivery of customer-customised computers – disrupting the personal and business computer retail market throughout the 1990s and 2000s. As the market caught up and consumer expectations shifted with technology advances, Dell’s strategy became less competitive. An article in Forbes highlighted Dell’s steep decline in earnings as being due to the company losing its competitive advantage. Dell’s competitive advantage originally came from its streamlined supply chain that enabled the organisation to outsource much of the functional work required to design, manufacture and deliver desktop computers so that it could ensure its products were always made of the latest components and features. The company’s supplier relationships meant you could get the latest microprocessor, graphics card and memory at a low price shipped in just a few days. As Forbes contributor Panos Mourdoukoutas aptly pointed out, Dell’s outsourcing, done well, provided them with a good first-mover advantage by creating a point of differentiation within the market. Over time, Dell (and other companies such as Hewlett-Packard) outsourced more and more activities – hyper-outsourcing to purposefully fragment and disintegrate production processes to improve profitability and flexibility. However, this had an unintended consequence of making it easier for competitors to follow suit and enter the market. Once competitors learned how to outsource just as well, Dell lost its point of differentiation, and hence competitiveness, in the market.

Source: Getty Images/Simon Dawson

DELL TECHNOLOGIES

Dell CEO Michael Dell

As Mourdoukoutas noted, this could explain why companies such as Apple and Google prefer to keep their product design, marketing and after-sales service within their organisational boundaries, rather than outsourcing these business functions. With profits declining it was clear Dell had to do something innovative in the already extremely competitive technology industry, so a rethink of the organisation’s strategy was in order. Recognising that technology designers and manufacturers were creating products that relied on data more and more, Dell saw an opportunity to leverage its reputation in the technology sector to extend its market offering. Dell acquired Perot Systems in 2009 as a means of gaining expertise and experience in IT services, extending its capabilities from manufacture and online retail. This began

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the company’s transition towards a more services-based organisation focusing on supporting businesses through web-based infrastructure – most notably cloud computing and storage capabilities. By 2014 a quarter of Dell’s US$36 billion revenue was estimated to come from cloud computing services, and the cloud computing industry looked on with interest to see if the company could generate profits from its rapidly increasing market share. In a promise of things to come, Dell continued its pursuit of reinventing itself by merging with cloud storage giant EMC on 7 September 2016, for a record breaking acquisition value of US$67 billion to form the newly named Dell Technologies. This gave Dell the in-house capacities and capabilities to rapidly expand their reach to market, and made a bold statement of

the longer-term objective of the organisation to grow its services business. Dell Technologies appears to have learned from the mistakes of its predecessor, Dell, by developing its valuechains for cloud services within its organisational boundaries and not returning to the hyper-outsourcing approach Dell fell victim to. While Dell has only recently merged with EMC, there is an air of anticipation for the next phase of the company’s evolution. CEO Michael Dell’s opening statement after merging the two companies stated ‘we feel very well positioned both in the new areas of technology and in the existing areas of technology.’ Will Dell Technologies be a first mover in delivering fog computing services (an adaptation of cloud computing) to market? Time will tell …

Sources: Panos Mourdoukoutas, (14 April 2013). How Hewlett-Packard and Dell destroyed their PC advantage… piece-by-piece. Forbes: Markets. http:// www.forbes.com/sites/panosmourdoukoutas/2013/04/14/how-hewlett-packard-and-dell-destroyed-their-pc-advantage-piece-by-piece/#6434496c9f7e (accessed 9/12/2016); and ‘EMC Takeover Marks Return of Michael Dell’. The Wall Street Journal. 13 October 2015; and Rachael King, (7 September 2016). Dell closes $60 billion merger with EMC. http://www.wsj.com/articles/dell-closes-60-billion-merger-with-emc-1473252540 The Wall Street Journal.

ST R AT E GY F O R M U L AT I O N V E R S U S I M P L E M E N TAT I O N strategy formulation The stage of strategic management that involves the planning and decision making that lead to the establishment of the organisation’s goals and of a specific strategic plan. strategy implementation The stage of strategic management that involves the use of managerial and organisational tools to direct resources towards achieving strategic outcomes. SWOT (situation) analysis Analysis of the strengths, weaknesses, opportunities and threats (SWOT) that affect organisational performance.

The final aspect of strategic management involves the stages of formulation and implementation. Strategy formulation includes the planning and decision making that lead to the establishment of the firm’s goals

and the development of a specific strategic plan.20 Strategy formulation may include assessing the external environment and internal problems, and integrating the results into goals and strategy. This contrasts with strategy implementation, which is the use of managerial and organisational tools to direct resources towards accomplishing strategic results.21 Strategy execution is the administration and implementation of the strategic plan. Managers may use persuasion, new equipment, changes in organisation structure or a reward system to ensure that employees and resources are used to make formulated strategy a reality.

S WO T A NA LY S I S Formulating strategy often begins with an assessment of the internal and external factors that will affect the organisation’s competitive situation, which requires that managers conduct an audit of both internal and external factors that influence the organisation’s ability to meet its goals and objectives. SWOT analysis is a search for strengths, weaknesses, opportunities and threats that affect organisational performance. Managers obtain external information about opportunities and threats from a variety of sources, including customers, government reports, professional journals, suppliers, bankers, friends in other organisations, consultants or association meetings. Many companies hire specialist scanning organisations to provide them with newspaper clippings, Internet research and analyses of

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relevant domestic and global trends. In addition, many companies are hiring competitive intelligence professionals to scope out competitors, as we discussed in Chapter 2, and using intelligence teams, as described in Chapter 5. Executives acquire information about internal strengths and weaknesses from a variety of reports, including budgets, financial ratios, profit and loss statements, and surveys of employee attitudes and satisfaction. In addition, managers build an understanding of the company’s internal strengths and weaknesses by talking with people at all levels of the hierarchy in frequent face-to-face discussions and meetings.

Many companies are hiring competitive intelligence professionals to scope out competitors, as discussed in Chapter 2, and using intelligence teams, as described in Chapter 5.

IN TERNA L STRENGTHS A ND WE A K NE S S E S Strengths are positive internal characteristics that the organisation can exploit to achieve its strategic performance goals. Weaknesses are internal characteristics that may inhibit or restrict the organisation’s performance. Some examples of what executives evaluate to interpret strengths and weaknesses are given in EXHIBIT 6.4. The information sought typically relates to specific functions such as research and development, marketing, finance, and production. Internal analysis also examines overall organisation structure, competence and quality of management and human resource characteristics. Based on their understanding of these areas, managers can determine their strengths or weaknesses when compared with other organisations.

MANAGEMENT AND ORGANISATION

MARKETING

HUMAN RESOURCES

• Management quality

• Distribution channels

•  Employee experience,

• Staff quality

• Market share

• Degree of centralisation

• Advertising efficiency

• Organisation charts

• Customer satisfaction

•  Planning, information, control

• Service reputation

systems

education

• Union status • Turnover, absenteeism • Work satisfaction

• Sales force turnover

FINANCE

PRODUCTION

RESEARCH AND DEVELOPMENT

• Profit margin

• Plant location

• Basic applied research

• Debt-equity ratio

• Machinery obsolescence

• Laboratory capabilities

• Inventory ratio

• Purchasing system

• Research programs

• Return on investment

• Quality control

• New-product innovations

• Credit rating

• Productivity/efficiency

• Technology innovations

EXTERNA L OPPORT UNITIES A ND T HR E AT S Threats are characteristics of the external environment that may prevent the organisation from achieving its strategic goals. One threat to Microsoft, for example, is the proliferation of cheap or free software available over the Internet.22 Opportunities are characteristics of the external environment that have the potential to help the organisation achieve or exceed its strategic goals. For example, the decline in value of the Australian dollar provides opportunities for Australian businesses to export to foreign markets as the comparative prices of their products and services become more competitive in the global marketplace.

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EXHIBIT 6.4 Checklist for analysing organisational strengths and weaknesses

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Executives evaluate the external environment with information about the 10 sectors described in Chapter 2.

Executives evaluate the external environment with information about the 10 sectors described in Chapter 2. The task environment sectors are the most relevant to strategic behaviour and include the behaviour of competitors, customers, suppliers and the labour supply. The general environment contains those sectors that have an indirect influence on the organisation, but nevertheless must be understood and incorporated into strategic behaviour. The general environment includes technological developments, the economy, legal–political and international events and sociocultural changes. Additional areas that might reveal opportunities or threats include pressure groups, interest groups, creditors and potentially competitive industries. Social networking company Facebook, which was at first a site for college students, provides an example of how managers can use SWOT analysis in formulating an appropriate strategy, as explained in the innovative way box.

INNOVATIVE WAY FACEBOOK In the early 2000s, MySpace was clearly the leading online social networking site, but Facebook soon went flying past it. The Facebook start-up grew rapidly in the first four years after 23-year-old Mark Zuckerberg founded it while still a student at Harvard University. To keep Facebook growing, the young CEO made some strategic decisions that can be understood by analysing the company’s strengths, weaknesses, opportunities and threats. Facebook’s strengths include technological know-how and an aggressive and innovative culture. In addition, Facebook has a major partnership with Microsoft, which has invested heavily in it. Microsoft brokers banner ads for the company, and is developing tools that make it easy to create links between Windows applications and Facebook’s network. When Facebook expanded beyond American college students, its membership boomed. The primary weakness was a lack of management expertise to help the company meet the challenges of growing up. The biggest threat to the company was that Facebook was spending more cash than it was bringing in. In addition, Zuckerberg gained a reputation in the industry as an arrogant and standoffish manager, which could hurt Facebook’s chances of successful partnerships. Opportunities abound to expand the company’s operations internationally and to take advantage of Facebook’s popularity to introduce features that can command higher web advertising rates and bring in more revenue. What does SWOT analysis suggest for Facebook? Zuckerberg is trying to capitalise on Facebook’s popularity by making it a place for companies to provide

Source: Getty Images/Justin Sullivan

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services to members. For example, Prosper.com developed a Facebook application for its service that allows members to lend one another money at negotiated interest rates. NonInternet companies such as Red Bull have also developed Facebook applications to reach Facebook’s vast customer base. Companies that put applications on Facebook can experience a sort of viral popularity as word spreads among millions of members. To implement the strategy, Zuckerberg brought in executives with more strategy experience than himself, such as Chamath Palihapitiya, a former AOL manager, as vice president of product marketing, and Sheryl Sandberg, formerly of Google, as chief operating officer. These managers have the traditional skills Facebook needs to execute the new strategy both in the United States and internationally. For some time, it was unclear if Facebook’s strategy was working. Zuckerberg is continuing his efforts to build

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a more seasoned executive team to keep growing and avoid damaging mistakes as Facebook pursues its strategy. In April 2012 Facebook purchased a nascent photo-sharing service called Instagram for a dazzling US$1 billion. The price paid for the start-up generated tremendous speculation in the media, but Zuckerberg saw strategic alignment with the fun social networking app and was eager to hook up with the 20 million users who had already downloaded it. In just over a year Instagram climbed to 100 million users and introduced mobile video sharing. Facebook listed as a public company in the United States in May 2012 offering shares at US$38. The public listing gave

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Facebook a valuation of around US$100 billion and contradicted the usual price to earnings ratios used to estimate a company’s value. Facebook hit several large benchmarks in 2013 where it reached record levels of monthly mobile users and achieved over a billion monthly active users. Its market capitalisation was over US$63 billion, trading at US$50 for the first time in 2013 with US$5 billion in sales and US$9 billion in cash on hand. It now employs 17 000+ people and is ranked in the Forbes top six most valuable brands. It seems that Zuckerberg’s plan of putting the right people in charge of the company has certainly helped Facebook.

Sources: Kirkpatrick, D. (11 June 2007). Facebook’s Plan To Hook Up the World. Fortune, 127–30.; Stone, B. (25 May 2007). Facebook Expands Into MySpace’s Territory. The New York Times; Vara, V. (5 March 2008). Facebook CEO Seeks Help as Site Suffers Growing Pains. The Wall Street Journal; Dominic Rushe. (10 April 2012). $1b Deal: Facebook Buys Instagram Mobile Photo Sharing App. The Sydney Morning Herald, http://www.smh.com.au/technology/technology-news/1b-deal-facebook-buys-instagram-mobile-photo-sharing-app-201204101wllb.html#ixzz2g2Yjecpd (accessed 26 September 2013); Barbara Ortutay. (21 June 2013). Facebook Introduces Video on Instagram. The Sydney Morning Herald, http://www.smh.com.au/digital-life/digital-life-news/facebook-introduces-video-on-instagram-20130621-2omgv. html#ixzz2g2ljA5o0 (accessed 26 September 2013); http://money.cnn.com/2012/05/23/technology/facebook-ipo-what-went-wrong/index. htm (accessed 27 September 2013); Todd Ganos. (1 February 2012). Is Facebook Really Worth $100 Billion? Forbes, http://www.forbes.com/ sites/toddganos/2012/02/01/is-facebook-really-worth-100-billion/ (accessed 27 September 2013); http://newsroom.fb.com/Key-Facts/ (accessed September 2013); http://www.forbes.com/companies/facebook/ (accessed 27 September 2013); and http://www.nasdaq.com/symbol/fb/historical (accessed 27 September 2013).

R EMEMBE R THIS ◗◗

Strategy formulation is the stage of strategic management that includes the planning and decision making that lead to the establishment of the organisation’s goals and a specific strategic plan.

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Managers often start with a SWOT analysis, an audit or careful examination of strengths, weaknesses, opportunities and threats that affect organisational performance.

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Strategy implementation (execution) is the stage of strategic management that involves the use of managerial and organisational tools to direct resources towards achieving strategic outcomes.

6.3

FORMULATING CORPORATE-LEVEL STRATEGY

Three approaches to understanding corporate-level strategy are the portfolio strategy, the BCG matrix, and diversification.

T H E P O RT F O L I O ST R AT E GY Individual investors often wish to diversify in an investment portfolio with some high-risk stocks, some low-risk stocks, some growth stocks and perhaps a few income bonds. In much the same way,

portfolio strategy A type of corporate-level strategy that relates to the organisation’s mix of strategic business units and product lines that fit together in such a way as to provide the organisation with synergy and competitive advantage.

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strategic business units (SBUs) A division of the organisation that has a unique business mission, product line, competitors and markets relative to other SBUs in the same organisation.

corporations like to have a balanced mix of business divisions, called strategic business units (SBUs). An SBU has a unique business mission, product line, competitors and markets relative to other SBUs in the corporation.23 Executives in charge of the entire corporation generally define an overall strategy and then bring together a portfolio of SBUs to carry it out. Managers don’t like to become too dependent on one business. In the same way that Verizon purchased Yahoo! and AOL to compete with Google and Facebook, the portfolio strategy pertains to the mix of business units and product lines that fit together in a logical way to provide synergy and competitive advantage for the corporation.

T H E B C G M AT R I X BCG matrix A concept developed by the Boston Consulting Group that evaluates strategic business units with respect to the dimensions of business growth rate and market share.

EXHIBIT 6.5 The BCG matrix

The BCG (Boston Consulting Group) matrix is illustrated in EXHIBIT 6.5, and is a coherent framework for conceptualising and categorising investments within a portfolio strategy. The BCG matrix organises businesses along two dimensions – business growth rate and market share.24 Business growth rate relates to how rapidly the entire industry is increasing. Market share defines whether a business unit has a larger or smaller share than competitors. The combinations of high and low market share and high and low business growth provide four categories for a corporate portfolio. The star has a large market share in a rapidly growing industry. The star is important because it has additional growth potential, and profits should be ploughed into this business as investment for future growth and profits. The star is visible and attractive and will generate profits and a positive cash flow even as the industry matures and market growth slows. The cash cow exists in a mature, slow-growth industry, but is a dominant business in the industry with a large market share. Because heavy investments in advertising and plant expansion are no longer High High

Business growth rate

Low

Low

Market share

Stars

Question marks

Rapid growth and expansion

New ventures. Risky – a few become stars, others divested

Cash cows

Dogs

Milk to finance question marks and stars

No investment. Keep if some profit. Consider divestment

?

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required. The company earns a positive cash flow. It can milk the cash cow to invest in other, riskier businesses. The question mark exists in a new, rapidly growing industry but has only a small market share. The question mark business is risky. It could become a star, or it could fail. The company can invest the cash earned from cash cows in question marks with the goal of nurturing them into future stars. The dog is a poor performer. It has only a small share of a slow-growth market. The dog provides little profit for the company and may be targeted for divestment or liquidation if turnaround is not possible. The circles in EXHIBIT 6.5 represent the business portfolio for a hypothetical corporation. Circle size represents the relative size of each business in the company’s portfolio. Most large organisations, such as General Electric (GE), have businesses in more than one quadrant, thereby representing different market shares and growth rates. The most famous cash cow in GE’s portfolio, for example, is the appliance division. This business holds a large share of a stable market and accounts for a big portion of GE’s sales and profits. The GE Healthcare and Aviation divisions have star status, and GE is pumping money into development of new products in these fast-growing areas, such as products for wind energy. GE’s consumer finance division is a question mark. The division expanded too aggressively into areas such as real estate and took a big hit during the financial crisis. The media division has probably gained dog status because it doesn’t fit well in the GE portfolio. A dog for GE might be a star for someone else, so in 2010 GE executives sold a majority stake in NBC Universal to Comcast. In 2013, Comcast purchased the remainder of GE’s stake in NBC.25

D I V E R S I F I C AT I O N ST R AT E GY The strategy of moving into new lines of business, as GE did by getting into healthcare, finance and alternative forms of energy, is called diversification. Other examples of diversification include: Apple’s entry into the mobile phone business with the iPhone; Amazon.com’s move into consumer electronics, with the Kindle electronic reader; and Microsoft’s entry into the mobile phone market with the purchase of Nokia’s handset and services units. Microsoft managers believed that having a handset business in-house would enable them to innovate and move more quickly in the rapidly evolving industry.26 In 2016, however, Microsoft sold the Nokia division to FIH Mobile. The purpose of diversification is to expand the organisation’s business operations to produce new kinds of valuable products and services. When the new business is related to the company’s existing business activities, the organisation is implementing a strategy of related diversification. For example, GE’s move into renewable energy and Microsoft’s move into mobile phones are linked to these firms’ existing energy and digital businesses. Unrelated diversification occurs when an organisation expands into a totally new line of business, such as Coles Supermarkets entry into consumer insurance or food company Sara Lee’s move into the intimate apparel business. With unrelated diversification, the company’s lines of business aren’t logically associated with one another; therefore, it can be difficult to make the strategy successful. Most companies are giving up on unrelated diversification strategies, and are selling off unrelated businesses to focus on core areas. For example, Sara Lee sold its intimate apparel business in 2006, and has since sold or spun off many of its units, and has been renamed Hillshire Brands.27 A firm’s managers may also pursue diversification opportunities to create value through a strategy of vertical integration. Vertical integration means the company expands into businesses that either produce the supplies needed to make products or that distribute and sell those products to customers. For example, E & J Gallo Winery started a new business to make its own wine bottles rather than buying them from a

diversification The strategy of moving into new lines of business.

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supplier.28 Gallo could make bottles more cheaply than it could buy them, enabling managers to reduce costs. In addition, the new division enabled the company to distinguish its wines with unique bottle shapes. An example of diversifying to distribute products comes from Apple, which opened retail stores to increase visibility and sell its innovative products to customers. The strategy was a big success. Customers can try the products before they buy and get free help on how to use Macintosh computers, iPods and iPhones, Apple software and accessories such as digital cameras.29

AUSTRALIAN MANAGER PROFILE

Source: Courtesy James Campbell

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JAMES CAMPBELL, BIOTECH EXECUTIVE

After completing a PhD in biochemistry and then working as a scientist in both France and Australia I became frustrated with the way research was managed. I completed an MBA at the Melbourne Business School, with the goal of enhancing the interface between innovation and commercialisation in Australia. Following my MBA, I worked with the international management consultancy Booz & Co for two years – an excellent experience that honed my ability to focus on the core issues underlying business performance and improvement. I then moved to the technology transfer group of the University of Melbourne, which had just established a joint venture pre-seed venture capital fund. This gave me the opportunity to combine my scientific background and management experience to guide the formation of several small biotech companies. In 2002, I was offered the role of COO in a small ASX-listed biotech company, Autogen Limited. Working closely with the CEO, Greg Collier, I worked on a number of transactions that transformed a $10 million R&D focused company into one of Australia’s leading clinical stage biotech companies, ChemGenex Pharmaceuticals. Over a nine-year period this small and cohesive management team completed several major transactions; a $14 million M&A with a US-based private biotech company; merger integration; $70 million of capital raisings; listing on NASDAQ, intellectual property acquisitions worth more than $30 million, research alliances with pharmaceutical companies worth more than $30 million; and a $130 million licensing deal and the eventual sale

of the company to a US company, Cephalon, for AU$230 million in 2011. At the time the ChemGenex transaction was the second largest acquisition of an Australian biotech company in terms of enterprise value. Since 2011, I have worked as a consultant, sharing the learnings (both positive and negative) of the ChemGenex story:

✚ I work in an industry based on innovation, intellectual property and risk. These are difficult things to qualify, quantify and manage, and while risk can be abated by processes to monitor the technology and commercial landscapes, challenges will always appear from ‘left field’. That is when processes fail and you need to fall back on the quality of your people.

✚ Seek to work with people who have complementary skills to yours – both professional and interpersonal. This provides a great learning experience and allows you to guide and mentor others.

✚ Steer clear of micromanagement: it disempowers and demotivates. If you have staff that need micromanagement, then you have the wrong staff or the wrong managerial attitude. Give your staff the opportunity to shine, and reward them appropriately when they do.

✚ Seek to work with people with a passion for their role and their industry. When times get tough, passion can get you through a lot. Finally, if you don’t have passion or interest in your own role, then get out – you’re doing a disservice to both the company and yourself (and you both deserve better). SOURCE: Contributed by James Campbell.

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Frameworks for corporate-level strategy include portfolio strategy, the BCG matrix and diversification strategy.

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Portfolio strategy pertains to the mix of SBUs and product lines that fit together in a logical way to provide synergy and competitive advantage.

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A strategic business unit (SBU) is a division of the organisation that has a unique business, mission, product or service line, competitors and markets relative to other units of the same organisation.

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The BCG matrix is a concept developed by the Boston Consulting Group that evaluates SBUs with respect to two dimensions – business growth rate and market share – and classifies them as cash cows, stars, question marks or dogs.

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The strategy of moving into new lines of business is called diversification.

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Unrelated diversification refers to expanding into totally new lines of business.

Related diversification means moving into a new business that is related to the corporation’s existing business activities.

Some managers pursue diversification through a strategy of vertical integration, which means expanding into businesses that either provide the supplies needed to make products or distribute and sell the company’s products.

6.4

FORMULATING BUSINESS-LEVEL STRATEGY

Now we turn to strategy formulation within the strategic business unit, in which the concern is how to compete. A popular and effective model for formulating strategy is Porter’s competitive forces and strategies. Michael E. Porter originally studied a number of business organisations and proposed that business-level strategies are the result of understanding competitive forces in the company’s environment.30 More recently, Porter examined the impact of the Internet on business-level strategy.31 New web-based technology is influencing industries in both positive and negative ways, and understanding this impact is essential for managers to accurately analyse their competitive environments and design appropriate strategic actions.

P O RT E R’ S CO M P E T I T I V E F O R C E S A N D  ST R AT E G I E S FIVE CO MPET ITIV E FO RC ES EXHIBIT 6.6 illustrates the competitive forces in an organisation’s environment and indicates some ways that Internet technology is affecting each area. These forces help determine an organisation’s position when compared with its competitors in the industry environment. Although this kind of model might be used on a corporate level, most large companies have separate business lines and do an industry analysis for each line of business or Strategic Business Unit. For example, Mars Inc. operates businesses in a variety of industries. Accordingly, Mars Inc. would conduct separate competitive analyses for its chocolate business segment and its pet care business segment, looking at Porter’s five forces.

1 Potential new entrants. Capital requirements and economies of scale are examples of two potential barriers to entry that can keep out new competitors. It is far more costly to enter the automobile

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industry, for example, than to start a specialised mail-order business. In general, Internet technology has made it much easier for new companies to enter an industry by curtailing the need for such organisational elements as an established sales force, physical assets such as buildings and machinery, or access to existing supplier and sales channels.

2 Bargaining power of buyers. Informed customers become empowered customers. As advertising and buyer information educates customers about the full range of price and product options available in the marketplace, their influence on an organisation increases. This is especially true when an organisation relies on one or two large, powerful customers for the majority of its sales. For example, a customer shopping for a car can gather extensive information about various options, such as wholesale prices for new cars or average value for used vehicles, detailed specifications, repair records and even whether a used car has ever been involved in an accident.

3 Bargaining power of suppliers. The concentration of suppliers and the availability of substitute suppliers are significant factors in determining supplier power. The sole supplier of engines to a manufacturer of small aeroplanes will have great power. Other factors include whether a supplier can survive without a particular purchaser, or whether the purchaser can threaten to self-manufacture the needed supplies. The impact of the Internet in this area can be both positive and negative. That is, procurement over the web tends to give a company greater power over suppliers, but the web EXHIBIT 6.6 Forces affecting industry competition

Potential new entrants

Threat of new entrants

Substitute products from other industries

Threat of substitute products

The firm’s rivalry versus industry competitors

Buyers Bargaining power of buyers

Bargaining power of suppliers

Suppliers

Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved.

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also gives suppliers access to a greater number of customers, as well as the ability to reach end users. Overall, the Internet tends to raise the bargaining power of suppliers.

4 Threat of substitute products. The power of alternatives and substitutes for an organisation’s product may be affected by cost changes or trends such as increased health consciousness that will deflect buyer loyalty to organisations. For example, companies in the sugar industry suffered from the growth of sugar substitutes, and manufacturers of aerosol spray cans lost business as environmentally conscious consumers chose other products. The Internet created a greater threat of new substitutes by enabling new approaches to meeting customer needs. For example, offers of low-cost airline tickets over the Internet hurt traditional travel agencies.

5 Rivalry among competitors. The scrambling and jockeying for position is often exemplified by what Porter called the ‘advertising slugfest’. As illustrated in EXHIBIT 6.6, these rivalries are influenced by the preceding four forces as well as by cost and product differentiation. A famous example of competitive rivalry is the battle between Pepsi and Coke. Similar rivalries between Virgin and Qantas, between Ford, Toyota and Holden, and between Woolworths and Coles see these companies continually trying to win the attention and business of customers from one another.

COMPET ITIV E ST RAT EGIES In finding its competitive edge within these five forces, Porter suggests that an organisation can adopt one of three strategies: differentiation, cost leadership or focus. The organisational characteristics typically associated with each strategy are summarised in EXHIBIT 6.7.

Strategic target

Broad

Differentiation

Cost leadership

Acts in a flexible, loosely knit way; strong coordination among departments Strong capability in basic research Creative flair, thinks ‘out of the box’ Strong marketing abilities Rewards employee innovation Corporate reputation for quality or technological leadership

Strong central authority; tight cost controls Maintains standard operating procedures Easy-to-use manufacturing technologies Highly efficient procurement and distribution systems Close supervision; finite employee empowerment

Focused differentiation

Focused cost leadership

Uses characteristics of differentiation strategy directed at particular target customer Values flexibility and customer intimacy Pushes empowerment to employees with customer contact

Uses characteristics of cost leadership strategy directed at particular target customer Frequent detailed control reports Measures cost of providing product or service and maintaining customer loyalty

EXHIBIT 6.7 Organisational characteristics of Porter’s competitive strategies

Narrow Distinctiveness

Low costs

Source of advantage Sources: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980); Michael Treacy and Fred Wiersema. (6 February 1995). How Market Leaders Keep Their Edge. Fortune, 88–98; and Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson, Strategic Management (St Paul, MN: West, 1995), pp. 100–113.

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differentiation A type of competitive strategy with which the organisation seeks to distinguish its products or services from those of its competitors.

1 Differentiation. The differentiation strategy involves an attempt to distinguish the firm’s products or services from others in the industry. The organisation may use advertising, distinctive product features, exceptional service or new technology to achieve a product perceived as unique. The differentiation strategy can be profitable because customers are loyal and will pay high prices for the product. Examples of products that have benefited from a differentiation strategy include Harley-Davidson motorcycles, Mercedes-Benz automobiles, Apple computers and phones, Intercontinental hotels and Grange Hermitage wine, all of which are perceived as distinctive in their markets. Organisations that pursue a differentiation strategy typically need strong marketing abilities, a creative flair and a reputation for leadership.32 A differentiation strategy can reduce rivalry with competitors if buyers are loyal to an organisation’s brand. For example, successful differentiation reduces the bargaining power of large buyers because other products are less attractive, and this also helps the firm fight off threats of substitute products. Differentiation also erects entry barriers in the form of customer loyalty that a new entrant into the market would have difficulty overcoming.

TAKE A MOMENT As a new manager, examine the competitive forces that are affecting your organisation. What can you do as a lower-level manager to help the firm find or keep its competitive edge through a differentiation, cost leadership or focus strategy?

cost leadership A type of competitive strategy with which the organisation aggressively seeks efficient facilities, cuts costs and employs tight cost controls to be more efficient than competitors.

2 Cost leadership. With a cost leadership strategy, the organisation aggressively seeks efficient facilities, pursues cost reductions and uses tight cost controls to produce products more efficiently than competitors. A low-cost position means that the organisation can undercut competitors’ prices and still offer comparable quality and earn a reasonable profit. Dell Computer, described in the innovative way box earlier in this chapter, has used a cost-leadership strategy to gain a competitive edge over larger organisations. Dell Computer declared a brutal price war just as the PC industry entered its worst slump ever. The result? Dell racked up US$361 million in profits while the rest of the industry reported losses of US$1.1 billion. Aldi has benefited from a similar strategy in grocery retailing; the Hyundai brand has gone from nowhere to being very popular on this basis, as has Tiger Airlines. Being a low-cost producer provides a successful strategy to defend against the five competitive forces shown in EXHIBIT 6.6. For example, the most efficient, low-cost producer is in the best position to succeed in a price war while still making a profit. Likewise, the low-cost producer is protected from powerful customers and suppliers, because customers cannot find lower prices elsewhere, and other buyers would have less slack for price negotiation with suppliers. If substitute products or potential new entrants eventuate, the low-cost producer is better positioned than higher-cost rivals to prevent loss of market share. The low price acts as a barrier against new entrants and substitute products.33 The Internet tends to erode both cost-leadership and differentiation advantages by providing new tools for managing costs and giving consumers greater access to comparison shopping. However, managers can find ways to incorporate the Internet into their strategic approaches in a way that provides unique value to customers in an efficient way. Commsec and other online share brokers have transformed the share trading industry, slashing process and costs, yet improving speed of service from the old technology service model.34 With the help of a cost leadership strategy, Acer Inc. has grown to be the

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world’s second-largest computer maker. Acer has a bare-bones cost structure. Its overhead expenses are about eight per cent of sales, compared to around 14 to 15 per cent for rival companies. Cost savings are passed on to consumers, with a high-quality ultrathin laptop selling for around $650, compared to $1800 for a similar Hewlett-Packard (HP) model and $2000 for Dell’s ultrathin version. Acer has now moved into the smartphone market. With its cost leadership position, Acer can give consumers quality smartphones at lower prices and still see profit margins in the range of 15 per cent to 20 per cent.35

3 Focus. With a focus strategy, the organisation concentrates on a specific regional market or buyer group. The organisation will use either a differentiation or low-cost approach, but only for a narrow target market. In the United States, Enterprise Rent-A-Car has made its mark by focusing on a market that the major companies such as Hertz and Avis do not even play in – the low-budget insurance replacement market. Drivers whose cars have been wrecked or stolen have one less thing to worry about when Enterprise delivers a car right to their driveway. By using a focus strategy, Enterprise has been able to grow rapidly.36 Managers think carefully about which strategy will provide their organisation with its competitive advantage. Gibson Guitar Corporation, famous in the music world for its innovative, high-quality products, found that switching to a low-cost strategy to compete against Japanese rivals such as Yamaha and Ibanez actually hurt the company. When managers realised people wanted Gibson products because of their reputation, not their price, they went back to a differentiation strategy and invested in new technology and marketing.37 In his studies, Porter found that some businesses did not consciously adopt one of these three strategies and were stuck with no strategic advantage. Without a strategic advantage, businesses earned below-average profits compared with those that used differentiation, cost leadership or focus strategies. Similarly, a five-year study of management practices in hundreds of businesses, referred to as the Evergreen Project, found that a clear strategic direction was a key factor that distinguished winners from losers.38

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Business-level strategy focuses on how the organisation will compete with others.

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Differentiation, cost-leadership and focus are distinct strategies that allow an organisation to leverage or develop a source of competitive advantage within their industry.

Porter’s five competitive forces help managers identify the context that their organisation sits in – allowing for a more complete picture of the opportunities and threats facing the organisation.

6.5

FORMULATING FUNCTIONAL-LEVEL STRATEGY

Functional-level strategies are the action plans used by major departments to support the implementation of business-level strategy. Major organisational functions include marketing, production, finance, human resources and R&D. Managers in these and other departments adopt strategies that are coordinated with business-level strategy to achieve the organisation’s strategic goals. For example, consider a company that has adopted a differentiation strategy and is introducing new products that are expected to experience rapid growth. The human resources department should adopt a strategy appropriate for growth, which would mean recruiting additional personnel and training

focus strategy A type of competitive strategy that emphasises concentration on a specific regional market or buyer group.

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middle- and lower-level managers for new positions, as well as developing strategies for retaining and developing a stable workforce. The marketing department should undertake test marketing, aggressive advertising campaigns and consumer product trials. The finance department should adopt plans to borrow money, handle large cash investments and authorise construction of new facilities. A company with mature products or a cost leadership strategy will have different functional-level strategies. Marketing should stress brand loyalty and the development of established, reliable distribution channels. Production should use a strategy of long production runs, standard procedures and cost reduction. Finance should focus on net cash flows and positive cash balances.

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A popular model for formulating business-level strategy is Porter’s competitive strategies.

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A differentiation strategy is a strategy with which managers seek to distinguish the organisation’s products and services from those of others in the industry.

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A cost leadership strategy is a strategy with which managers aggressively seek efficient facilities, cut costs and use tight cost controls to be more efficient than others in the industry.

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With a focus strategy, managers use either a differentiation or a cost leadership approach, but they concentrate on a specific regional market or buyer group.

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Once business-level strategies are formulated, managers in functional departments devise functionallevel strategies to support them.

Managers analyse the competitive environment and adopt one of three types of strategy: differentiation, cost leadership or focus.

6.6

NEW TRENDS IN STRATEGY

Organisations have been in a merger and acquisition frenzy in recent decades. Some companies still seek to gain or keep a competitive edge by acquiring new capabilities via mergers and acquisitions. Yet today, a decided shift has occurred towards enhancing the organisation’s existing capabilities as the primary means of growing and innovating. Another current trend is using strategic partnerships as an alternative to mergers and acquisitions.

I N NOVAT I O N F RO M W I T H I N dynamic capabilities Leveraging and developing more from the firm’s existing assets, capabilities and core competencies in a way that will provide a sustained competitive advantage.

The strategic approach referred to as dynamic capabilities means that managers focus on leveraging and developing more from the firm’s existing assets, capabilities and core competencies in a way that will provide a sustained competitive advantage.39 Learning, reallocation of existing assets and internal innovation are the route to addressing new challenges in the competitive environment and meeting new customer needs. For example, GE, as described earlier, has acquired a number of other companies to enter a variety of diverse businesses. Yet today, the emphasis at GE is not on making deals but rather on stimulating and supporting internal innovation. Instead of spending billions to buy new businesses, CEO Jeff Immelt has invested in internal ‘imagination breakthrough’ projects to take GE into internally developed new lines of business, new

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geographic areas or a new customer base. The idea is that getting growth out of existing businesses is cheaper and more effective than trying to buy it from outside.40 Another GE initiative to stimulate internal innovation is through the commercial council in which sales and marketing leaders meet regularly to share ideas and growth plans. In 2012 this resulted in the successful ‘growth sprints’ initiative where growth opportunities for GE in Germany and Brazil were identified.41 Another example of dynamic capabilities is IBM, which many analysts had written off as a has-been by the early 1990s. Since then, new top managers have steered the company through a remarkable transformation by capitalising on IBM’s core competence of expert technology by learning new ways to apply it to meet changing customer needs. By leveraging existing capabilities to provide solutions to major customer problems rather than just selling hardware, IBM has moved into businesses as diverse as life sciences, banking and automotive.42

ST R AT E G I C PA RT N E R S H I P S Internal innovation doesn’t mean companies always go it alone, however. Collaboration with other organisations, sometimes even with competitors, is an important part of how today’s successful companies enter new areas of business. Consider Dragonfly and NSHC Security – both are cyber security firms that operate in the Asia Pacific region. The companies have the potential to be fierce rivals in the areas of threat intelligence, penetration testing and security research, but both companies are benefiting by sharing their cyber threat data and innovations in responding to new sources of disturbance. The collaboration gives Dragonfly, an Australian company, ready access to Singapore, South Korea and Japan, while expanding NSHC’s reach in the Australian market. Data sharing for cyber security firms creates a competitive advantage through learning each other’s ways of detecting and counteracting threats, and creating a broader detection network to monitor and predict emerging sources of disturbance. As NSHC’s CEO states, ‘the key to fight cyber-crime across the Asia Pacific region is through collaboration’.43

INNOVATIVE WAY With shifting tides in social media, and a move towards online marketing, firms are finding it difficult to saturate their prospective customers with brand exposure via traditional marketing means. This has given rise to a new trend in marketing known as cultural marketing. Cultural marketing – meaning marketing to a particular demographic or cultural segment – can be a more effective, targeted marketing approach than traditional advertising. A good example is that of German spirits brand Jägermeister, which has combined the usual forms of media, such as TV, billboards or ‘mass media’ with a focus on its strategy of cultural marketing, by branding and promoting itself at the point of sale. The ethos is that instead of just saturating the wider public with

Source: iStock.com/Stratol

FOCUSED INNOVATION IN MARKETING

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expensive broad brush media campaigns, Jägermeister is targeting potential consumers more directly, and focusing on aligning itself with the culture of these consumers. According to James Young of Melbourne’s Cherry Bar, ‘traditional advertising is outdated, it is anachronistic and is not working. It used to be the case that all you had to do was advertise during the 8.30 movie on Sunday night television. But the family doesn’t sit down together on a Sunday night any more. It is much more challenging for marketers because they have to go to where the consumers are’. Young adds that cultural marketing asks whether a potential consumer ‘wants to be a part of this tribe’. Dove’s Campaign for Real Beauty is another great example of cultural marketing, which produced the most

watched video advertisement of all time with the Real Beauty Sketches video, which depicts women describing their appearances to a forensic sketch artist. While the video did place in mainstream media, modern data analytics and metadata allowed the advertisement to directly target female viewers via internet advertising space, increasing the video’s reach to its intended audience. At present, cultural marketing is not common for many big brands, and only accounts for a small amount of total spend in Australia, the United States and Europe; however, the intelligent use of consumer metadata is enabling the approach to become more available to organisations whose business strategy is that of a focused niche.

Sources: James, David. (25 November 2010). Cultural Marketing. BRW; and Bahadur, Nina. (21 January, 2014). Dove ‘Real Beauty’ campaign turns 10; How a brand tried to change the conversation about female beauty. Huffington Post, http://www.huffingtonpost.com.au/entry/dove-real-beauty-campaign-turns10_n_4575940.

EXHIBIT 6.8 A continuum of cooperative strategies

Acquisitions

Organisational combination Mergers

Strategic alliances

Joint ventures Strategic business partnering

Preferred supplier arrangements

Low

High Degree of collaboration

Source: Originally published October 1990. Reprinted by permission, Nation’s Business, July 2007. Copyright 1990, US Chamber of Commerce; Adapted from Maynard, 1996.

Fast-growing high-tech companies, such as Cisco Systems, depend on strategic partnering. A still higher degree of collaboration is reflected in joint ventures, which are separate entities created with two or more active firms as sponsors. For example, MTV Networks was originally created as a joint venture of Warner Communications and American Express in the late 1970s. In a joint venture, organisations share the risks and costs associated with the new venture (See EXHIBIT 6.8.).

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TAKE A MOMENT If you haven’t completed the self-assessment at the beginning of this chapter yet, take it now. This assessment will give you a sense of your strategic strengths and how you can best contribute to your organisation’s strategy.

Mergers and acquisitions represent the ultimate in collaborative relationships. Businesses all over the world are in the midst of the biggest merger and acquisition boom in history.44 The ‘Big Australian’, BHP, merged with Billiton to form the global mining giant BHP Billiton; and another Australian mining giant, CRA, joined with the RTZ mining company to form the Rio Tinto Group. Today’s organisations simultaneously embrace both competition and cooperation. Few organisations can go it alone under a constant onslaught of international competition, changing technology and new regulations. In this new environment, businesses choose a combination of competitive and cooperative strategies that add to their overall sustainable advantage.45

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Managers can focus on using the dynamic capabilities of their organisation to innovate and develop new sources of value and competitive advantage.

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Staff often have valuable ideas for how to meet customer needs or reduce waste, so should be included as part of an organisation’s approach to innovation.

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Strategic partnerships provide organisations with access to skills, resources and/or information that they otherwise wouldn’t have on their own.

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Mergers, acquisitions, partnerships and alliances are common forms of collaboration between businesses seeking to extend their reach with and through other organisations.

6.7

GLOBAL STRATEGY

Many organisations operate globally and pursue a distinct strategy as the focus of global business. Ultimately, when businesses are successful and competitive, they can grow, and this means that they outgrow their original ‘home market’. They can move towards becoming a global business. Senior executives try to formulate coherent strategies to provide synergy among worldwide operations for the purpose of fulfilling common goals. Yet managers face a strategic dilemma between the need for global integration and national responsiveness. The various global strategies are shown in EXHIBIT 6.9. Recall from Chapter 2 that the first step towards a greater international presence is when companies begin exporting domestically produced products to selected countries. The export strategy is shown in the lower left corner of the exhibit. Because the organisation is domestically focused, with only a few exports, managers have little need to pay attention to issues of either local responsiveness or global standardisation.

Chapter 2 discussed that the first step towards a greater international presence is when companies begin exporting domestically produced products to selected countries.

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High

EXHIBIT 6.9 Global corporate strategies

Globalisation strategy Treats world as a single global market

Need for global integration

Standardises global product/advertising strategies

Transnational strategy Seeks to balance global efficiencies and local responsiveness Combines standardisation and customisation for product/advertising strategies

Multidomestic strategy

Export strategy Domestically focused Exports a few domestically produced products to selected countries

Handles markets independently for each country Adapts product/ advertising to local tastes and needs

Low Low

High Need for national responsiveness

Sources: Based on Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson, Strategic Management: Competitiveness and Globalization (St Paul, MN; West, 1995), p. 239; and Thomas M. Begley and David P. Boyd. (Winter 2003). The Need for a Corporate Global Mindset. MIT Sloan Management Review, 25–32.

Source: Munshi Ahmed

Organisations that pursue further international expansion must decide whether they want each global affiliate to act autonomously or whether activities should be standardised and centralised across countries. This choice leads managers to select a basic strategy alternative such as globalisation versus multidomestic strategy. Some corporations may seek to achieve both global integration and national responsiveness by using a transnational strategy.

These KitKat chocolate bars, stocked by a salesman in a Malaysian shop, are manufactured with locally grown beans – at a price 30 per cent below imports. Nestlé, the world’s biggest branded food company, rejects the idea of a single global market, opting for a multidomestic strategy that handles competition in each country independently. The Switzerland-based powerhouse is charging across the developing world by hiring people in the region, manipulating ingredients or technology for local conditions, and slapping on one of the company’s 8000 brand names. Of those 8000 worldwide brands, only 750 are registered in more than one country.

G L O B A L I S AT I O N ST R AT E GY When an organisation chooses a strategy of globalisation, it means that product design and advertising strategies are standardised throughout the world.46 This approach is based on the assumption that a single global market exists for many consumer and industrial products. The theory is that people everywhere want to buy the same products and live the same way. People everywhere want to drink Coca-Cola and eat McDonald’s hamburgers.47 A globalisation strategy can help an organisation reap efficiencies by standardising product design and manufacturing, using common suppliers, introducing products around the world more quickly, coordinating prices and

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eliminating overlapping facilities. For example, Gillette Company has large production facilities that use common suppliers and processes to manufacture products whose technical specifications are standardised around the world.48 Globalisation enables marketing departments alone to save millions of dollars. One consumer products company reports that, for every country where the same commercial runs, the company saves $1 million to $2 million in production costs alone. More millions have been saved by standardising the look and packaging of brands.49

M U LT I D O M E ST I C ST R AT E GY When an organisation chooses a multidomestic strategy, it means that competition in each country is handled independently of industry competition in other countries. Thus, a multinational company is present in many countries, but it encourages marketing, advertising, and product design to be modified and adapted to the specific needs of each country.50 Many companies, particularly in the food and beverage industries, reject the idea of a single global market. While working from a standard product design many companies that want to work internationally have found it necessary to adjust their offerings because of the varying requirements and preferences of consumers around the world. They have found that the French do not drink orange juice for breakfast, that laundry detergent is used to wash dishes in parts of Mexico, and that people in the Middle East prefer toothpaste that tastes spicy. Service companies also have to consider their global strategies carefully. Kraft biscuit flavours include green tea, ice cream, and mango and mandarin orange; and Ritz crackers are offered in flavours such as ‘fantastic beef stew’ and ‘very spicy chicken’ and sold in portable cuplike packages that resemble ramen-noodle containers.51 The 7-Eleven convenience store chain uses a multidomestic strategy because the product mix, advertising approach and payment methods need to be tailored to preferences, values and government regulations in different parts of the world. For example, in Japan, customers like to use convenience stores to pay utility and other bills. 7-Eleven Japan also set up a way for people to pick up and pay for purchases made over the Internet at their local 7-Eleven store.52

multidomestic strategy The modification of product design and advertising strategies to suit the specific needs of individual countries.

T R A N S NAT I O NA L ST R AT E GY A transnational strategy seeks to achieve both global integration and national responsiveness.53 A true transnational strategy is difficult to achieve, because one goal requires close global coordination while the other goal requires local flexibility. A well-known adage often used to describe this conundrum is ‘Think global, act local’. Many industries are finding that, although increased competition means they must achieve global efficiency, growing pressure to meet local needs demands national responsiveness.54 One company that effectively uses a transnational strategy is Caterpillar, Inc., the heavy equipment manufacturer. Caterpillar achieves global efficiencies by designing its products to use many identical components and centralising manufacturing of components in a few large-scale facilities. However, assembly plants located in each of Caterpillar’s major markets add certain product features which are tailored to meet local needs.55 Another company that effectively achieves both aspects of a transnational strategy is Coca-Cola. The giant soft drink company can attain efficiencies by manufacturing, advertising and distributing well-known brands such as Coca-Cola, Fanta and Sprite on a global basis. However, CEO Muhtar Kent has pushed the company to expand beyond well-known brands and embrace local tastes. The company sells more than

transnational strategy A strategy that combines global coordination to attain efficiency with flexibility to meet specific needs in various countries.

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400 different drinks globally. In Russia, for instance, Coca-Cola’s version of the traditional kvas is the fastest-growing soft drink.56 Although most multinational companies want to achieve some degree of global integration to hold costs down, even global products may require some customisation to meet government regulations in various countries or some tailoring to fit consumer preferences. In addition, some products are better suited for standardisation than others. Most large multinational corporations with diverse products and services will attempt to use a partial multidomestic strategy for some product or service lines and global strategies for others. Coordinating global integration with a responsiveness to the heterogeneity of international markets is a difficult balancing act for managers, but it is increasingly important in today’s global business world.

INNOVATIVE WAY THE DODO IS NOT EXTINCT! Can a small company compete with the giants in telecommunications and energy supply industries, and if so, how? One of Australia’s cut-price telecommunications businesses, Dodo, utilised an expansionist strategy in searching for further business growth. Founder and former chief executive Larry Kestelman, who sold the company in 2013, explains that Dodo moved into the retail utilities provider space with the launch of Dodo Power and Gas. The innovative strategic idea was to combine utility bills for their customers, providing one consolidated bill for electricity, phone, Internet and gas. Kestelman says that ‘If you go back 4 years … our strategy was all about launching

a multiproduct service so that customers could get mobile, Internet and home phone on one bill. This is just an extension of that’. Kestelman believes his strategy of providing competitive pricing and consolidated billing services will extend to the utilities retail industry, and provide consumers with convenient and competitive solutions. Dodo’s is an offer of a differentiated (convenience) service, at a lower price, attempting to work both the ‘higher benefits’ and the ‘lower price’ end of the value equation. This has been the established competitive position of this company since its inception. Dodo made AU$29 million profit in 2013 and their latest foray has been into general insurance.

Sources: Larry Kestelman and Douglas, Jeanne-Vida. Expansion. (25 November 2010). BRW; Stafford, P. (18 March 2013). Dodo chief Larry Kestelman tells SmartCompany: Why I just sold my company for $203 million. http://www.smartcompany.com.au/growth/30832-dodo-chief-larry-kestelman-tellssmartcompany-why-i-just-sold-my-company-for--203-million.html (accessed 28 November 2013).

R EMEMBE R THIS ◗◗

When formulating a strategy as the focus for global operations, managers face a dilemma between the need for global standardisation and the need for local responsiveness.

◗◗ ◗◗

With a globalisation strategy, product design and advertising are standardised throughout the world.

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A transnational strategy is a strategy that combines global coordination to attain efficiency with local flexibility to meet needs in different countries.

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Most large companies use a combination of global strategies to achieve global standardisation and efficiency, as well as respond to local needs and preferences in various countries.

A multidomestic strategy means that competition in each country is handled independently. Product design and advertising are modified to suit the specific needs of individual countries.

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STRATEGY IMPLEMENTATION

The final step in the strategic management process is strategy implementation (sometimes referred to as strategy execution) – how the strategy is put into action. Many companies have file drawers full of winning strategies, but still struggle to succeed. Why? Practising managers remind us that ‘strategy is easy, but execution is hard’.57 Indeed, many strategy experts agree that implementation is the most important, yet the most difficult, part of strategic management.58 The Conference Board recently reported that 40 per cent of all information technology development projects are cancelled before they are completed, creating huge costs for organisations, and a primary factor explaining their failure is ineffective strategy implementation.59 McKinsey & Company report that nearly 70 per cent of all change programs and transformation efforts fail to achieve their intended results. EXHIBIT 6.10 illustrates the factors that make strategy implementation so difficult. Note that the biggest barriers are related to the inability of people to adopt new behaviours rather than a lack of resources and planning. Successful execution

Failed execution (reasons)

EXHIBIT 6.10 Factors that contribute to the failure of strategy execution

Employee resistance (39%)

Manager behaviour doesn’t support new direction (33%)

Inadequate budget or resources (14%)

Other barriers (14%)

Source: Based on Scott Keller and Colin Price, Performance and Health: An Evidence-Based Approach to Transforming Your Organization (New York: Wiley 2011); and Homayoun Hatami, Sara Prince, and Maria Valdivieso de Uster, ‘Sales Growth Through Strategic Leadership,’ Leader to Leader (Spring 2013): 57–62.

No matter how brilliant the formulated strategy, the organisation will not benefit if it is not skilfully implemented. One key to effective strategy implementation is embeddedness, which means there is a deep understanding and acceptance of organisational direction and purpose throughout the organisation. That is, everything is in alignment, so that all aspects of the organisation are in congruence with the strategy and every department and individual’s efforts are coordinated towards accomplishing strategic goals. Alignment basically means that everyone is moving in the same direction. Grand goals have to

embeddedness A situation in which there is a deep understanding and acceptance of organisational direction and purpose throughout the organisation.

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See Chapter 5 for a discussion of strategy maps.

EXHIBIT 6.11 Tools for putting strategy into action

be translated into a clear blueprint for execution, so that everyone’s actions are in line with managers’ strategic intentions.60 Recall our discussion of strategy maps from Chapter 5. Just as managers make sure goals are in alignment, they check that all aspects of the organisation are coordinated to be supportive of the strategies designed to achieve those goals. EXHIBIT 6.11 illustrates the primary tools that managers use to implement strategy effectively: visible leadership, clear roles and accountability, candid communication and appropriate human resource practices.61

Environment

Organisation Leadership Persuasion Motivation Culture/values

Structural design

Strategy

Human resources

Organisation chart

Recruitment/selection

Teams Centralisation/decentralisation Facilities, task design

Performance

Transfers/promotions/training Layoffs/recalls

Information and control systems Pay, reward system Budget allocations Information systems Rules/procedures

Source: From Galbraith/Kazanjian. Strategy Implementation, 2E. © 1986 South-Western, Cengage Learning. Reproduced by permission. http://www.cengage.com/permissions.

◗◗ Visible leadership. The primary key to successful strategy execution is good leadership. Leadership is the ability to influence people to adopt the new behaviours needed for putting the strategy into action. Leaders actively use persuasion, motivation techniques and cultural values that support the new strategy. They might make speeches to employees, build coalitions of people who support the new strategic direction, and persuade middle managers to go along with their vision for the company. Most importantly they lead by example.62 Pixar, the animation studio, has a rule about leadership that supports its strategy of producing highly creative animated films: no studio executives. Pixar’s leaders are the creative artists, an approach that maintains a ‘film school without the teachers’ culture that gives people maximum freedom to develop and pursue unique, innovative ideas. At Pixar, everyone from cleaners to auditors is encouraged to submit ideas for new films.63

◗◗ Clear roles and accountability. People need to understand how their individual actions can contribute to achieving the strategy. Trying to implement a strategy that conflicts with structural design, particularly in relation to managers’ roles, authority and accountability, is a top obstacle to putting strategy into action.64 To implement strategy effectively, top executives clearly define roles and delegate authority to individuals and teams who are accountable for results. A lack of clear roles and accountability is partly to blame for the debacle at JPMorgan Chase, which

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announced a multi-billion-dollar loss in May 2012. Why did implementation of the company’s careful, low-risk trading strategy falter? Ina Drew, the senior banker who has been blamed for the problems, had won the complete trust of CEO Jamie Dimon after she steered the company through the 2008 financial crisis. However, Drew was out of the office a great deal of the time due to an illness beginning in 2010, and long-simmering conflicts and divisions over roles and responsibilities emerged. Drew’s deputy in New York, Althea Duersten, disagreed with the risky, outsized bets being made by Achilles Macris, the deputy in London, but the London deputy used his stronger personality to shout down Duersten’s objections and gain more power. ‘It felt like there was a land grab where no one was pushing back because Althea and Achilles both wanted more responsibility’, a former trader said. Another trader underscored the lack of clear roles when he said he ‘didn’t know who to listen to’.65

◗◗ Candid communication. Managers openly and avidly promote their strategic ideas, but they also listen to others and encourage disagreement and debate. They create a culture based on openness and honesty, which encourages teamwork and collaboration across hierarchical and departmental boundaries. Effective strategy implementation also requires candid communication with shareholders, customers and other stakeholders. Sergey Brin and Larry Page, the founders of Google, take turns writing a direct and open letter to shareholders each year. The original letter written for the initial public offering (IPO) makes clear that Google wouldn’t try to ‘smooth out’ its quarterly results, as some publicly traded companies do.66 Candid communication with customers was part of a strategy implementation at JCPenney. When Ron Johnson announced his new ‘fair and square price’ strategy, he told customers that the regular prices in stores have long been ‘fake and inflated’. Johnson felt that the company’s rejection of marketing gimmicks would win trust and support for the new strategy.67

◗◗ Appropriate human resource practices. The organisation’s human resources are its employees. The human resource function recruits, selects, trains, compensates, transfers, promotes and lays off employees to achieve strategic goals. Managers make sure human resource practices are aligned with the strategy. Successful strategy implementation creates substantial benefits for organisations. At the Transport Accident Commission in Victoria, a leading insurance and accident prevention agency, former CEO John Lees drove reductions in the claims costs associated with motor accident injuries. He tied management bonuses to the achievement of these targets. A reduction of more than AU$100 million in claims liability was quickly achieved.68 Another example of an effective reward system is Outback Steakhouse, which has taken an Australian-styled eating experience to the United States. Outback has built one of the United States’s hottest restaurant chains by giving managers a significant ownership stake, including 10 per cent of their restaurant’s cash flow as well as shares in the company. Outback’s incentive program, believed to be unique among casual-restaurant chains, helped founders Chris Sullivan, Robert Basham and Timothy Gannon to move in only six years from their modest goal of five restaurants to more than 1400 restaurants in 22 countries, by 2013.69

I M P L E M E N T I NG G L O B A L ST R AT E G I E S The difficulty of implementing strategy is greater when an organisation goes global. In the international arena, flexibility and superb communication emerge as mandatory leadership skills. Likewise, structural

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design must merge successfully with foreign cultures as well as link foreign operations to the home country. Information and control systems must fit the needs and incentives within local cultures. In a country such as Japan or China, financial bonuses for star performance would be humiliating to an individual, whereas group motivation and reward are seen as more acceptable, if not preferred. In more individualistic cultures such as Australia and other Western countries, control is typically created through timetables and budgets, and by monitoring progress towards desired goals with performance monitored closely at the individual, rather than group, level. Finally, the recruitment, training, transfer, promotion and lay-off of international human resources create an array of problems not confronted in the organisation’s home country. Labour laws, guaranteed jobs and cultural traditions of keeping unproductive employees on the job provide special problems for strategy implementation. Subsequently, strategy implementation must receive even more attention in the international domain than in the domestic realm.

T E ST I NG T H E QUA L I T Y O F ST R AT E GY Recent research by McKinsey has suggested that strategy can be evaluated using 10 tests, which we summarise below. For any strategy, a key issue is how many and which of these tests does it pass, and what are the implications of passing, versus failing, these tests. These tests also usefully prompt managers to work on improving and refining their strategies, and hence can be used as a checklist during strategy formulation processes.

◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗

Test 1

Does this strategy beat the market?

Test 2

Does it tap into our competitive advantage?

Test 3

Is the strategy detailed enough about where to compete?

Test 4

Is the strategy at the cutting edge of new trends?

Test 5

Does the strategy make use of up-to-date information?

Test 6

Does the strategy fully account for uncertainty?

Test 7

Does the strategy contain both commitment and flexibility?

Test 8

Is it unbiased, rational and logical?

Test 9

Is there a strong commitment to execute the strategy?

Test 10 Is there an effective action plan?70 These clear and powerful test questions should serve to make sure that fundamental errors are not made in strategic management processes.

R EMEMBE R THIS ◗◗ ◗◗ ◗◗

Even the most creative strategies have no value if they cannot be translated into action.

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Managers use visible leadership, clear roles and accountability, candid communication and appropriate human resource practices to execute strategy effectively.

Execution is the most difficult but most important part of strategy. One key to effective execution is making sure that all parts of the organisation are in alignment to support the strategy.

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EXHIBIT 6.11 shows the strategy formulation process. The sustainable development formulation policy can first parallel this, and then, once maturity is achieved, be fully integrated as part of the mainstream strategy and its formulation process. This means that to begin with, the mission, goals and high level strategy would be re-examined for potential inclusion of a broader set of conditions, along the lines of the triple bottom line (financial, economic and social/community bottom lines). Breadth of vision would be incorporated into these high-level elements of strategy. The internal and external environmental scans would also include aspects of sustainability. They would take note of industry trends and norms, stakeholder interests, and this would lead straight into the SWOT analysis, with particular emphasis placed here on opportunities for moving forward with sustainability. The strategy would then be fleshed out, evaluated and set up for implementation in the usual way, and would incorporate sustainability aspects throughout. It is important that sustainability elements are indeed included in overall strategy formulations, because the breadth of vision and sustainability orientation (see Chapter 4) are necessary prerequisites for mature approaches to sustainability to be ingrained into operating practices and measures. Sydney Olympic Park is managed by an authority which has developed and published a comprehensive sustainability strategy.71 It serves as a guide to action, provides performance targets and sets the tone for the organisation’s approach. This includes comprehensive environmental and community outcomes from the operations of Sydney Olympic Park. Many government and private sector organisations have published sustainability strategy statements and produced these to be used as comprehensive guides to action. For example, Manly Council (in Sydney) has published a sustainability strategy each year since 1998. The strategy aims to enhance the social inclusion of the Manly area as well as to improve the environmental outcomes of activities of the Manly council and its residents.72 In the private sector, most large companies have established statements regarding their position on sustainability. NAB has done so very effectively with its environment policies,73 and a number of other aspects of its work such as its community policies. Westpac and ANZ Bank have made similar statements, and indeed ANZ has incorporated a broad set of stakeholder concerns into its core value statements.

SUSTAINABLE DEVELOPMENT DEVELOPING A SUSTAINABILITY STRATEGY AS PART OF BUSINESS STRATEGY

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STUDY TOOLS

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RESPONSE TO THE MANAGEMENT CHALLENGE

NETFLIX: PROOF THAT COMPANIES NEED TO ADAPT, OR FAIL Returning to the chapter-opening case, Netflix faces an array of challenges that should be considered in its future strategy. Supplier power is exceptionally high. Content creators (i.e. Fox, HBO, Disney, etc.) control the upstream supply chain for the products Netflix on-sells to its subscribers. What if content creators shift to selling directly to the public (for example, HBO has a subscription service for accessing their content online, without a Pay TV subscription, via retail platforms such as Amazon, Android and Apple). Should Netflix consider increasing its investment in content creation? If so, what would be the implications for creating at least some of the content it

provides to its subscribers? Would a joint-venture or strategic partnership with a major content creator provide greater confidence in the future of Netflix, or would it undermine it? Would becoming part owner (purchasing a controlling interest) of a content creating company be useful? The threat of new entrants is also relatively high. This relates somewhat to the potential threat of suppliers becoming direct competitors, but also for many smaller providers to enter the market. Each new competitor chips away at the dominant market share held by Netflix, forcing the company to invest more in retaining its market position. If left unchecked, this would look similar to the strategic reality faced by Blockbuster. There are many other options and emerging technologies you could consider as important to impacting Netflix’s future in providing streaming content to subscribers. YouTube has entered the market with its YouTube Red subscription, having

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tapped a global population of content creators that have grown exceptionally popular. The amount of free content available on YouTube and other social platforms such as Twitch, challenges content creators and subscription-based streaming services to provide better content at a competitive price. The future of the subscription-based streaming video industry will likely be decided

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by a formula based on the fundamentals of the industry: size (how big an audience and hence revenue base your organisation maintains); quality of content (a factor sure to attract and retain subscribers); costs of doing business (in entering new markets, developing and streaming content); and technology advances that change the rules of the industry playing field.

DISCUSSION QUESTIONS 1 Assume you are the general manager of a large hotel and have formulated a strategy of renting banquet facilities to organisations for big events. At a monthly management meeting, your sales manager informs the head of food operations that a big reception in one week will require converting a large hall from a meeting room to a banquet facility in only 60 minutes – a difficult but achievable operation that will require precise planning and extra help. The food operations manager is furious about not being informed earlier. What is wrong here? 2 Dell Technologies has acquired a large cloud infrastructure and services company (EMC) to improve its capacities and capabilities to provide services (not just computer hardware) to customers. Which of the three generic business-level strategies should Dell Technologies use as it begins to leverage its newly acquired capabilities? Explain why. 3 If an organisation has hired strategic management professionals to help top managers, during which part of the strategic management process would they play the largest role? 4 Perform a SWOT analysis for the university you attend. Do you think university administrators consider these factors when devising their strategy?

8 As administrator for a medium-sized hospital, you and the board of directors have decided to change from a short-term, acutecare facility to a drug-dependency hospital. Which organisational dimensions would you use to implement this strategy? 9 Fortune magazine found that a clear, stable strategy is one of the defining characteristics of companies on the list of ‘The World’s Most Admired Companies’. Why might this be the case? 10 Do you think the movement towards corporate collaborations, alliances and partnership rather than competition is a passing phenomenon or here to stay? What skills would make a good manager in a strategic alliance with another company? What skills would make a good manager operating in competition with another company? 11 You are a middle manager helping to implement a new corporate cost-cutting strategy, and you’re meeting scepticism, resistance and, in some cases, outright hostility from your subordinates. In what ways might you or the company have been able to avoid this situation? Where do you go from here?

5 Netflix has successfully adapted to a number of challenges in its industry. What do you see as some emerging opportunities and threats for the company?

12 If you are the CEO of a global company, how might you determine whether a globalisation, transnational or multidomestic strategy would work best for your enterprise? What factors would influence your decision? How would your choice reflect the products or services your company is offering?

6 Using Porter’s competitive strategies, how would you describe the strategies of Target, Coles Supermarkets, David Jones and Kmart? Do any of these companies also use cooperative strategies? Discuss.

13 Describe how the Internet increases the bargaining power of consumers, one of Porter’s five competitive forces. Have you felt increased power as a consumer because of the Internet? Explain.

7 Walt Disney Company has four major strategic business units (SBUs): films, theme parks, consumer products and television (primarily pay/cable). Place each of these SBUs on the BCG matrix based on your knowledge of them.

14 How might a corporate management team go about determining whether the company should diversify? What factors should they consider? What kinds of information should they collect?

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ETHICAL CHALLENGE

A GREAT DEAL FOR WHOM?

It seemed like a great deal for Kevin Haley, the retired managing partner of a small accounting firm, when he took the job. To sit on the board of Keldine Technologies, all he had to do was listen to some general talk about the company at bi-monthly meetings, vote on operations issues and collect a nice fee. He did not worry about his lack of expertise in the company’s business of manufacturing transistors, because ‘nothing ever changed at Keldine’. That was two years ago. Now Keldine Technologies, with 250 employees and 10 years in business, is faced with a buyout offer from Graham Industries. Keldine’s chairman of the board, Greg Bingham, calls the deal a ‘no-brainer’. Graham Industries’ offer of AU$6 a share is high – a great deal for shareholders. The problem for Haley is that he knows Graham Industries is close to bankruptcy, and that it is probably only buying Keldine to leverage some of its debt and hold off creditors. The odds are that both companies will be wiped out within a year if the sale goes through. As news of a buyout offer spreads, Keldine shares have changed hands rapidly, and speculators in the shareholder ranks are pressuring for a sale. Bingham asserts: ‘Our mission is to create as much value for shareholders as possible.’

He also assures the board that the executives are protected by contingency compensation packages in the event of a ‘downturn for Keldine’. But Haley is torn. The deal is a short-term money-maker but almost a guaranteed disaster for the company’s future and the majority of its employees. Haley’s commitment to shareholders seems compromised by the presence of speculators in their ranks. He questions whether the interests of loyal, long-time employees are not a higher priority than those of speculators. W H AT D O YO U D O ? 1 Vote to accept the offer of Graham Industries and assure a shortterm profit for the shareholders and executives. They are your first responsibility. 2 Reject the buyout bid. Providing Keldine with a future, even if uncertain because of its resistance to change, is more important than accepting what may be the best offer ever received. 3 Pass, and hope a board majority prevails without your vote. You are not qualified to make a decision on this anyway.

SOURCES: Based on Wallace, D. (September–October 1991). When the Sharks Are Circling, What Would You Do? Business Ethics, 1, 42–4.

GROUP CHALLENGE

DEVELOPING STRATEGY FOR A SMALL BUSINESS

Step 1. In a group of three to five students, select a local eating establishment for a SWOT analysis. This could be a restaurant, an ice cream store or a bakery with which your group is familiar. Step 2. Write a statement of what you perceive to be the business’s current strategy. Step 3. What do you perceive to be the key strengths and weaknesses of this business from a customer’s perspective? Make one list for strengths and another list for weaknesses. Step 4. What do you perceive to be potential opportunities and threats for this business? Make one list for opportunities and another for threats.

Step 5. If the store manager or owner is available, interview the person for his or her perception of strategy strengths, weaknesses, opportunities and threats. Add new items to your lists. Step 6. Use your SWOT analysis findings to set a goal of where this business could be in two years in terms of growth, size, new offerings or expanded customer base. What steps do you recommend to achieve this goal? Step 7. How did your SWOT analysis help you determine the goal and how to accomplish it during the next two years? What did you learn from this exercise?

SOURCES: Adapted from Richard L. Daft and Dorothy Marcic, Understanding Management (Mason, OH: South-Western, 2008), pp. 177–8.

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CASE FOR CRITICAL ANALYSIS

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COSTCO: A DIFFERENT APPROACH

In 2010, Costco’s reputation for rock-bottom pricing and very thin profit margins helped the company maintain its position as the fourthlargest retailer and the number one membership warehouse retailer in the United States, with 572 stores (425 in the United States), 142 000 employees, and 55 million members. Sales reached US$76 billion, up 9.1 per cent, reflecting, in part, a unique corporate culture that doesn’t just pay lip service to the value of its employees, but maintains a reputation for honouring that value. CEO Craig Jelinek, successor to founder and longtime CEO James Sinegal, believes that the secret to Costco’s success lies in the many ways the company overturns conventional wisdom. Despite Wall Street criticism, the company is devoted to a well-compensated workforce and scoffs at the notion of sacrificing the wellbeing of its employees for the sake of profits. Average hourly wages of around US$20 smash those of competitors (US$10–$11.50 per hour). Costco’s competitors attempt to improve profits and shareholder earnings by keeping wages and benefits low. As a result, Costco enjoys a reputation of having a loyal, highly productive workforce, and store openings attract thousands of high-quality applicants. Jelinek is a no-nonsense CEO whose annual salary (US$650 000) is a fraction of the traditional pay for large corporate executives and exemplifies an organisational culture that attempts to minimise disparity between management and workers. Luxury corporate offices are out of the question. It is the ‘in the trenches together’ mind-set that defines Costco’s corporate culture, contributing to a level of mutual support, teamwork, empowerment, and rapid response that can be activated for confronting any situation. A dramatic example occurred when employees instantly created a Costco emergency brigade, armed with forklifts and fire extinguishers, whose members organised themselves and rushed to offer first aid and rescue trapped passengers following the wreck of a commuter train behind a California warehouse store. Whether attracting employees or customers, the need for public relations or advertising is non-existent at Costco. Sinegal told a reporter for ABC News in the United States that the company doesn’t spend a cent on advertising, with over 140 000 enthusiastic employee ambassadors spreading the word about Costco to friends and neighbours. Equal care has been given to organisational design. Jelinek’s belief in a ‘flat, fast, and flexible’ organisation encourages delegation of great authority to local warehouse managers who have the freedom and authority to make quick, independent decisions that suit the local needs of customers and employees. Moreover, Costco’s new store location efforts seek to ‘fit’ between the organisation and the community that it serves. Typical suburban locations emphasise the bulk shopping needs of

families and small businesses, and Costco has extended its own private label, Kirkland Signature. The private label provides additional savings of up to 20 per cent off of products produced by top manufacturers, such as tyres made by Michelin specifically for the Kirkland label. The rapid expansion from having one store in Seattle to becoming America’s warehouse club leader and a top global retailer has come with its share of growing pains, as the organisation attempts to adapt to its various environments. In the face of rapid growth, Costco management has come up against a myriad of new problems ranging from complaints of a lack of notification for management job openings to persistent complaints of a glass ceiling, providing few opportunities for the advancement of women within the organisation. In response, the company has instituted online job postings, automated recruiting, uses an outside vendor for hiring, and has recommitted to equity in promotion. International issues are often more complex and often run up against local needs and perceptions. For example, efforts to expand into Cuernavaca, Mexico, were viewed from the company perspective as a win-win situation, opening a new market and also providing jobs and high-quality, low-priced items for area shoppers. When the site of a dilapidated casino became available, Costco moved quickly, but suddenly found itself facing charges of cultural insensitivity in Mexico. Accusations that Costco was going to build a parking lot on land in Cuernavaca with significant artistic and national heritage led to negotiations under which the company set aside millions of dollars to preserve the landscape, restore murals, and work alongside city planners and representatives of the Institute of Fine Arts and Literature in Mexico City in the construction of a new, state-of-the-art cultural centre and museum. Indications are bright for Costco’s future. New CEO Jelinek believes in maintaining the modest levels of compensation for top management and the company’s above-average wages and benefits for employees. But questions loom on the horizon. How will increased globalisation alter the strong corporate culture? Will Costco be able to maintain and expand its loyal customer base in the face of shifting consumer interests, as reflected in the decline of shopper traffic in physical stores and increased sales via the Internet? QU E S T I O N S 1 Costco opened stores in Australia in 2009 and continues to expand internationally. Have you shopped at a Costco store? How do you think a Costco store compares to a Target, Big W or Kmart store? What do you value most when selecting a low-priced store at which to shop?

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2 With respect to competitive strategy, identify and evaluate Costco’s target customers, its core competence, and how it builds synergy and delivers value.

3 Would you rate Costco’s competitive strategy as pursuing differentiation, cost leadership, focus or some combination? Why?

SOURCES: Based on Richard L. Daft, ‘Costco Wholesale Corporation, Parts One–Six,’ Management, 8th ed. (Mason, OH: South-Western, 2008); Table of Contents, Item 7—Management’s Discussion and Analysis of Financial Conditions, Costco 2010 Annual Report; Wayne F. Cascio, ‘The High Cost of Low Wages,’ Harvard Business Review (December 2006); and Alan B. Goldberg and Bill Ritter, ‘Costco CEO Finds Pro-Worker Means Profitability,’ ABC News 20/20, 2 August 2006.

ON THE JOB VIDEO CASE

THEO CHOCOLATE: STRATEGY FORMULATION AND EXECUTION

For a real-world application of the management theories described in this chapter, log on to CourseMate to watch the On the Job video and answer the following questions. QU E S T IO NS 1 Evaluate Theo’s new strategy in light of the company’s strengths, weaknesses, opportunities and threats.

2 Using the BCG matrix, explain Theo’s decision to offer a classic line of chocolate bars after having limited success with Fantasy Flavor chocolates. 3 Which of the three competitive strategies – differentiation, cost leadership, or focus – do you think is right for Theo Chocolate? Explain.

ENDNOTES 1 Hamel, G. (23 June 1997). Killer Strategies. Fortune, 70–84; Markides, C. (Spring 1997). Strategic Innovation. Sloan Management Review, 9–23. 2 Miller, C. C. and Cardinal, L. B. (1994). Strategic Planning and Firm Performance: A Synthesis of More than Two Decades of Research. Academy of Management Journal, 37:6, 1649–65. 3 Hammonds, K. H. (March 2001). Michael Porter’s Big Ideas. Fast Company, 150–6. 4 Prescott, J. E. (1986). Environments as Moderators of the Relationship between Strategy and Performance. Academy of Management Journal, 29, 329–46; Pearce, J. A. II and Robinson, R. B. Jr (1985). Strategic Management: Strategy, Formulation, and Implementation, 2nd edn, Homewood: Irwin; Teece, D. J. (Spring 1984). Economic Analysis and Strategic Management. California Management Review, 26, 87–110. 5 Markides. Strategic Innovation. 6 http://www.howardfireworks.com.au (accessed 23 September 2013). 7 This discussion is based on Ken Favaro with Kasturi Rangan and Evan Hirsh. (5 March 2012). Strategy: An Executive’s Definition. Strategy + Business, http://www.strategy-business. com/article/cs00002?gko=d59c2 (accessed 24 July 2012). 8 Example from Favaro et al. Strategy: An Executive’s Definition. 9 Thompson, A. A. Jr and Strickland, A. J. III (1992). Strategic Management: Concepts and Cases, 6th edn, Homewood: Irwin; Briance Mascarenhas, Alok Baveja and Mamnoon Jamil. (Summer 1998). Dynamics of Core Competencies in Leading Multinational Companies. California Management Review, 40:4, 117–32. 10 Copeland, M. V. (April 2005). Stitching Together an Apparel Power-house. Business2, 52–4. 11 Flensburger Shipbuilders (FSG), www.fsg-ship.de. 12 Michael Goold and Andrew Campbell. (September–October 1998). Desperately Seeking Synergy. Harvard Business Review, 131–43. 13 Anjali Cordeiro. (19 April 2010). Boss Talk: Tang in India and Other Kraft Synergies. The Wall Street Journal Online, http://online.wsj.com/article/SB10001424052702303348504575184 103106388686.html (accessed 8 October 2012); and Ashlee Vance. (28 January 2010). Oracle

Elbows Its Way into a Crowded Fight; With Close of Sun Deal, It Hopes to Beat Out Rivals Offering One-Stop Shops. International Herald Tribune. 14 Parker, J. (26 July 2016). Yahoo! takeover: Verizon buys search engine for $6.5b, ABC online, http://www.abc.net.au/news/2016-07-25/yahoo-verizon-takeover/7658638 (accessed 8 March 2017). 15 Yahoo! 7 Finance, http://au.finance.yahoo.com/q/ks?s=NTRI (accessed 28 November 2013). 16 Erik Rhey, ‘A GPS Maker Shifts Gears’, Fortune (19 March 2012): 62. 17 Gold Coast Airport Marathon (1 May 2015). Gold Coast Airport Marathon announce twoyear partnership with Garmin, http://goldcoastmarathon.com.au/2015/05/01/gold-coastairport-marathon-announce-two-year-partnership-with-garmin/ (accessed 8 March 2017). 18 Bruce E. Perrott. (2011). Strategic Issue Management as Change Catalyst. Strategy & Leadership, 39:5, 20–9. 19 Leontiades, M. (1982). The Confusing Words of Business Policy. Academy of Management Review, 7, 45–8. 20 Hrebiniak, L. G. and Joyce, W. F. (1984). Implementing Strategy (New York: Macmillan). 21 Swartz, S. (18 September 1985). Basic Bedrooms: How Marriott Changes Hotel Design to Tap Mid-priced Market. The Wall Street Journal, 1. 22 Frederick W. Gluck. (Fall 1985). A Fresh Look at Strategic Management. Journal of Business Strategy, 6, 4–19 23 Thompson and Strickland. Strategic Management: Concepts and Cases; Shanklin, W. L. and Ryans, J. K. Jr (1981). Is the International Cash Cow Really a Prize Heifer? Business Horizons, 24, 10–16. 24 William E. Rothschild. (November–December 2009). GE and Its Naysayers. Chief Executive, 46–50; Paul Glader. (15 December 2009). Corporate News: GE’s Immelt to Cite Lessons Learned. The Wall Street Journal; Shital Vakhariya and Menaka Rao. (August– November 2009). Innovate for Growth: Immelt’s Strategy for GE. Journal of Operations Management, 8:3–4, 86–92; and General Electric website, http://www.ge.com/products_ services/index.html (accessed 10 August 2010).

6 : S T R AT E G Y F O R M U L AT I O N A N D I M P L E M E N TAT I O N

25 Jones, G. R. and George, J. M. (2006). Contemporary Management, 4th edn, Boston, MA: McGraw-Hill Irwin, p. 283. 26 Nick Wingfield, ‘Microsoft Gets Nokia Units, and Leader’, The New York Times, 3 September 2013, http://www.nytimes.com/2013/09/03/technology/microsoft-gets-nokia-units-andleader.html (accessed 18 September 2013). 27 ‘Hillshire Brands Company,’ The New York Times, http://topics.nytimes.com/top/news/ business/companies/sara_lee_corporation/index.html (accessed 18 September 2013); and ‘Breaking Up Is the Thing to Do,’ The New York Times, 4 August 2011, http://dealbook. nytimes.com/2011/08/04/breaking-up-is-the-thing-to-do/?ref=saraleecorporation (accessed 18 September 2013). 28 Jones, G. R. and George, J. M. (2006). Contemporary Management, 4th edn (Boston, MA: McGraw-Hill Irwin), p. 283. 29 Lohr, S. (19 May 2006). Apple, a Success at Stores, Bets Big on Fifth Avenue. The New York Times; Schlender, B. (21 February 2005). How Big Can Apple Get? Fortune, 66–76. 30 Wheelen, T. L. and Hunger, J. D. (1989). Strategic Management and Business Policy. Reading: Addison-Wesley. 31 The following discussion is based on Michael E. Porter, ‘The Five Competitive Forces That Shape Strategy,’ Harvard Business Review (January 2008): 79–93; Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), pp. 36–46; Danny Miller, ‘Relating Porter’s Business Strategies to Environment and Structure: Analysis and Performance Implementations,’ Academy of Management Journal 31 (1988): 280–308; and Michael E. Porter, ‘From Competitive Advantage to Corporate Strategy,’ Harvard Business Review (May–June 1987): 43–59. 32 Wheelen, T. L. and Hunger, J. D. (1989). Strategic Management and Business Policy. Reading: Addison-Wesley. 33 Thompson and Strickland. Strategic Management: Concepts and Cases. 34 Lumpkin, G. T., Droege, S. B. and Dess, G. G. (Spring 2002). E-Commerce Strategies: Achieving Sustainable Competitive Advantage and Avoiding Pitfalls. Organizational Dynamics, 81, 1–17. 35 Bruce Einhorn. (20 April 2009). Acer’s Game-Changing PC Offensive. BusinessWeek, 65; Charmian Kok and Ting-I Tsai. (1 April 2010). Acer Makes China Push from Taiwan; PC Maker’s Chief Expects Best Gains in New Markets, Including Brazil, as Aims to Surpass H-P. The Wall Street Journal; (22 January 2010). Experience Will Propel Acer to Top of Smartphone Market by 2013. Gulf News. 36 Burns, G. (12 December 1994). It Only Hertz When Enterprise Laughs. BusinessWeek, 44. 37 Rosenbaum, J. (1998). Guitar Maker Looks for a New Key. The Wall Street Journal, B1, B5. 38 Nohria, N., Joyce, W. and Roberson, B. (July 2003). What Really Works. Harvard Business Review, 43–52. 39 Harreld, J. B., O’Reilly, C. A. III and Tushman, M. L. (2007). Dynamic Capabilities at IBM: Driving Strategy into Action. California Management Review, 49:4. 40 Brady, D. (28 March 2005). The Immelt Revolution. BusinessWeek, 64–73. 41 Christine Moorman, Marketing in a Technology Company: GE’s Organizational Platform for Innovation. Forbes, http://www.forbes.com/sites/christinemoorman/2013/01/29/ marketing-in-a-technology-company-ges-organizational-platform-for-innovation/ (accessed 13 March 2014). 42 Harreld et al. Dynamic Capabilities at IBM: Driving Strategy into Action. 43 Press Release. 8 September 2015. Dragonfly: Secure Solutions Simplified. http://www. dragonflytechnologies.com.au/news/2015/9/8/dragonfly-and-nshc-cyber-security-strategicpartnership-aisa-pacific. 44 Aley, J. and Siegel, M. (2 March 1998). The Fallout from Merger Mania. Fortune, 26–7. 45 Burton, J. (Autumn 1995). Composite Strategy: The Combination of Collaboration and Competition. Journal of General Management, 21:1, 1–23. 46 Ohmae, K. (May–June 1990). Managing in a Borderless World. Harvard Business Review, 152–61. 47 Levitt, T. (May–June 1983). The Globalization of Markets. Harvard Business Review, 92–102. 48 Mainardi, M. S., Salva, C. M. and Sanderson, M. (Second Quarter, 1999). Label of Origin: Made on Earth. strategy + business, 15. 49 Lipman, J. (12 May 1988). Marketers Turn Sour on Global Sales Pitch Harvard Guru Makes. The Wall Street Journal, 1, 8. 50 Porter, M. E. (Winter 1986). Changing Patterns of International Competition. California Management Review, 28, 40. 51 Burkitt, L. (30 May 2012). Kraft Craves More of China’s Snacks Market. The Wall Street Journal, B6.

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52 Sawhney, M. and Mandal, S. (May 2000). What Kind of Global Organization Should You Build? Business 2.0, 213. 53 Hitt, M. A., Ireland, R. D. and Hoskisson, R. E. (1995). Strategic Management: Competitiveness and Globalization. St Paul: West. 54 Gupta, A. K. and Govindarajan, V. (2001). Converting Global Presence into Global Competitive Advantage. Academy of Management Executive, 15:2, 45–56. 55 Bateman, T. S. and Zeithaml, C. P. (1993). Management: Function and Strategy, 2nd edn, Homewood: Irwin, 231. 56 Betsy McKay. (28 January 2009). Coke Bets on Russia for Sales Even as Economy Falls Flat. The Wall Street Journal. 57 Quote from Gary Getz, Chris Jones and Pierre Loewe. (2009). Migration Management: An Approach for Improving Strategy Implementation. Strategy & Leadership, 37: 6,18–24. 58 Lawrence G. Hrebiniak. (2006). Obstacles to Effective Strategy Implementation. Organizational Dynamics, 35:1, 12–31; Eric M. Olson, Stanley F. Slater and G. Tomas M. Hult. (2005). The Importance of Structure and Process to Strategy Implementation. Business Horizons, 48, 47–54; L. J. Bourgeois III and David R. Brodwin. (1984). Strategic Implementation: Five Approaches to an Elusive Phenomenon. Strategic Management Journal, 5, 241–64; Anil K. Gupta and V. Govindarajan. (1984). Business Unit Strategy, Managerial Characteristics, and Business Unit Effectiveness at Strategy Implementation. Academy of Management Journal, 25–41; and Jeffrey G. Covin, Dennis P. Slevin and Randall L. Schultz. (1994). Implementing Strategic Missions: Effective Strategic, Structural, and Tactical Choices. Journal of Management Studies, 31:4, 481–505. 59 Conference Board study, reported in John J. Sosik, Don I. Jung, Yair Berson, Shelley D. Dionne, and Kimberly S. Jaussi, ‘Making All the Right Connections: The Strategic Leadership of Top Executives in High-Tech Organizations,’ Organizational Dynamics 34, no. 1 (2005), pp. 47–61. 60 Khadem. R. (2008). Alignment and Follow-Up: Steps to Strategy Execution. Journal of Business Strategy, 29:6, 29–35; Bungay, S. (January–February 2011). How to Make the Most of Your Company’s Strategy. Harvard Business Review, 32–40; and Olson, Slater and Hult. The Importance of Structure and Process to Strategy Implementation. 61 This discussion is based on Eric Beaudan. (March–April 2010). Creative Execution. Ivey Business Journal, http://www.iveybusinessjournal.com/article.asp?intArticle_ID=891 (accessed 26 March 2010); Jay R. Galbraith and Robert K. Kazanjian. (1986). Strategy Implementation: Structure, Systems and Process, 2nd ed. (St Paul, MN: West); Victoria L. Crittenden and William F. Crittenden. (2008). Building a Capable Organization: The Eight Levers of Strategy Implementation. Business Horizons, 51, 301–9; Paul C. Nutt. (1989). Selecting Tactics to Implement Strategic Plans. Strategic Management Journal, 10, 145–61; and Lawrence G. Hrebiniak. (2005). Making Strategy Work: Leading Effective Execution and Change (Upper Saddle River, NJ: Wharton School Publishing/Pearson Education Inc.). 62 Crittenden and Crittenden. Building a Capable Organization. 63 This example is from Christopher B. Bingham, Kathleen M. Eisenhardt and Nathan R. Furr. (Fall 2011). Which Strategy When? MIT Sloan Management Review, 71–8. 64 Based on survey results reported in Hrebiniak. Obstacles to Effective Strategy Implementation. 65 Jessica Silver-Greenberg and Nelson D. Schwartz. (20 May 2012). Discord at Key JPMorgan Unit Is Blamed in Bank’s Huge Loss. The New York Times, A1. 66 Beaudan. Creative Execution. 67 Tuttle, B. (13 February 2012). The Price Is Righter. Time, http://www.time.com/time/ magazine/article/0,9171,2105961,00.html#ixzz2275GLNTv (accessed 30 July 2012). 68 Transport Accident Commission website, http://www.tac.vic.gov.au. 69 Finegan, J. (December 1994). Unconventional Wisdom. Inc., 44–59; Outback Steakhouse website, http://www.outback.com/companyinfo; Bloomin’ Brands website http://www. bloominbrands.com/ourcompany/. 70 Bradley, C., Hirt, M. and Smit, S. (January 2011). Have you tested your strategy lately? McKinsey Quarterly, 1–14. 71 Sydney Olympic Park website, http://www.sydneyolympicpark.com.au/ (accessed 25 March 2013). 72 Manly Council website, http://www.manly.nsw.gov.au/environment/climate-change-andsustainability/sustainability-strategy/ (accessed 28 November 2013). 73 National Australia Bank website, http://www.nab.com.au/wps/wcm/connect/nab/nab/ home/About_Us/7/5/?ncID=ZBA (accessed 3 March 2014).

APPENDIX TO CHAPTER 6 M A N AGE R I A L DEC ISION M A K ING

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 explain why decision making is an important component of good management, discussing the difference between programmed and non-programmed decisions and the decision characteristics of certainty and uncertainty

2 compare the ideal, rational model of decision making to the political model of decision making

3 explain the process by which managers actually make decisions

in the real world, identifying and summarising the six steps used in managerial decision making and the four personal decision styles used by managers

4 identify the biases that frequently result in poor judgement when managers make decisions and identify and explain innovative techniques for decision making, including brainstorming, evidence-based management and after-action reviews.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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Welcome to the world of managerial decision making. Every organisation grows, prospers or fails as a result of decisions by its managers, and top executives like Marjorie Yang make difficult decisions every day. Managers are often referred to as decision makers. Decision making, particularly in relation to complex problems, is not always easy. It is easy to look back and identify flawed decisions, but managers frequently make decisions amid constantly changing factors, unclear and incomplete information, and conflicting interests and points of view. Even though they often have the best intentions, managers sometimes choose an option that isn’t the best among many, and may even make the wrong decision entirely. Although many of their important decisions are strategic, managers also make decisions about every other aspect of an organisation, including structure, control systems, responses to the environment and human resources. Managers scout for problems, make decisions for solving them and monitor the consequences to see whether additional decisions are required. Good decision making is a vital part of good management, because decisions determine how the organisation solves its problems, allocates resources and accomplishes its goals. However, managers can sometimes make the wrong decision, even when their intentions are right. Decision making is not easy. For example, in 2013 and 2014 the newly elected Australian government had to make tough decisions about how to deal with the continuing influx of people seeking asylum or to illegally emigrate to Australia by boat from Indonesia and other countries. The previous government had investigated and tried many strategies to both prevent and deal with this pressing problem, and despite large government expenditure, the problem remains. The difficulty is to find solutions that are effective in stopping illegal immigration that are also humane and cost-effective. A further element of complexity in this decision is that many Australians would like to allow genuine refugees to be fully accepted and resettled in Australia. It is increasingly common to see reports of abuse, mental health problems and protests emerge from the offshore detention centres for asylum seekers on Nauru,1 which creates pressure for decision makers within the Australian government to rethink their decisions and find alternative options for the problem of illegal emigration to Australia. In Sydney, the decision about what to do to increase the city’s capacity to move aircraft and passengers has been a problem for more than 30 years. It involves all three levels of government – federal, state and local – as well as travellers and tourism groups, airlines, local residents and numerous others. Many sites for the second Sydney airport have been examined, and only recently has the decision to build Sydney’s second airport, Badgery’s Creek, been approved. The stakeholders are often in conflict. For example, proposed flight paths for the new airport have been fiercely challenged by residents likely to be affected by aircraft noise.2 Flight paths have been changed at the existing airport, forcing government decision makers to rethink their original plans for a single flight path for aircraft approaching Badgery’s Creek, and opt for a strategy that spreads air traffic thinly over many communities, rather than densely over a few. These sorts of decisions involve politics and the interests of local communities, private operators of small planes as well as the needs of large commercial organisations and their customers. Chapters 5 and 6 described strategic planning; this chapter explores the decision process that underlies strategic planning and day-to-day managerial problem solving. Plans and strategies are arrived at through decision making; the better the decision making, the better the strategic planning. First, we examine decision characteristics. Then we look at decision-making models and the steps executives should take when making important decisions. The chapter also explores some of the biases that can cause managers to make poor judgements in making decisions. Finally, we examine participative and innovative decision making and discuss techniques for improving decision making in organisations in today’s increasingly fast-changing environment.

See Chapters 5 and 6 for a description of strategic planning.

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A6.1 decision A choice made from available alternatives. decision making The process of identifying problems and opportunities and then resolving them.

TYPES OF DECISIONS AND PROBLEMS

A decision is a choice made from available alternatives. For example, an accounting manager’s selection of a junior auditor – whether to appoint Matthew, Chris or Sarah to the position – is a decision. Many people assume that making a choice is the main part of decision making, but it is only a part of it. Decision making is the process of identifying problems and opportunities and then resolving them.3 Decision making involves effort both before and after the actual choice. Decisions require analysis, choice, commitment to the chosen path and then implementation and monitoring of the results. The decision about whether to select Matthew, Chris or Sarah requires the accounting manager to ascertain whether a new junior auditor is needed, determine the availability of potential job candidates, interview candidates to acquire necessary information, select one candidate, and follow up with the socialisation of the new employee into the organisation to ensure the decision’s success.

P RO G R A M M E D A N D NO N - P RO G R A M M E D DECISIONS programmed decisions A decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future.

non-programmed decisions A decision made in response to a situation that is unique, is poorly defined and largely unstructured, and has important consequences for the organisation.

Management decisions typically fall into one of two categories: programmed and non-programmed. Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future.4 Programmed decisions are made in response to recurring organisational problems. The decision to reorder paper and other office supplies when inventories drop to a certain level is a programmed decision. Other programmed decisions may concern the types of skills required to fill certain jobs, the reorder point for manufacturing inventory, and selection of freight routes for product deliveries. Once managers formulate decision rules, employees and others can make the decision, freeing managers for other tasks. For example, many hotels, when staffing banquets, use a rule that specifies having one server per 30 guests for a sit-down function, and one per 20 guests for a buffet.5 Non-programmed decisions are made in response to situations that are unique, poorly defined and largely unstructured, and have important consequences for the organisation. Many non-programmed decisions involve strategic planning, because uncertainty is great and decisions are complex. Decisions to build a new factory, develop a new product or service, enter a new geographical market or relocate headquarters to another city are all non-programmed decisions. One example of a non-programmed decision is American network HBO’s search for a new lead drama program. When its most recent big hit, Game of Thrones, comes to its natural end, the network will need to replace it with a series that is, the company hopes, as popular. But the process of finding a hit television show is complex, not subject to rational analysis and decision rules. The stakes are high in terms of money and the network’s image.6 Perhaps one of the greatest non-programmed decisions was Boeing’s decision to build the 707. During the Second World War, the B52 bomber had demonstrated Boeing’s prowess for building jet aircraft, but no one had considered the airlines would even be interested in buying jets – favouring the existing turbo-prop engines that were considered less expensive to maintain. Converting to jet technology would be massively expensive for the airlines. Boeing’s CEO, Bill Allen, had to decide whether to stick with the defence products that company knew best, or follow his conviction that the real growth would be in civilian air transport. In 1952, he asked Boeing’s board of directors to invest $16 million in building the

A6: MANAGERIAL DECISION MAKING

world’s first transatlantic commercial jetliner. By the time the 707 rolled off the production line six years later, Boeing had invested $185 million in it – $36 million more than Boeing’s total net worth the year before its completion. Essentially, Allen was betting the company’s future and it paid off. While it was not the first commercial jet airliner in service, it was tremendously successful and changed the course of history for Boeing. Indeed, it set a new course for the entire industry.

FAC I NG U N C E RTA I N T Y A N D A M B I G U I T Y One primary difference between programmed and non-programmed decisions relates to the degree of uncertainty, risk, or ambiguity that managers deal with in making the decision. In a perfect world, managers would have all the information necessary for making decisions. In reality, however, some things are unknowable and so some decisions will fail to solve the problem or attain the desired outcome. Managers try to obtain information about decision alternatives that will reduce uncertainty. Every decision situation can be organised on a scale according to the availability of information and the possibility of failure. The four positions on the scale are certainty, risk, uncertainty and ambiguity, as illustrated in EXHIBIT A6.1. While programmed decisions can be made in situations involving certainty, many situations that managers deal with every day involve at least some degree of uncertainty and require non-programmed decision making.

CERTAINTY Certainty means that all the information the decision maker needs is fully available.7 Managers have

certainty All the information the decision maker needs is fully available.

Boeing 707

Source: Alamy Stock Photo/Ivan Cholakov

information on operating conditions, resource costs or constraints, and each course of action and possible outcome. For example, if a company considers a $10 000 investment in new equipment that it knows for certain will yield $4000 in cost savings per year over the next five years, managers can calculate a before-tax

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EXHIBIT A6.1 Conditions that affect the possibility of decision failure

Organisational problem

Low Certainty

Possibility of failure Risk

Uncertainty

Programmed decisions

High Ambiguity

Non-programmed decisions

Problem solution

rate return of about 40 per cent (i.e. with certainty). If managers compare this investment with one that will yield only $3000 per year in cost savings, they can confidently select the 40 per cent return. However, few decisions are certain in the real world: most contain either risk or uncertainty.

RISK risk A decision has clear-cut goals and good information is available, but the future outcomes associated with each alternative are subject to chance.

Risk means that a decision has clear-cut goals and that good information is available, but that the

future outcomes associated with each alternative are subject to some chance of loss or failure. However, enough information is available to allow the probability of a successful outcome for each alternative to be estimated.8 Managers often incorporate statistical analysis to calculate the probabilities of success or failure to ensure an objective evaluation of alternatives can be made. The measure of risk captures the possibility that future events will render the alternative unsuccessful. For example, executives at fast food chains, such as Subway or McDonald’s, can analyse an area’s customer demographics, traffic patterns, supply logistics, and competition to come up with a reasonably good idea of how successful a restaurant would be in each potential location being considered. A degree of risk is inherent in most business dealings. At Boeing, for instance, managers had to decide whether to build a new version of the company’s single-aisle 737 jet. They noted that European rival Airbus was getting a lot of orders for the redesigned A320, which included a more fuel-efficient engine, something Boeing’s customers also wanted. Perhaps installing new engines on 737 jets was a better alternative than building a completely new plane, Boeing managers thought. They projected production costs for designing and building a new plane versus designing and installing new engines, calculated potential increases in fuel efficiency, considered whether new engines rather than a new plane would meet customers’ needs, and looked at total operating costs. CEO James McNerney and other managers eventually decided to go with the new engines. McNerney said Boeing believed that new engines would yield 10 to 12 per cent fuel savings on 737 planes, while also enabling the company to maintain a cost advantage over the Airbus A320. It proved to be a good decision – in mid-2012, Boeing was on track to retake the lead from Airbus as the world’s top producer of commercial planes.9

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UNCERTA INT Y Uncertainty means that managers know which goals they wish to achieve, but that information about alternatives and future events is incomplete.10 Managers do not have enough information to be clear about alternatives or to estimate their risk. Factors that may affect a decision, such as price, production costs, volume or future interest rates, are difficult to analyse and predict. Managers may have to make assumptions from which to forge the decision even though it may be wrong if the assumptions are incorrect. Managers may have to come up with creative approaches to alternatives and use personal judgement to determine which alternative is best. Many decisions made under these conditions do not produce the desired results, but managers face uncertainty every day. They must find creative ways to cope with uncertainty to make effective decisions. Consider the uncertainty faced by managers in the movie industry. The movie Deadpool was an unknown quantity to its original production company, New Line Cinema. 20th Century Fox purchased the rights to the film, but remained tentative about investing in its production. The decision to greenlight the film only happened after test footage for the film was leaked – trending virally on social media. With a budget of only US$58 million, the film grossed in excess of US$740 million from ticket sales worldwide. Even though taking the risk with Deadpool resulted in an overwhelming success,11 many films do not take off, which reflects the tremendous uncertainty in the industry. What do people want to see this summer? Will comic book heroes, vampires or aliens be popular? Will animated films, disaster epics, classics or romantic comedies attract larger audiences? The interests and preferences of moviegoers are extremely difficult to predict. Moreover, even after the fact it is hard for managers to understand what made a particular movie a hit. Despite the uncertainty, managers in the big Hollywood studios make relatively good decisions overall, and one big hit can pay for a lot of flops (see Chapter 2).12

See Chapter 2 for more details.

AMBIG UITY This is by far the most difficult decision situation. Ambiguity means that the goals to be achieved or the problems to be solved are unclear, alternatives are difficult to define and information about outcomes is unavailable.13 Ambiguity is what students would feel if an instructor created student groups, told each group to complete a project, but gave the groups no topic, direction or guidelines whatsoever. In some situations, managers involved in a decision create ambiguity because they see things differently and disagree about what they want. This is particularly relevant when managers in different departments have different priorities and goals for a decision, which can lead to conflicts over decision alternatives. A highly ambiguous situation can create what is referred to as a wicked decision problem. Wicked problems are associated with manager conflicts over goals and decision alternatives, rapidly changing circumstances, fuzzy information, unclear linkages among decision elements, and the inability to evaluate whether a proposed solution will work.14 There is often no ‘right’ answer to a wicked problem, so managers must be careful to document why they made a decision to provide a point of reference for future evaluations of whether the decision was ‘good’ or not. Fortunately, most decisions are not characterised by ambiguity. But when they are, managers must conjure up goals and develop reasonable scenarios for decision alternatives in the absence of information.

ambiguity The goals to be achieved or the problems to be solved are unclear, alternatives are difficult to define and information about outcomes is unavailable. conflict Disagreement between stakeholders involved in a decision or activity, usually as to which course of action or strategy should be preferred.

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TAKE A MOMENT As a new manager, consider the degree of risk, uncertainty or ambiguity in a specific decision you face. Develop decision rules for programmed decisions and let other people handle the decisions. Save your time and energy for coping with complex, non-programmed decisions.

R EMEMBE R THIS ◗◗ ◗◗ ◗◗ ◗◗

Good decision making is a vital part of good management, but decision making is not easy.

◗◗

A non-programmed decision is one made in response to a situation that is unique, is poorly defined and largely unstructured, and has important consequences for the organisation.

◗◗ ◗◗ ◗◗

Decisions differ according to the amount of certainty, risk, uncertainty or ambiguity in the situation.

◗◗

Uncertainty occurs when managers know which goals they want to achieve, but information about alternatives and future events is incomplete.

◗◗

Ambiguity is a condition in which the goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define and information about outcomes is unavailable.

◗◗

Highly ambiguous circumstances can create a wicked decision problem, the most difficult decision situation that managers face.

Decision making is the process of identifying problems and opportunities and then resolving them. A decision is a choice made from available alternatives. A programmed decision is one made in response to a situation that has occurred often enough to enable managers to develop decision rules that can be applied in the future.

Certainty is a situation in which all the information the decision maker needs is fully available. Risk means that a decision has clear-cut goals and good information is available, but the future outcomes associated with each alternative are subject to chance.

A6.2

DECISION-MAKING MODELS

The approach managers use to make decisions usually falls into one of three types of model: classical, administrative or political. The choice of model depends on the manager’s personal preference, whether the decision is programmed or non-programmed, and the extent to which the decision is characterised by risk, uncertainty or ambiguity.

classical model A decision-making model based on the assumption that managers should make logical decisions that will be in the organisation’s best economic interests.

T H E C L A S S I C A L M OD E L : R AT I O NA L D E C I S I O N M A K I NG The classical model of decision making is based on rational economic assumptions and manager beliefs about what ideal decision making should be. This model has arisen within the management literature because managers are expected to make decisions that are economically sensible and in the organisation’s best economic interests. The four assumptions underlying this model are as follows:

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◗◗ The decision maker operates to accomplish goals that are known and agreed upon. Problems are precisely formulated and defined.

◗◗ The decision maker strives for conditions of certainty, gathering complete information. All alternatives and the potential results of each are calculated.

◗◗ Criteria for evaluating alternatives are known. The decision maker selects the alternative that will maximise the economic return to the organisation.

◗◗ The decision maker is rational and uses logic to assign values, order preferences, evaluate alternatives and make the decision that will maximise the attainment of organisational goals. The classical model of decision making is normative, which means it defines how a decision maker should make decisions. It does not describe how managers actually make decisions so much as it provides guidelines on how to reach an ideal outcome for the organisation. The ideal, rational approach of the classical model is often unattainable by real people in organisations, but the model has value because it helps decision makers be more rational and not rely entirely on personal preference in making decisions. Evidence from McKinsey & Company found that when managers incorporate thoughtful analysis into decision making, they get better results. Responses from a survey of more than 2000 executives regarding how their companies made a specific decision led McKinsey to conclude that techniques such as detailed analysis, risk assessment, financial models, and considering comparable situations typically contribute to better financial and operational outcomes.15 The classical model is most useful when applied to programmed decisions and to decisions characterised by certainty or risk because relevant information is available and probabilities can be calculated. For example, new analytical software programs automate many programmed decisions, such as freezing the account of a customer who has failed to make payments, determining the cell phone service plan that is most appropriate for a particular customer or sorting insurance claims so that cases are handled most efficiently.16 Airlines use automated systems to optimise seat pricing, flight scheduling and crew assignment decisions. Retailers such as Bunnings and Gap use software programs to analyse sales data and decide when, where and how much to mark down prices. Many companies use systems that capture information about customers to help managers evaluate risks and make credit decisions.17 For example, Coles and Woolworths use demographic data from the Australian Census combined with credit card and loyalty scheme data (for example, flybuys) to ensure that their offerings, in every store, are optimised to the consuming preferences of their local shoppers in every community. The growth of quantitative decision techniques that use computers has expanded the use of the classical approach. Quantitative techniques include such things as decision trees, payoff matrices, break-even analysis, linear programming, forecasting and operations research models.

H OW M A NAG E R S AC T UA L LY M A K E D E C I S I O N S Another approach to decision making, called the administrative model, is descriptive, meaning that it describes how managers actually make decisions in complex situations, rather than dictating how they should make decisions according to a theoretical ideal. The administrative model recognises the human and environmental limitations that affect the degree to which managers can pursue a rational decisionmaking process. In difficult situations, such as those characterised by non-programmed decisions, uncertainty and ambiguity, managers are typically unable to make economically rational decisions even if they want to.18

normative An approach that defines how a decision maker should make decisions and provides guidelines for reaching an ideal outcome for the organisation.

administrative model A decision-making model that describes how managers actually make decisions in situations characterised by nonprogrammed decisions, uncertainty and ambiguity. descriptive An approach that describes how managers actually make decisions rather than how they should.

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BO UNDED RATIO NA LI T Y A ND S AT I S F I C I NG

bounded rationality The concept that people have the time and cognitive ability to process only a limited amount of information on which to base decisions. satisficing To choose the first solution alternative that satisfies minimal decision criteria regardless of whether better solutions are presumed to exist.

The administrative model of decision making is based on the work of Herbert A. Simon. Simon proposed two concepts that were instrumental in shaping the administrative model: bounded rationality and satisficing. Bounded rationality means that people have limits, or boundaries, on how rational they can be. Organisations are incredibly complex, and managers have the time and ability to process only a limited amount of information with which to make decisions.19 Because managers do not have the time or cognitive capacity to process complete information about complex decisions, they must satisfice. Satisficing means that decision makers choose the first solution alternative that satisfies minimal decision criteria. Rather than pursuing all alternatives to identify the single solution that will maximise economic returns, managers will opt for the first solution that appears to solve the problem, even if better solutions are presumed to exist. The decision maker cannot justify the time and expense of obtaining complete information.20 That is, managers sometimes generate alternatives for complex problems only until they find one that they believe will work. The administrative model relies on assumptions different from those of the classical model and focuses on organisational factors that influence individual decisions. It is more realistic than the classical model for complex, non-programmed decisions. According to the administrative model:

◗◗ decision goals often are vague, conflicting and lack consensus among managers; managers often are unaware of problems or opportunities that exist in the organisation

◗◗ rational procedures are not always used and, when they are, they are confined to a simplistic view of the problem that does not capture the complexity of real organisational events

◗◗ managers’ search for alternatives is limited because of human, information and resource constraints ◗◗ most managers settle for a satisficing rather than a maximising solution; partly because they have limited information and partly because they have only vague criteria for what constitutes a maximising solution.

INTUITIO N A ND QUA S I R AT I O NA L I T Y intuition The immediate comprehension of a decision situation based on past experience but without conscious thought.

Another aspect of administrative decision making is intuition. Intuition represents quick comprehension of a decision situation based on past experience, but without conscious thought.21 Intuitive decision making is not arbitrary or irrational because it is based on years of practice and hands-on experience that enable managers to quickly identify solutions without going through painstaking calculations. For example, have you ever wondered how the Intel Inside logo came to be plastered on virtually every personal computer powered by an Intel microprocessor? Computers are made of many different components, and before 1991, users had little idea of who supplied the microprocessor, just as they had little idea of who provided the hard drive, cooling fans, power supply or video card. Intel’s CEO had a young technical assistant named Dennis Carter, who had two engineering degrees and an MBA, and he believed that Intel’s anonymity could and should change. CEO Andy Grove had his doubts that a microprocessor could be successfully branded, even though it was the brains of the PC. But because Carter believed in it so strongly, Grove eventually agreed to a test. He gave Carter a budget of US$500 000, which he spent on a billboard advertising campaign to introduce the newer, more powerful but underselling 386 chip. The advertising worked and sales of PCs with the 386 immediately shot up. Carter’s intuition that Intel’s chip – a previously anonymous

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component – could achieve its own brand identity to essentially shift power in the industry from the PC maker to a key supplier, Intel.22 Psychologists and neuroscientists have studied how people make good decisions using their intuition under extreme time pressure and uncertainty. Good intuitive decision making is based on an ability to recognise patterns very fast. When people build a depth of experience and knowledge in a particular area, the right decision often comes quickly and effortlessly as recognition of information that has been largely forgotten by the conscious mind. For example, firefighters make decisions by recognising what is typical or abnormal about a fire, based on their experience. Similarly, in the business world, managers continuously perceive and process information that they may not consciously be aware of, and their base of knowledge and experience helps them make decisions that may be characterised by uncertainty and ambiguity.23 Managers rely on intuition to determine when a problem exists and to synthesise isolated bits of data and experience into an integrated picture. They also use their intuitive understanding to check the results of rational analysis. If the rational analysis does not agree with their intuition, managers may dig further before accepting a proposed alternative.24 This approach to decision making is increasingly referred to as quasirationality, which means combining intuitive and analytical thought. In many situations, neither analysis nor intuition is sufficient for making a good decision. Managers often walk a fine line between two extremes: on the one hand, making arbitrary decisions without careful study, and on the other, relying obsessively on rational analysis. One is not better than the other, and managers need to take a balanced approach by considering both rationality and intuition as important components of effective decision making.25

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quasirationality Combining intuitive and analytical thought.

T H E P O L I T I C A L M OD E L The third model of decision making, the political model, is useful for making non-programmed decisions when conditions are uncertain, information is limited and there is disagreement among managers about what goals to pursue or what course of action to take. Most organisational decisions involve many managers who are pursuing different goals, and they have to talk with one another to share information and reach an agreement. Managers often engage in coalition building when making complex organisational decisions. A coalition is an informal alliance among managers who support a specific goal. Coalition building is the process of forming alliances among managers. In other words, a manager who supports a specific alternative, such as increasing the company’s growth by acquiring another company, talks informally to other executives and tries to persuade them to support the decision. When the outcomes are not predictable, managers gain support through discussion, negotiation and bargaining. Without a coalition, a powerful individual or group could derail the decision-making process. Coalition building gives several managers an opportunity to contribute to decision making, enhancing their commitment to the alternative that is ultimately adopted.26 Results from the global survey by McKinsey & Company mentioned earlier in this chapter suggest that coalition building is associated with faster implementation of decisions because managers have developed consensus about which action to pursue.27 Failing to build a coalition can allow conflict and disagreements to derail a decision, particularly if the opposition builds a powerful coalition of its own. The political model closely resembles the real environment in which most managers and decision makers operate. Interviews with CEOs in high-tech industries found that they strived to use some type of rational decision-making process, but the way they actually divided things was through a complex interaction with other managers, subordinates, environmental factors, and organisational events.28

political model A decision-making model that is useful for making non-programmed decisions when conditions are uncertain, information is limited and there is disagreement among managers. coalition An informal alliance among managers who support a specific goal.

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Decisions are complex and involve many people, information is often ambiguous, and disagreement and conflict over problems and solutions are normal. The political model begins with four basic assumptions:

◗◗ Organisations are made up of groups with diverse interests, goals and values. Managers disagree about problem priorities and may not understand or share the goals and interests of other managers.

◗◗ Information is ambiguous and incomplete. The attempt to be rational is limited by the complexity of many problems as well as personal and organisational constraints.

◗◗ Managers do not have the time, resources or mental capacity to identify all dimensions of the problem and process all relevant information. Managers talk to each other and exchange viewpoints to gather information and reduce ambiguity.

◗◗ Managers engage in the push and pull of debate to decide goals and discuss alternatives. Decisions are the result of bargaining and discussion among coalition members.

TAKE A MOMENT As a new manager, use your political skills to reach a decision in the midst of disagreement about goals or problem solutions. Talk with other managers or employees and negotiate to gain support for the goal or solution you favour. Learn to compromise and to support others when appropriate.

The key dimensions of the classical, administrative and political models are listed in EXHIBIT A6.2. Research into decision-making procedures has found rational, classical procedures to be associated with high performance for organisations in stable environments. However, administrative and political decision-making procedures and intuition have been associated with high performance in unstable environments in which decisions must be made rapidly and under more difficult conditions.29 EXHIBIT A6.2 Characteristics of classical, administrative and political decisionmaking models

CLASSICAL MODEL

ADMINISTRATIVE MODEL

POLITICAL MODEL

Clear-cut problem and goals

Vague problem and goals

Pluralistic; conflicting goals

Condition of certainty

Condition of uncertainty

Condition of uncertainty/ ambiguity

Full information about alternatives and their outcomes

Limited information about alternatives and their outcomes

Inconsistent viewpoints; ambiguous information

Rational choice by individual for maximising outcomes

Satisficing choice for resolving problem using intuition

Bargaining and discussion among coalition members

R EMEMBE R THIS ◗◗

The ideal, rational approach to decision making, called the classical model, is based on the assumption that managers should make logical decisions that are economically sensible and in the organisation’s best economic interest.

◗◗

The classical model is normative, meaning that it defines how a manager should make logical decisions and provides guidelines for reaching an ideal outcome.

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◗◗

Software programs based on the classical model are being applied to programmed decisions, such as how to schedule airline crews or how to process insurance claims most efficiently.

◗◗

The administrative model includes the concepts of bounded rationality and satisficing and describes how managers make decisions in situations that are characterised by uncertainty and ambiguity.

◗◗

The administrative model is descriptive, an approach that describes how managers actually make decisions, rather than how they should make decisions according to a theoretical model.

◗◗

Bounded rationality means that people have the time and cognitive ability to process only a limited amount of information on which to base decisions.

◗◗

Satisficing means choosing the first alternative that satisfies minimal decision criteria, regardless of whether better solutions are presumed to exist.

◗◗

Intuition is an aspect of administrative decision making that refers to a quick comprehension of a decision situation based on past experience but without conscious thought.

◗◗ ◗◗

A new trend in decision making, quasirationality, combines intuitive and analytical thought.

◗◗

A coalition is an informal alliance among managers who support a specific goal or solution.

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The political model takes into consideration that many decisions require debate, discussion and coalition building.

A6.3

DECISION-MAKING STEPS

Whether a decision is programmed or non-programmed, and regardless of managers’ choice of the classical, administrative or political model of decision making, six steps typically are associated with effective decision processes. These are summarised in EXHIBIT A6.3.

R E CO G N I T I O N O F D E C I S I O N R E QU I R E M E N T Managers confront a decision requirement in the form of either a problem or an opportunity. A problem occurs when performance is less than established goals – some aspect of performance is unsatisfactory with respect to existing key performance indicators, or to emerging trends in the environment. An opportunity exists when managers see a potential accomplishment that exceeds specified current goals,

and therefore the possibility of enhancing performance beyond current levels. Awareness of a problem or opportunity is the first step in the decision-making sequence, and requires surveillance of the internal and external environments for issues that merit executive attention.30 Some information comes from periodic financial reports, performance reports, and other control systems that are designed to discover problems before they become too serious. Managers also take advantage of informal sources; talking to other managers, gathering opinions on how things are going for the organisation and industry as a whole, and seeking advice on which problems should be tackled or which opportunities embraced.31 This resembles the military concept of gathering intelligence. Managers scan the world around them to determine whether the organisation is satisfactorily progressing towards its goals. When leaders fail to recognise problems, they usually do not go away by themselves, whatever the level of management: when Kevin Rudd was Prime Minister of Australia, he failed to recognise the

problem A situation in which organisational accomplishments have failed to meet established goals. opportunity A situation in which managers see potential organisational accomplishments that exceed current goals.

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EXHIBIT A6.3 Six steps in the managerial decisionmaking process

1 Recognition of decision requirement

6

Diagnosis and analysis of causes

Evaluation and feedback

2

Decision-making process

5

Implementation of chosen alternative

Development of alternatives

3 Selection of desired alternative

4

magnitude of resistance among his government colleagues and the Australian public to his policies and leadership style, and lost his leadership role as a result. Yet in 2013, the Australian Labor Party made another collective decision and brought him back to the leadership role so that, as Prime Minister, he could contest the 2013 Australian Federal election. Mr Rudd quickly lost popularity with the voting public, though, and lost the election. Recognising decision requirements is difficult, because it often means integrating bits and pieces of information in novel ways. For example, at Google, some managers noticed that employees were eating too many of the free M&Ms scattered in bins around the company – the managers thought this might conflict with the company’s goal of keeping employees happy and healthy.32 The company decided to analyse the problem and experiment with ways to get people to eat healthier snacks more often.

D I AG NO S I S A N D A NA LY S I S O F C A U S E S diagnosis The step in the decisionmaking process in which managers analyse underlying causal factors associated with the decision situation.

Once a problem or opportunity has come to a manager’s attention, the understanding of the situation should be refined. Diagnosis is the step in the decision-making process in which managers analyse underlying causal factors associated with the decision situation. Managers make a mistake if they jump into generating alternatives without first exploring the cause of the problem. The real problem often lies hidden behind the problems that managers think exist. By looking at a situation from different perspectives, managers can identify if the situation is the true problem, or merely a symptom of a deeper,

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underlying problem that should be addressed. Often as part of this exploratory process, managers discover opportunities they didn’t realise were there.33 Kepner and Tregoe, who have conducted extensive studies of manager decision making, recommend that managers ask a series of questions to specify underlying causes, including the following:34

◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗

What is the state of disequilibrium affecting us? When did it occur? Where did it occur? How did it occur? To whom did it occur? What is the urgency of the problem? What is the interconnectedness of events? What result came from which activity?

Such questions help to specify what actually happened and why. Diagnosing a problem can be thought of as peeling an onion layer by layer. Managers cannot solve problems if they don’t know about them, or if they are addressing the wrong issues. Some experts recommend continually asking ‘why?’ to get to the root of a problem, a technique sometimes called ‘the five Whys’. The first why generally produces a superficial explanation for the problem, and each subsequent why probes deeper into the causes of the problem and potential solutions. For example, consultant Daniel Burrus tells of meeting with the CEO of a large accounting and professional services firm who told him the company’s biggest problem was the inability to hire enough qualified people to serve its global clients. As the two asked each other ‘why’ further, they got down to the real problem, which was not the lack of staff, but inefficiency in internal collaboration and communication. The CEO discovered that he might actually be able to reduce staff with more effective and efficient systems.35

D E V E L O P M E N T O F A LT E R NAT I V E S Once the problem or opportunity has been recognised and analysed, the next stage is to generate possible alternative solutions that will respond to the needs of the situation and correct the underlying causes. Studies find that limiting the search for alternatives is a primary cause of decision failure in organisations.36 For a programmed decision, feasible alternatives are easy to identify and in fact usually are already available within the organisation’s rules and procedures. Non-programmed decisions, however, require developing new courses of action that will meet the organisation’s needs. For decisions made under conditions of high uncertainty, managers may develop only one or two custom solutions that will satisfice for handling the problem. Decision alternatives can be thought of as the tools for reducing the difference between the organisation’s current and desired performance. Smart managers tap into the knowledge of people throughout the organisation, and sometimes even outside the organisation, for decision alternatives. For example, to improve sales at fast-food giant McDonald’s, executives considered alternatives such as using mystery shoppers and unannounced inspections to improve quality and service, motivating demoralised franchisees to get them to invest in new equipment and programs, taking R&D out of the test kitchen and encouraging franchisees to help come up with successful new menu items, and closing some stores to avoid cannibalising its own sales.37

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S E L E C T I O N O F D E S I R E D A LT E R NAT I V E

risk propensity The willingness to undertake risk with the opportunity of gaining an increased pay-off.

See Chapter 6 for a description of strategy execution.

EXHIBIT A6.4 Decision alternatives with different levels of risk

Once feasible alternatives have been developed, the most promising of these should be selected. The best alternative is one in which the solution best fits the overall goals and values of the organisation and achieves the desired results using the fewest resources.38 The manager tries to select the choice with the least amount of risk and uncertainty. Because some risk is inherent in most non-programmed decisions, managers try to gauge prospects for success. Under conditions of uncertainty, they may have to rely on their intuition and experience to estimate whether a given course of action is likely to succeed. Basing choices on overall goals and values can effectively guide selection of alternatives. Johnson & Johnson’s values-based decision making became evident when the company spent US$100 million pulling Tylenol (an American brand of paracetamol) from store shelves after cyanide was discovered in some of the capsules. It was an expensive alternative in the short term, but one that worked wonders for the company’s image and probably helped save Tylenol as a consumer product.39 Making choices depends on managers’ personality factors and willingness to accept risk and uncertainty. Risk propensity (sometimes referred to as risk appetite) is the willingness to undertake risk with the opportunity of gaining an increased pay-off. The level of risk a manager is willing to accept will influence the analysis of costs and benefits to be derived from any decision. For example, Facebook would never have reached more than a billion users without Mark Zuckerberg’s ‘move fast, break things’ mindset. Motivational posters with that slogan are on walls all around the company to prevent delay from too much analysis of alternatives. Rather than running controlled beta versions of new technologies to identify the best alternative, Facebook runs a never-ending series of on-the-fly experiments with real users. Even employees who haven’t finished their six-week training program are encouraged to work on the live site. That risky approach means that the whole site crashes occasionally, but Zuckerberg says, ‘The faster we learn, the better we’re going to get to the model of where we should be’.40 Consider the situations in EXHIBIT A6.4. In each situation, which alternative would you choose? A person with a low-risk propensity would tend to take assured moderate returns by going for a tied score, building a domestic plant or pursuing a career as a physician. A risk taker would go for the victory, build a plant in a foreign country or embark upon an acting career.

FOR EACH OF THE FOLLOWING DECISIONS, WHICH ALTERNATIVE WOULD YOU CHOOSE? 1

In the final seconds of a game against a traditional rival, the coach of a university football team may choose a play that has a 95 per cent chance of producing a tied score, or one with a 30 per cent chance of victory, but certain defeat if it fails.

2

The president of a major New Zealand company must decide whether to build a new plant within New Zealand that has a 90 per cent chance of producing a modest return on investment, or to build it in a foreign country with an unstable political history. The latter alternative has a 40 per cent chance of failing, but the returns would be enormous if it succeeded.

3

A university student with considerable acting talent must choose a career. She has the opportunity to go on to medical school and become a physician, a career in which she is 80 per cent likely to succeed. She would rather be an actress, but realises that the opportunity of her succeeding in that field is only 20 per cent.

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I M P L E M E N TAT I O N O F C H O S E N A LT E R NAT I V E The implementation stage involves the use of managerial, administrative and persuasive abilities to ensure that the chosen alternative is carried out. This step is similar to the idea of strategy execution described in Chapter 6. The ultimate success of the chosen alternative depends on whether it can be translated into action. Sometimes an alternative never becomes reality because managers lack the resources or energy needed to make things happen, or they have failed to involve people and achieve buy-in for the decision. Successful implementation may require discussion, trust building, and active engagement with people affected by the decision. Communication, motivation and leadership skills must be used to see that the decision is carried out. When employees see that managers follow up on their decisions by tracking implementation success, they are more committed to positive action.41

implementation The step in the decisionmaking process that involves using managerial, administrative and persuasive abilities to translate the chosen alternative into action.

E VA L UAT I O N A N D F E E D B A C K In the evaluation stage, decision makers gather information that tells them how well the decision was implemented and whether it was effective. The ‘move fast, break things’ approach thrives at Facebook because of rapid feedback. Feedback is important because decision making is a continuous, never-ending process. Decision making is not completed when a manager or board of directors votes yes or no. Feedback provides decision makers with information that can precipitate a new decision cycle. The decision may fail, thus generating a new analysis of the problem, evaluation of alternatives and selection of a new alternative. Many big problems are solved by trying several alternatives in sequence, each providing modest improvement. Feedback is the part of monitoring that assesses whether a new decision needs to be made.

evaluation The step in the decisionmaking process that involves decision makers gathering information that tells them how well the decision was implemented and whether it was effective in achieving its goals.

P E R S O NA L D E C I S I O N F R A M E WO R K Imagine you are a manager at Rio Tinto, Intel, a local movie theatre or the public library. How would you go about making important decisions that may shape the future of your department or organisation? So far in this chapter, we have discussed a number of factors that affect how managers make decisions. For example, decisions may be programmed or non-programmed, situations are characterised by various levels of uncertainty, and managers may use the classical, administrative or political model of decision making. In addition, the decision-making process follows six recognised steps. However, not all managers go about making decisions in the same way. In fact, there are significant differences in the ways individual managers may approach problems and make decisions concerning them. These differences can be explained by the concept of personal decision styles. EXHIBIT A6.5 illustrates the role of personal style in the decision-making process. This means differences among people with respect to how they evaluate problems, generate alternatives, and

Situation

Personal decision style

Programmed/non-programmed

Directive

Classical, administrative,

Analytical

political

Conceptual

Decision steps

Behavioural

Decision choice Best solution to problem

decision style Differences among people with respect to how they perceive problems and make decisions.

EXHIBIT A6.5 Personal decision framework

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make choices. Research has identified four major decision styles: directive, analytical, conceptual and behavioural.42 1 The directive style is used by people who prefer simple, clear-cut solutions to problems. Managers who use this style often make decisions quickly because they do not like to deal with a lot of information and may consider only one or two alternatives. People who prefer the directive style generally are efficient and rational, and prefer to rely on existing rules or procedures for making decisions. 2 Managers with an analytical style, on the other hand, like to consider complex solutions based on as much data as they can gather. These individuals carefully consider alternatives and often base their decisions on objective, rational data from management control systems and other sources. They search for the best possible decision based on the information available. 3 Managers who tend towards a conceptual style also like to consider a broad amount of information. However, they are more socially oriented than those with an analytical style and like to talk to others about the problem and possible alternatives for solving it. Managers using a conceptual style consider many broad alternatives, rely on information from both people and systems, and like to solve problems creatively. 4 The behavioural style is often the style adopted by managers having a deep concern for others as individuals. Managers using this style like to talk to people one-on-one and understand their feelings about the problem and the effect of a given decision upon them. People with a behavioural style usually are concerned with the personal development of others and may make decisions that help others achieve their goals. Although most managers have one dominant decision style, frequently they will use several different styles or a combination of styles in making the varied decisions they confront daily. For example, a manager might use a directive style for deciding on which printing company to use for new business cards, yet shift to a more conceptual style when handling an interdepartmental conflict. The most effective managers are able to shift among styles as needed to meet the situation. Being aware of one’s dominant decision style can help a manager avoid making critical mistakes when his or her usual style may be inappropriate to the problem at hand. A particular decision style can also apply in a particular country or culture. For example, Japan’s major corporations experienced incredible growth and profits from the 1960s through to the 1990s. But by 1997, things had changed dramatically, with companies such as Nissan, Mazda, NEC, Mitsubishi Electric, Hitachi and even Sony reporting disastrous results and major losses. This was an amazing turnaround given the decades of profitable growth that preceded them. The recession in which the Japanese economy essentially imploded caused these companies to have a good, hard look at what went wrong. In many cases, elder statesmen CEOs whose authority and decisions had never been questioned in the past were being forced out of office and replaced by more progressive and younger CEOs. Two major problems in the Japanese corporate decision-making culture and processes were observed:

◗◗ the older chief executives were held in such esteem that their judgement was never questioned, even when it was clearly wrong

◗◗ decision-making processes required so many sign-offs that they were very slow, which meant Japanese companies were sluggish in responding to changes in market requirements. A third critical factor within the Japanese system was that there was not enough connection between the requirements of shareholders and the resource allocation and decision-making processes within companies. Many of the leaders of Japan’s corporations did not breed or develop successors. They did not develop the next generation of leaders. Their model worked during periods of continued growth when their

technological leadership in industries, such as consumer electronics, covered up deficiencies in their management style, but such weaknesses were sorely exposed during the recession years. The good news is that a newer generation of Japanese business leaders are demonstrating increased decision-making flexibility as well as productivity improvements in some of the world’s best companies. Facebook founder Mark Zuckerberg stepped into a hole when he decided to retrofit his site with a feature named Beacon. Beacon was designed to pass information about customer web activity to participating vendors, providing a new source of revenue for Facebook. But when Beacon was implemented, Facebook was slammed with complaints about privacy intrusion and a lawsuit. What caused this poor decision? Based on the wild popularity of his social network site and his rapid rise in the business world, Zuckerberg was probably overly confident about how users would receive Beacon. Facebook management shut down the service less than two years after it was introduced.

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Those running agricultural businesses, including farms, make a never-ending stream of decisions that impact on their outcomes and profitability, such as choice of feedstock, fertiliser use, technologies, selling methods and timing. Whether it’s a family farm or a corporate farm, the right decisionmaking style involves getting the data and expertise to those who are key stakeholders in the processes and outcomes.

R EMEMBE R THIS ◗◗ ◗◗ ◗◗

Managers face the need to make a decision when they either confront a problem or see an opportunity.

◗◗

The decision-making process typically involves six steps: recognising the need, diagnosing causes, developing alternatives, selecting an alternative, implementing the alternative and evaluating decision effectiveness.

◗◗ ◗◗

Diagnosis is when managers analyse underlying causal factors associated with the decision situation.

◗◗

The implementation step involves using managerial, administrative and persuasive abilities to translate the chosen alternative into action.

◗◗

The evaluation stage involves the decision makers gathering information that tells them how well the decision was implemented and whether it was effective in achieving its goals

◗◗ ◗◗ ◗◗

Feedback is the part of monitoring that assesses whether a new decision needs to be made.

◗◗ ◗◗

The four major decision styles are directive, analytical, conceptual and behavioural.

A problem is a situation in which organisational accomplishments have failed to meet established goals. An opportunity is a situation in which managers see potential organisational accomplishments that exceed current goals.

Selection of an alternative depends partly on managers’ risk propensity, or their willingness to undertake risk with the opportunity of gaining an increased payoff.

A manager’s personal decision style influences how he or she makes decisions. Decision styles are differences among people with respect to how they perceive problems and make choices.

Most experienced managers use a variety of styles depending on the decision situation.

Source: iStock.com/Nicolas McComber

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WHY DO MANAGERS MAKE POOR JUDGEMENTS? A6.4

Managers are faced with a relentless demand for decisions, from solving minor problems to implementing major strategic changes. Even the best manager will make mistakes, but managers can increase their percentage of good decisions by understanding some of the factors that cause people to make bad ones. Most bad decisions are errors in judgement that originate in the human mind’s limited capacity and in the natural biases managers display during decision making. Are you aware of biases that cloud your judgement when you make decisions and solve problems? Awareness of the following six biases can help managers make more enlightened choices.43 1 Being influenced by initial impressions. When considering decisions, the mind often gives disproportionate weight to the first information that it receives. These initial impressions, statistics, and estimates act as an anchor to our subsequent thoughts and judgements. Anchors can be as simple as a random comment by a colleague or a statistic read in a newspaper. Past events and trends also act as anchors. For example, in business, managers frequently look at the previous year’s sales when estimating sales for the coming year. Giving too much weight to the past can lead to poor forecasts and misguided decisions. 2 Justifying past decisions. Many managers fall into the trap of making choices that justify their past decisions, even if those decisions no longer seem valid. One common example is when a manager continues to pour money into a failing project, hoping to turn things around. This is sometimes referred to as the sunk cost effect. Managers often stick with a decision because they’ve invested a lot of resources in it, even though they’d be better off cutting their losses and moving on.44 One study of product development found that managers who initiate a new product are much more likely to continue funding it despite evidence that it is failing.45 Behavioural science research by Daniel Kahneman and others shows that people typically respond more strongly to potential loss, referred to as loss aversion, than to expected gain. People hate to lose, so they continue to support a flawed decision in an effort to justify or correct the past. 3 Seeing what you want to see. People frequently look for information that supports their existing instinct or point of view and avoid information that contradicts it. This bias affects where managers look for information, as well as how they interpret the information they find. People tend to give too much weight to supporting information and too little to information that conflicts with their established viewpoints. 4 Perpetuating the status quo. Managers may base decisions on what has worked in the past and fail to explore new options, dig for additional information, or investigate new technologies. This is essentially a tendency for managers to satisfice – a concept discussed earlier in the chapter. 5 Being influenced by emotions. If you’ve ever made a decision when you were angry, upset, or even ecstatic, you might already know the danger of being influenced by emotions. A study of traders in London investment banks found that effective regulation of emotions was a characteristic of higherperforming traders.46 Another finding is that doctors make less effective decisions when they feel emotions of like or dislike for a patient – if they like the patient, they are less likely to blame the patient for the condition and provide less treatment.47 Managers make better decisions when – to the extent possible – they take emotions out of the decision-making process. 6 Overconfidence. Most people overestimate their ability to predict uncertain outcomes. Overconfidence can be particularly dangerous when making risky decisions. Consider how overconfidence

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contributed to the demise of the world’s oldest investment bank, Barings Bank. The overconfidence of a single trader name Nick Leeson, supported by the overconfidence of senior management in his abilities, left the company exposed to any negative shift in the Asian stock markets. Betting on an increase in the Japanese economy, Leeson’s overconfidence was shattered when an earthquake hit Japan, and the share market slid backwards, resulting in huge losses for Leeson’s portfolio, and subsequently bankrupting Barings Bank in the process.

I N NOVAT I V E D E C I S I O N M A K I NG The ability to frequently make fast, widely supported, high-quality decisions is a critical skill in today’s fast-moving organisations.48 Considering that managers are under pressure to decide quickly and that biases creep in and cloud judgement, how do managers ever make good decisions? Some innovative techniques can help managers watch out for and avoid mistakes caused by cognitive biases. It is difficult for most managers to see their own biases, but they can build in mechanisms that neutralise or reduce bias-related decision errors at the organisational level.49

STA RT W I T H B R A I N ST O R M I NG Brainstorming uses a face-to-face interactive group to spontaneously suggest a wide range of alternatives for

decision making. The keys to effective brainstorming are that people can build on one another’s ideas; all ideas are acceptable, no matter how crazy they seem; and criticism and evaluation are not allowed. The goal is to generate as many ideas as possible. Brainstorming has been found to be highly effective for quickly generating a wide range of alternative solutions to a problem, but it does have some drawbacks. For one thing, people in a group often want to conform to what others are saying, a problem sometimes referred to as groupthink. Others may be concerned about pleasing the boss or impressing colleagues. In addition, many creative people simply have social inhibitions that limit their participation in a group session or make it difficult to come up with ideas in a group setting. In fact, one study found that when four people are asked to brainstorm individually, they typically come up with twice as many ideas as a group of four brainstorming together. One recent approach, electronic brainstorming, takes advantage of the group approach while overcoming some disadvantages. Electronic brainstorming brings people together in an interactive group over a computer network. One member writes an idea, another reads it and adds other ideas, and so on. Studies show that electronic brainstorming generates about 40 per cent more ideas than individuals brainstorming alone, and 25 to 200 per cent more ideas than regular brainstorming groups, depending on group size.50 Why? Because the process is anonymous, the sky’s the limit in terms of what people feel free to say. People can write down their ideas immediately, avoiding the possibility that a good idea might slip away while the person is waiting for a chance to speak in a face-to-face group. Social inhibitions and concerns are avoided, which typically allows for a broader range of participation. Another advantage is that electronic brainstorming can potentially be done with groups made up of employees from around the world, further increasing the diversity of alternatives.

brainstorming A technique that uses a face-to-face group to spontaneously suggest a broad range of alternatives for decision making.

electronic brainstorming Bringing people together in an interactive group over a computer network to suggest alternatives; sometimes called brainwriting.

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MANAGEMENT IN PRACTICE EVIDENCE-BASED MANAGEMENT At a time when decision making is so important, many managers do not know how to make a good choice among alternatives. Using evidence-based decision making can help. This simply means a commitment to make more informed and intelligent decisions based on the best available facts and evidence. It means being aware of our biases and seeking and examining evidence with rigour. Managers practise evidence-based decision making by being careful and thoughtful rather than carelessly relying on assumptions, past experience, rules of thumb or intuition. Here are some ideas for applying evidence-based decision making:

✚✚ Practise the five whys. One simple way to get people to think

✚✚ Demand evidence. Educate people throughout the

✚✚ Do a post-mortem. A technique that many companies

organisation to use data and facts to the extent possible to inform their decisions. Many manager problems are uncertain, and hard facts and data aren’t available, but by always asking for evidence, managers can avoid relying on faulty assumptions. Managers at one computer company kept blaming the marketing staff for the trouble the company had selling their products in retail stores. Then members of the senior team posed as mystery shoppers and tried to buy the company’s computers. They kept encountering sales clerks that tried to dissuade them from purchasing the firm’s products, citing the excessive price, clunky appearance and poor customer service. Real-world observations told them something that was very different from what they assumed.

more broadly and deeply about problems rather than going with a superficial understanding and a first response is called the Five Whys. For every problem, managers ask ‘Why?’ not just once, five times. That is, once you’ve answered ‘Why?’ the first time, think about the response you came up with, and ask yourself ‘Why?’ again, and so forth until you have found the root cause to the problem. Managers do this because the first ‘Why?’ generally produces a superficial explanation for the problem, and each subsequent why probes deeper into the causes of the problem and potential solutions. have adopted from the United States army to encourage examination of the evidence and continuous learning is the after-action review. After implementation of any significant decision, managers evaluate what worked, what did not and how to do things better. Many problems are solved by trial and error. For example, post-mortem reviews of decisions regarding attacks from roadside bombs in Iraq led soldiers to suggest implementation of an overall counterinsurgency strategy rather than relying so much on technology.

✚✚ Balance decisiveness and humility. The best decision makers have a healthy appreciation for what they don’t know. They’re always questioning and encouraging others to question their knowledge and assumptions. They foster a culture of inquiry, observation and experimentation.

SOURCES: Based on Jeffrey Pfeffer and Robert I. Sutton. (January 2006). Evidence-Based Management. Harvard Business Review, 62–74; Rosemary Stewart, Evidence-based Decision Making, Abingdon, UK: Radcliffe Publishing, 2002; Joshua Klayman, Richard P. Larrick and Chip Heath. (February 2000). Organizational Repairs. Across the Board, 26–31; and Peter Eisler, Blake Morrison and Tom Vanden Brook. (19 December 2007). Strategy That’s Making Iraq Safer Was Snubbed for Years. USA Today.

USE H A R D EV I DE NCE

evidence-based decision making A process founded on a commitment to examining potential biases, seeking and examining evidence with rigour, and making informed and intelligent decisions based on the best available facts and evidence.

Using hard evidence can help take emotion out of the decision-making process, keep people from relying on faulty assumptions, and prevent managers from ‘seeing what they want to see’, as described previously. Evidence-based decision making means a commitment to make more informed and intelligent decisions based on the best available facts and evidence. It means being alert to potential biases and seeking and examining the evidence with rigour. Managers practise evidence-based decision making by being careful and thoughtful rather than carelessly relying on assumptions, past experience, rules of thumb, or intuition.51 After catastrophic errors in the airline industry where pilots relied solely on their personal experience, many airlines now use a process called Crew Resource Management (CRM) that has revolutionised safety practices. CRM teaches every member of the crew to conduct brief sessions where they update each other

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about flight status, the current environment and any impending challenges or safety concerns. Pilots are trained to appropriately act on issues raised by any crew member.52 A study by Erik Brynjolfsson, an economist at the Sloan School of Management at Massachusetts Institute of Technology (MIT), supports the idea that organisational decisions can be improved with the use of evidence-based decision making. Brynjolfsson and his colleagues studied 179 large companies and found that the ones that have adopted data-driven decision making achieved productivity that was 5 to 6 per cent higher than could be explained by any other factors.53

Good managers recognise that constructive conflict based on divergent points of view can bring a problem into focus, clarify people’s ideas, stimulate creative thinking, limit the role of bias, create a broader understanding of issues and alternatives, and improve decision quality.54 Reed Hastings, CEO of Netflix, is trying to build rigorous debate into the decision-making process to avoid another calamity such as the one the company experienced following two successive unpopular decisions: to increase the price of the service, and to split Netflix into two separate businesses – one for Internet streaming and one for DVD rentals. Customers were furious, and they showed it by cancelling their Netflix memberships in droves. When Hastings had told a friend before the decision that he was thinking of splitting the business, the friend said, ‘That is awful. I don’t want to deal with two accounts’. But Hastings didn’t listen. He admits now that he was guilty of overconfidence and being out of This group is engaged in brainstorming to solve a problem. After generating a touch with customers’ thinking. By using rigorous debate pool of ideas it will evaluate the various possible solutions arising from the group’s creative thinking. about major decisions, Hastings hoped to get Netflix back on the right track – gaining rather than losing customers.55 Having recovered from its initial slip in subscriptions, Netflix has continued to hold a commanding position in the online streaming market. The threat of new entrants, like Stan and Viu, will continue to force Netflix senior managers to remain attentive to shifts in consumer expectations, but for now, they appear to have recovered well.56 Stimulating rigorous debate can be done in several ways. One way is by ensuring that the group is diverse in terms of age and gender, functional area of expertise, hierarchical level and experience with the business. Some groups assign a devil’s advocate, who has the role of challenging the assumptions and devil’s advocate A person who is assigned assertions made by the group.57 The devil’s advocate may force the group to rethink its approach to the the role of challenging problem and avoid reaching premature conclusions. Jeffrey McKeever, CEO of MicroAge, often plays the the assumptions and assertions made by the devil’s advocate, changing his position in the middle of a debate to ensure that other executives don’t just group to prevent premature go along with his opinions.58 consensus. Another approach is to have group members develop as many alternatives as they can as quickly as point–counterpoint A decision-making they can.59 It allows the team to work with multiple alternatives and encourages people to advocate ideas technique in which people they might not prefer, simply to encourage debate. Still another way to encourage constructive conflict is are assigned to express competing points of view. to use a technique called point–counterpoint, which breaks a decision-making group into two subgroups

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and assigns them different, often competing, responsibilities.60 The groups then develop and exchange proposals and discuss and debate the various options until they arrive at a common set of understandings and recommendations.

AVO I D G ROU P T H I N K

groupthink Groupthink involves members of a group agreeing a position on a decision or issue to avoid conflict or disagreement, sometimes overly influenced by a dominating ‘opinion leader’.

It is important for managers to remember that some disagreement and conflict is much healthier than blind agreement. Pressures for conformity exist in almost any group, and when people in a group like one another they tend to avoid anything that might create disharmony. Groupthink refers to the tendency of people in groups to suppress contrary opinions.61 When people slip into groupthink, the desire for harmony outweighs concerns over decision quality. Group members emphasise maintaining unity rather than realistically challenging problems and alternatives. People censor their personal opinions and are reluctant to criticise the opinions of others. Because groupthink is such a natural and pervasive challenge to group decision making, some experts recommend using an expert decision coach to provide hands-on help and feedback so that people can learn and practise new behaviours rather than revert to the default behaviour of suppressing opinions that are contrary to the group.62

K NOW W H E N T O P U L L T H E P L UG

escalating commitment Overly supporting a strategy, decision or activity even though rational thought would indicate the contrary.

In a fast-paced environment, good managers encourage risk taking and learning from mistakes, but they don’t hesitate to pull the plug on something that isn’t working. Research has found that managers and organisations often continue to invest time and money in a solution despite strong evidence that it is not appropriate. This tendency is referred to as escalating commitment. Managers might block or distort negative information because they don’t want to be responsible for a bad decision, or they might simply refuse to accept that their solution is wrong. A study in Europe verified that even highly successful managers often miss or ignore warning signals because they become committed to a decision and believe if they persevere it will pay off.63 As companies face increasing competition, complexity and change, it is important that managers don’t get so attached to their own ideas that they’re unwilling to recognise when to move on. According to Stanford University professor Robert Sutton, the key to successful creative decision making is to ‘fail early, fail often, and pull the plug early’.64

D O A P O ST M O RT E M

after-action review A disciplined procedure whereby managers review the results of decisions to evaluate what worked, what didn’t, and how to do things better.

To improve decision making, managers need to reflect and learn from every decision they make. When people review the results of their decisions, they learn valuable lessons for how to do things better in the future. This is sometimes called an after-action review, which is a disciplined procedure in which managers invest time in reviewing the results of decisions on a regular basis and learn from them.65 After implementing any significant decision, managers meet to evaluate what worked, what didn’t, and how to do things better. This is similar to a technique called fu pan, or ‘replaying the chessboard’, which is emphasised by the founder of Lenovo, Liu Chuanzhi. The idea is to review every move to improve the next one. Lenovo managers are trained to apply fu pan to everything from a small, quick review of a workday incident to a full, in-depth review of major decisions.66 Many problems are solved by trial and error, and numerous organisations have adopted some form of after-action review. When managers get prompt feedback on decisions through after-action reviews, it gives them the chance to incorporate new information and greater understanding into their thinking and decision making.

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R EMEMBE R THIS ◗◗

Most decisions within organisations are made as part of a group, and while managers can’t always see their own biases, they can build in mechanisms to prevent bias from influencing major decisions at the organisational level.

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Brainstorming is a technique that uses a face-to-face group to spontaneously suggest a broad range of alternatives for making a decision.

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Electronic brainstorming brings people together in an interactive group over a computer network, rather than meeting face to face.

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Evidence-based decision making is founded on a commitment to examining potential biases, seeking and examining evidence with rigour, and making informed and intelligent decisions based on the best available facts and evidence.

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A devil’s advocate is a person who is assigned the role of challenging the assumptions and assertions made by the group to prevent premature consensus.

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A group decision-making technique that breaks people into subgroups and assigns them to express competing points of view regarding the decision is called point–counterpoint.

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Groupthink refers to the tendency of people in groups to suppress contrary opinions in a desire for harmony.

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Escalating commitment refers to continuing to invest time and money in a decision despite evidence that it is failing.

Decisions are about making choices between alternative options. In the field of sustainable development, there are a set of reasonably complex decisions that can be seen and seized as opportunities. The complexity comes into these decisions because of the uncertainty of the outcomes and the tradeoffs that they encompass, between short-term and medium-term outcomes, and between the financial and the economic and community bottom lines. Consider the chief executive of a large bank or a mining company. Decisions that would be required include: 1. Should we be proactive with respect to sustainable development, with the bulk of the industry, or lag behind? 2. How much resource should we budget and allocate for environmental and community-related activities? 3. How ambitious should the goals be for sustainable development outcomes? 4. How will we infuse the culture of sustainability into our workforce? 5. How can we best work constructively with stakeholders to empower them and achieve win-win outcomes? 6. How can criteria be set and which activities should be prioritised for moving down the sustainability path? 7. Should the company have a chief sustainability officer, a sustainability office or champion to lead the initiatives, or should another method for implementation and progress be organised? 8. Given competing demands that usually exceed resources, what prioritisation rules and processes will be used? For these chief executives, it is challenging indeed to start with a ‘blank page’ and create a sustainability strategy, then guide a series of decisions that become the enactment of that strategy. These decisions, in this relatively new field of sustainability, are non-programmed and involve uncertainty and ambiguity. Yet this is no reason to shrink back and make the decision to ‘not make a decision or commitment’, for with the risk, comes potential for significant competitive advantage.

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DISCUSSION QUESTIONS 1 You are a busy partner in a legal firm. An experienced secretary complains of continued headaches, drowsiness, a dry throat and occasional spells of fatigue and flu. She tells you she believes air quality in the building is bad and that she would like something done. How would you respond?

6 What opportunities and potential problems are posed by the formation of more than one coalition within an organisation, each one advocating a different direction or alternative? What steps can you take as a manager to make sure that duelling coalitions result in constructive discussion rather than dissension?

2 Why is decision making considered a fundamental part of management effectiveness?

7 What are the main differences between the administrative and political models of decision making?

3 Explain the difference between risk and ambiguity. How might decision making differ for each situation?

8 What is meant by satisficing and bounded rationality? Why do managers not strive to find the economically best solution for many organisational decisions?

4 Experts advise that most catastrophes in organisations result from a series of small problems or mistakes. As a new, entry-level manager, how might you apply this understanding to help your organisation avoid making major mistakes? 5 Analyse three decisions you made over the past six months. Which of these were programmed and which were non-programmed? Which model – the classical, administrative or political – best describes the approach you took to make each decision?

9 What techniques could you use to improve your own creativity and effectiveness in decision making? 10 As a new, entry-level manager, how important is it to find ways to compensate for your relative lack of experience when trying to determine which alternative is most likely to succeed? What are some ways you can meet this challenge?

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11 List some possible advantages and disadvantages to using computer technology for managerial decision making. 12 Do you think intuition is a valid approach to making decisions in an organisation? Why or why not? How might intuition be combined with a rational decision approach? 13 Can you think of a bad decision from your own university or work experience, or from recent business or political news stories, that was made in an effort to correct or justify a past decision? As a

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new manager, how might you resist the urge to choose a decision alternative based on the idea that it might correct or validate a previous decision? 14 What do you think is your dominant decision style? Which style are you most comfortable using? Which style feels least comfortable? What are the implications for the type of job you might want to seek?

ENDNOTES   1 Henderson, A. (11 August 2016). Nauru data leak paints ‘disturbing picture’ of refugee abuse, human rights groups say. ABC News, http://www.abc.net.au/news/2016-08-10/ nauru-data-leak-paints-disturbing-picture-of-refugee-abuse/7712890 (accessed 9 March 2017).   2 Hunjan, R. (6 May 2016). Badgerys Creek airport: ‘Point merge’ plan to be scrapped after concern about noise and pollution, ABC News, http://www.abc.net.au/news/2016-05-06/ badgerys-creek-airport-flight-plan-scrapped/7389624 (accessed 9 March 2017).   3 Howard, R. A. (1988). Decision Analysis: Practice and Promise. Management Science, 34, 679–95.   4 Simon, H. A. (1957). Administrative Behavior, 2nd edn (New York: Free Press).   5 Paul J. H. Schoemaker and J. Edward Russo. (Fall 1993). A Pyramid of Decision Approaches. California Management Review, 9–31.   6 Gunther, M. (13 May 2003). Jeff Zucker Faces Life Without Friends. Fortune, 94–8.   7 Bazerman, M. H. (1986). Judgment in Managerial Decision Making (New York: Wiley); Eilon, S. (1985). Structuring Unstructured Decisions. Omega, 13, 369–77.   8 March, J. G. and Shapira, Z. (1987). Managerial Perspectives on Risk and Risk Taking. Management Science, 33, 1404–18; Baird, I. S. and Thomas, H. (1985). Toward a Contingency Model of Strategic Risk Taking. Academy of Management Review, 10, 230–43.   9 Christopher Drew. (28 July 2011). Improved Sales Help Boeing Beat Forecasts. The New York Times, B7; and Christopher Drew. (26 July 2012). Deliveries Up, Boeing Beats Forecasts of Analysts. The New York Times, B3. 10 Eilon. Structuring Unstructured Decisions; Roussel, P. A. (September–October 1983). Cutting Down the Guesswork in R&D. Harvard Business Review, 61, 154–60. 11 de Angelis, R. (19 March 2016). How did Deadpool cost only $58 million to make? Quora, https: //www.quora.com/How-did-Deadpool-cost-only-58-million-to-make (accessed 9 March 2017). 12 Adam Davidson. (1 July 2012). When You Wish Upon ‘Ishtar’: How Does the Film Industry Actually Make Money? The New York Times Magazine, 16–17. 13 Masuch, M. and LaPotin, P. (1989). Beyond Garbage Cans: An AI Model of Organizational Choice. Administrative Science Quarterly, 34, 38–67; Daft, R. L. and Lengel, R. H. (1986). Organizational Information Requirements, Media Richness and Structural Design. Management Science, 32, 554–71. 14 Mason, R. O. and Mitroff, I. I. (1981). Challenging Strategic Planning Assumptions (New York: Wiley Interscience). 15 (January 2009). ‘How Companies Make Good Decisions: McKinsey Global Survey Results’. The McKinsey Quarterly, www.mckinseyquarterly.com (accessed 3 February 2009). 16 Davenport, T. H. and Harris, J. G. (Summer 2005). Automated Decision Making Comes of Age. MIT Sloan Management Review, 83–89; McCullough, S. (15 October 1999). On the Front Lines. CIO, 78–81. 17 Schlosser, J. (12 January 2004). Markdown Lowdown. Fortune 40; Bollapragada, S., Ganti, P., Osborn, M., Quaile, J. and Ramanathan, K. (September–October 2003). GE’s Energy Rentals Business Automates Its Credit Assessment Process. Interfaces, 33:5, 45–56.

18 Simon, H. A. (1960). The New Science of Management Decision (New York: Harper & Row), pp. 5–6; Etzioni, A. (July–August 1989). Humble Decision Making. Harvard Business Review, 122–6. 19 March, J. G. and Simon, H. A. (1958). Organzations (New York: Wiley). 20 Simon, H. A. (1957). Administrative Behavior, 2nd edn (New York: Free Press); Simon, H. A. (1957). Models of Man (New York: Wiley), pp. 196–205. 21 Simon, H. A. (1987). Making Management Decisions: The Role of Intuition and Emotion. Academy of Management Executive, 1, 57–64; Agor, W. H. (Winter 1986). The Logic of Intuition: How Top Executives Make Important Decisions. Organizational Dynamics, 14, 5–18. 22 Kaplan, D. A. (2012). ‘How Intel Got Consumers to Love its Chips,’ segment of ‘The Greatest Business Decisions of all Time’ book excerpt, Fortune (8 October 2012): 178–184. 23 Ray, M. L. and Myers, R. (1986). Creativity in Business (Garden City: Doubleday). 24 Isenberg, D. J. (November–December 1984). How Senior Managers Think. Harvard Business Review, 62, 80–90. 25 Herbert A. Simon. Making Management Decisions: The Role of Intuition and Emotion; Sadler-Smith, S. and Shefy, E. (2004). The Intuitive Executive: Understanding and Applying ‘Gut Feel’ in Decision Making. Academy of Management Executive, 18:4, 76–91; Langley, A. (Spring 1995). Between ‘Paralysis by Analysis’ and ‘Extinction by Instinct’. Sloan Management Review, 63–76. 26 Stevenson, W. B., Pierce, J. L. and Porter, L. W. (1985). The Concept of ‘Coalition’ in Organization Theory and Research. Academy of Management Review, 10, 256–68. 27 ‘How Companies Make Good Decisions.’ 28 Doran, G.T. and Gunn, J. (2007). ‘Decision Making in High-Tech Firms: Perspectives of Three Executives’. Business Horizons (November–December 2002): 7–16. 29 James W. Fredrickson. Effects of Decision Motive and Organizational Performance Level on Strategic Decision Processes. Academy of Management Journal 28 (1985): 821–843; Datta, D. K., Rajagopalan, N. and Rasheed, A. M. A. (1993). Strategic Decision Processes: Critical Review and Future Directions. Journal of Management Studies, 19:2, 349–84; Dean, J. W. Jr and Sharfman, M. P. (July 1993). Procedural Rationality in the Strategic Decision-making Process. Journal of Management Studies, 30:4, 587–610; Schoemaker, P. W. H. (January 1993). Strategic Decisions in Organizations: Rational and Behavioral Views. Journal of Management Studies, 30:1, 107–29; Fredrickson, J. W. (1984). The Comprehensiveness of Strategic Decision Processes: Extension, Observations, Future Directions. Academy of Management Journal, 27, 445–66. 30 Jackson, S. E. and Dutton, J. E. (1988). Discerning Threats and Opportunities. Administrative Science Quarterly, 33, 370–87; Lyles, M. A. and Thomas, H. (1988). Strategic Problem Formulation: Biases and Assumptions Embedded in Alternative Decision-making Models. Journal of Management Studies, 25, 131–45. 31 Daft, R.L., Sormumen, J. and Parks, D. (1988). ‘Chief Executive Scanning, Environmental Characteristics, and Company Performance: An Empirical Study’. (unpublished manuscript, Texas A&M University, 1988). 32 Kang, C. (2013). ‘Google Crunches Data on Munching in Office’. The Washington Post, 1 September 2013, http://articles.washingtonpost.com/2013-09-01/business/41670762_1 _laszlo-bock-last-year-google-data (accessed 21 September 2013).

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33 Burrus, D. and Mann, J. D. (2011) ‘Whatever Your Problem ... That’s Not Likely to Be Your Real Problem’. Leadership Excellence (February 2011): 7–8. 34 Kepner, C. and Tregoe, B. (1965). The Rational Manager (New York: McGraw-Hill). 35 Michael E. Porter. (January 2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review, 79–93; Michael E. Porter. (1980). Competitive Strategy (New York: Free Press), pp. 36–46; Danny Miller. (1988). Relating Porter’s Business Strategies to Environment and Structure: Analysis and Performance Implementations. Academy of Management Journal, 31, 280–308; and Michael E. Porter. (May–June 1987). From Competitive Advantage to Corporate Strategy. Harvard Business Review, 43–59. 36 Paul C. Nutt. (2004). Expanding the Search for Alternatives During Strategic Decision Making. Academy of Management Executive, 18:4, 13–28; and P. C. Nutt. (1999). Surprising But True: Half the Decisions in Organizations Fail. Academy of Management Executive, 13:4, 75–90. 37 Gogoi, P. and Arndt, M. (March 2003). Hamburger Hell. BusinessWeek, 3822, 104–8. 38 Mayer, P. (March–April 1995). A Surprisingly Simple Way to Make Better Decisions. Executive Female, 13–14. 39 O’Reilly, B. (26 December 1994). J&J Is on a Roll. Fortune, 178–91. 40 Vance, A. (2012). ‘The Making of 1 Billion Users’. Bloomberg Businessweek (4 October 2012), http://www.businessweek.com/articles/2012-10-04/facebook-the-making-of-1-billionusers (accessed 21 September 2013). 41 McNeilly, M. (2002). Gathering Information for Strategic Decisions, Routinely. Strategy & Leadership, 30:5, 29–34. 42 Rowe, A. J., Boulgaides, J. D. and McGrath, M. R. (1984). Managerial Decision Making (Chicago: Science Research Associates); Rowe, A. J. and Mason, R. O. (1987). Managing with Style: A Guide to Understanding, Assessing, and Improving Your Decision Making (San Francisco: Jossey-Bass). 43 This section is based on Hammond, J. S., Keeney, R. L., and Raiffa, H. (1999). Smart Choices: A Practical Guide to Making Better Decisions (Boston: Harvard Business School Press, 1999); Bazerman M. H. and Chugh, D. (2006). ‘Decisions Without Blinders’. Harvard Business Review (January 2006): 88–97; Hammond, J. S., Keeney, R. L., and Raiffa, H. (1998). ‘The Hidden Traps in Decision Making’. Harvard Business Review (September–October 1998): 47–58; Harari, O. (1994). ‘The Thomas Lawson Syndrome’ Management Review (February 1994): 58–61; Ariely, D. (2003). ‘Q&A: Why Good CIOs Make Bad Decisions’. CIO (1 May 2003): 83–87; Buchanan, L. (2003). ‘How to Take Risks in a Time of Anxiety’. Inc. (May 2003): 76–81; Bazerman, M. H. (2002). Judgment in Managerial Decision Making, 5th ed. (New York: John Wiley & Sons, 2002). 44 Surowiecki, J. (2013). ‘The Financial Page: That Sunk-Cost Feeling’. The New Yorker (January 21, 2013): 24; and Sleesman, D. J. et al. (2012). ‘Cleaning Up the Big Muddy: A Meta-Analytic Review of the Determinants of Escalation of Commitment’. Academy of Management Journal 55, no. 3 (2012): 541–562. 45 Schmidt, J. B. and Calantone, R. J. (2002). ‘Escalation of Commitment During New Product Development’. Journal of the Academy of Marketing Science 30, no. 2 (2002): 103–118. 46 Fenton-O’Creevy, M. et al. (2011). ‘Thinking, Feeling, and Deciding: The Influence of Emotions on the Decision Making and Performance of Traders’. Journal of Organizational Behavior 32 (2011): 1044–1061. 47 Example from Groopman, J. (2007). How Doctors Think (New York: Houghton Mifflin, 2007). 48 Kathleen M. Eisenhardt. (Spring 1999). Strategy as Strategic Decision Making. Sloan Management Review, 65–72.

49 Daniel Kahneman, Dan Lovallo and Olivier Sibony. (June 2011). Before You Make That Big Decision. Harvard Business Review, 50–60. 50 Wellner, A. S. (October 2003). A Perfect Brainstorm. Inc., 31–5; Gallupe, R. B. and Cooper, W. H. (Fall 1993). Brainstorming Electronically. Sloan Management Review, 27–36. 51 This section is based on Pfeffer, J. and Sutton, R.I. (2006). ‘Evidence-Based Management’. Harvard Business Review (January 2006), 62–74; Stewart, R. (2002). Evidence-Based Decision Making (Radcliffe Publishing, 2002); and Klayman, J., Larrick, R. P. and Heath, C. (2000). ‘Organizational Repairs’. Across the Board (February 2000), 26–31. 52 Courtright, S. H., Stewart, G. L., and Ward, M. M. (2012). ‘Applying Research to Save Lives: Learning from Team Training Approaches in Aviation and Health Care’ Organizational Dynamics 41 (2012): 291–301. 53 Study by Erik Brynjolfsson, Lorin Hitt, and Heekyung Kim; results reported in Steve Lohr, ‘The Age of Big Data,’ The New York Times, 12 February 2012, SR1. 54 Sydney Finkelstein. (June 2009). Think Again: Good Leaders, Bad Decisions. Leadership Excellence, 7; Flaws in Strategic Decision Making: McKinsey Global Survey Results. The McKinsey Quarterly, January 2009, http://www.mckinsey.com; Michael A. Roberto. (May–June 2003). Making Difficult Decisions in Turbulent Times. Ivey Business Journal, 1–7; Eisenhardt. Strategy As Strategic Decision Making; and David A. Garvin and Michael A. Roberto. (September 2001). What You Don’t Know About Making Decisions. Harvard Business Review,108–16. 55 Nick Wingfield and Brian Stelter. (25 October 2011). A Juggernaut Stumbles. The New York Times, B1. 56 Bloomberg. (19 July 2016). Netflix Stock Back on Track in Second Half: Piper Jaffray, http:// www.bloomberg.com/news/videos/2016-07-19/netflix-stock-back-on-track-in-secondhalf-piper-jaffrey; Mike Olsen (19 July 2016). Netflix stock back on track in second half: Piper Jaffray. http://www.bloomberg.com/news/videos/2016-07-19/netflix-stock-back-ontrack-in-second-half-piper-jaffrey (accessed 9 December 2016). 57 David M. Schweiger and William R. Sandberg. (1989). The Utilization of Individual Capabilities in Group Approaches to Strategic Decision Making. Strategic Management Journal, 10, 31–43; Avoiding Disasters. Sidebar in Paul B. Carroll and Chunka Mui. (September 2008). 7 Ways to Fail Big. Harvard Business Review, 82–91; (December 1987). The Devil’s Advocate. Small Business Report, 38–41. 58 George T. Doran and Jack Gunn. (November–December 2002). Decision Making in High-Tech Firms: Perspectives of Three Executives. Business Horizons, 7–16. 59 Eisenhardt. Strategy As Strategic Decision Making. 60 Garvin and Roberto. What You Don’t Know About Making Decisions. 61 Janis, I. J. (1982). Groupthink: Psychological Studies of Policy Decisions and Fiascoes, 2nd edn (Boston: Houghton Mifflin). 62 Ben-Hur, et al. ‘Coaching Executive Teams to Better Decisions’. 63 Wissema, H. (2002). Driving Through Red Lights; How Warning Signals Are Missed or Ignored. Long Range Planning, 35, 521–39. 64 Ibid. 65 Ricks, T. E. (1997). ‘Army Devises System to Decide What Does, Does Not Work’. The Wall Street Journal, 23 May 1997, A1; Cannon, D.W. and McCollum, J. (2011). ‘Army Medical Department Lessons Learned Program Marks 25th Anniversary. Military Medicine (November 2011): 1212–14. 66 Salter, C. (2012). ‘Lenovo: Protect and Attack’. Fast Company (December 2011–January 2012): 116–121, 154–155.

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PART 3 CONTINUING CASE

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PLANNING AND ORGANISING THE TRANSITION AT TOYOTA AUSTRALIA

Toyota had many important decisions to make subsequent to the major decision to close its manufacturing operation. It was essentially going to transform from an employer of 4100 people to one of 1300 people in Australia. The new organisation would be mostly involved in sales and service support, since Toyota would still be a large importer of cars, with a major dealer network, parts to import and distribute, and many other services to conduct. Aside from the large manufacturing facility at Altona in Melbourne, Toyota had its substantial corporate headquarters in Port Melbourne and a large sales and service organisation in Sydney. With the downsizing, might it make good business sense to rationalise these activities, for example by locating them all in Melbourne? What should be done with the large site located in Altona when it is no longer needed for building cars? How would the production schedule be ramped down between 2014 and 2017, gradually over a multi-year period or more, or as a step function on the day of closure or some other way? How would the company manage its market and dealer relationships both in Australia and in the Middle East where two-thirds of its Camrys were sold? How would Toyota ensure that quality of its vehicles remained as high as possible once suppliers and employees faced the fact that the end of local manufacturing was nigh? What about employee loyalty, commitment and motivation? The decision to produce a certain volume of vehicles at Toyota was not easy to flex up and down on a daily basis, because assembly line processes are carefully balanced and not very flexible in the short term. Toyota was producing one vehicle approximately every two minutes, which came to over 95 000 vehicles per year, using a two-shift pattern that worked five days per week. Should this continue through to the closure, and what impact would market forces and consumer demand have on these plans? On the workforce side, many employees in Melbourne wanted to remain employed by Toyota and transition from being in or supporting the manufacturing activities to then work in sales or service. Yet there were many more highly skilled and motivated loyal employees than there would be jobs after 2017. If Toyota was to consolidate its sales/ service organisation from Sydney to its larger base in Melbourne, how many employees would transfer from Sydney, and how could Toyota create a rational and orderly process of transition of its Sydney and Melbourne workforces to ensure it had the right group of people postclosure, in 2018 and beyond? This was no small matter, because the workforce would change from 4100 to 1300 post-closure, and Toyota’s ‘Respect for People’ principle guided it to prepare all its staff for either

continuing employment in new roles or for life after Toyota in a ‘topshelf’ manner. These and many other decisions had many interconnections and lots of unknowns and ‘moving parts’, along with some objectives that brought together the human considerations with financial and marketing goals. It extended beyond the company and its people and products to well over 50 local supply organisations and their owners and employees. Moving towards the manufacturing closure Toyota had a plan in place for capital investment such as robots, new technologies, new welding and painting equipment, and new presses that were disrupted by the closure announcement. Future plans needed to be reformulated in light of the closure announcement about such equipment, and indeed, what would happen to the whole set of equipment and the large Altona site once vehicle production was finished. Major shifts in the organisation of sales and marketing personnel would also occur as it was recognised that possibly many staff would not move from Sydney to Melbourne once the rationalisation occurred. Additionally, some executives, managers, engineers and team members might choose to retire rather than look for other jobs, but the key question was how many and who? Toyota needed to conduct a full range of comprehensive planning for workforce, market, equipment, asset and facility, indeed it needed to rethink almost every aspect of its business model. And it was insistent that it would do all these things while not dropping the ball on safety, quality, productivity, employee development and welfare, customer service (in Australia and the Middle East), and business success. Indeed, it was determined to fully implement the principles of Respect for People and Continuous Improvement during the transition period, and deliver the ‘Last car = best global car’. Goal setting for the transition out of manufacturing Toyota set itself some goals associated with the manufacturing closure process. Aside from treating all its key stakeholders with respect and staying true to the Toyota Way principles, the company decided that a key goal was to continue production in Australia at full volume until the last day. Other companies had ramped down their production volume. Their next core goal related to quality – expressed as ‘Last car equals best global car’, which is a high-order challenge that would stretch the company. It would require the company’s many employees to continue to stick to the standardised work processes and practices, and to remain highly motivated and continue to engage in continuous

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improvement and systematised problem solving until the end. The company also set stretch targets in terms of safety, environmental performance, productivity, waste elimination, cost reduction and employee engagement, all of which were carefully measured and were the subject of professionally managed improvement initiatives. Toyota went to great lengths to communicate the objectives, and performance targets via a set of comprehensive visual management mechanisms. Information was well organised and visualised throughout the company, and used for regular meetings and problem solving of executives, managers and team leaders and members. The aim of these goal-setting processes and the large effort spent on communications and discussion was to ensure that everyone in the company was on board with such goals, and to maximise the opportunity for contributions. An example of a Toyota Australia practice was a ‘Hoshin Café’, comprising a full day of reflection and discussions of progress, challenges and improvement suggestions on the seven main dimensions of manufacturing performance with the key leaders and stakeholders from the operations and support divisions.

QU E S T I O N S 1 What arrangements would you have put in place to ensure the successful implementation of the manufacturing transition, once the closure announcement was made in 2014? 2 How would you set goals for the company during this transition phase? 3 List the core decisions that Toyota executives had to make concerning the transition. How much complexity of interdependence was there across these various decisions? 4 Toyota spends a lot of time, money and effort on managing to set goals. Do you think this is fruitful expenditure? Why/ why not? 5 Some companies do not display performance statistics and targets to nearly the extent that Toyota does. Comment on why you think this is so, in the sense that if it is worthwhile to do so, why are such practices not very widespread in organisations? Could it be that in some cultures, such measurement and reporting is not valuable?

PART FOUR O RG A N ISING

Chapter 7 Designing organisation structure Chapter 8 Managing change and innovation Chapter 9 Managing human resources

video game industry, with Counter Strike, Half-Life 2, Left 4 Dead, Portal, and the wildly popular digital distribution platform Steam. In September 2013, the WhatCulture online magazine (based in the United Kingdom) ranked Gabe Newell, the co-founder of Valve, on its list of the ‘five richest tech billionaires who dropped out of university’. Newell acts as the CEO of Valve, but the company has been ‘boss free since 1996’, as its website proclaims. ‘It’s amazing what creative people can come up with when there’s nobody there telling them what to do’. Valve’s unique organisation structure caused a minor media storm after someone posted the employee handbook online in the spring of 2012, but Valve has been functioning smoothly without bosses since it was founded. Newell and co-founder Mike Harrington, both former Microsoft employees, wanted to create a flat, fast organisation that allowed employees maximum flexibility. It sounds like a dream for employees, but many people don’t adapt to the ‘no-structure structure’ and leave for more traditional jobs.1 Could you work in a company with no bosses, no permanent offices, and no clearly defined structure? Valve is unusual, but as we’ve seen with

examples in previous chapters, many companies are flattening their hierarchies and cutting out layers of management to improve efficiency and be more flexible. Some people thrive in less hierarchical, even bossless, organisations, whereas others have difficulty without a clearly defined vertical structure. New managers in particular are typically more comfortable and more effective working in an organisation system that is compatible with their leadership beliefs.

Valve Software Corporation office

Source: Brian Boyd

Valve Software Corporation is a leader in the

In your career as a manager, you will have to understand and learn to work within a variety

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of structural configurations. All organisations wrestle with the question of structural design, and reorganisation often is necessary to reflect a new strategy, changing market conditions, or innovative technology. In recent years, many companies have realigned departmental groupings, chains of command and horizontal coordination mechanisms to attain new strategic goals or to cope with a turbulent environment. After the disastrous 2010 explosion and oil spill in the Gulf of Mexico, BP embarked on a major restructuring of its exploration, development, and production operations (referred to as ‘upstream’) to try to make sure that a similar event never happens again. To improve risk management, CEO Robert W. Dudley appointed a dedicated chief executive for all of its upstream operations worldwide. In late 2012, following the appointment of H. Lamar McKay to oversee the operations, Dudley said, ‘During the past two years, we have successfully introduced a more centralised organisation to our upstream, BP’s largest organisational change for two decades’.2 Sound organisation provides for much more effective outcomes! This includes organising people, their equipment and technology as well. A skipper in the Sydney to Hobart yacht race must organise the right people for various roles, the right sails for the expected winds and the right positioning of the boat to catch those winds. In all codes of team sport, the ability of the manager of the team and the club clearly determines the competitiveness and performance of the team. It is the same in the

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world of work, where managers significantly impact on the strategies, tactics, resource organisation and motivation of the ‘players’. In any business organisation, the chief executive – in fact, any team leader or middle manager – should strive to be just like the successful yacht skipper, hockey or AFL coach and captain: marshalling staff and organising equipment to accomplish the tasks needed to be effective, and hopefully to win the battle. Organising involves the deployment of organisational resources to achieve strategic goals. The deployment of resources is reflected in the organisation’s division of labour into specific departments and jobs, formal lines of reporting and authority, and mechanisms for coordinating diverse tasks across an organisation. Organising follows on from strategy – the topic of Part three. Strategy defines what to do; organising defines how to do it. Organisation structure is a powerful tool that can be used for reaching strategic goals. A strategy’s success often is determined by its fit with organisational structure. Part four explains the variety of organising principles and concepts used by managers. This chapter covers fundamental concepts that apply to all organisations and departments, including organising the vertical structure and using mechanisms for horizontal coordination. These ideas are extended in Chapter 8, where we look at how organisations can be structured to facilitate innovation and change. Chapter 9 considers how to use human resources (HR) to the best advantage within the organisation’s structure.

CHAPTER 7 DESIGNING ORGANISATION STRUCTURE

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 discuss the fundamental characteristics of organising the vertical structure of organisations and explain concepts such as work specialisation, chain of command, span of management and centralisation versus decentralisation

2 describe the ways that organisations are often departmentalised, with focus given to the different functional and divisional approaches to structure

3 explain the matrix approach to structure and its application to both domestic and international organisations

4 describe the contemporary team and virtual network structures and why they are being adopted by organisations

5 explain why organisations need coordination across departments and hierarchical levels, and describe mechanisms for achieving coordination

6 identify how structure can be used to achieve an organisation’s strategic goals and define production technology, and explain how it influences organisation structure.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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MANAGEMENT CHALLENGE

UNLOCKING THE VALUE OF STRATEGIC ALLIANCES: RENAULT AND NISSAN The call to Carlos Ghosn came on a blustery March day in 1999. Louis Schweitzer, CEO of Renault, was asking Ghosn to take on the biggest challenge of his management career – to lead a turnaround of Japan’s Nissan. Renault and Nissan had just agreed to an important strategic alliance, but its success depended on transforming Nissan into a profitable business. Ghosn had succeeded before as a turnaround artist, but Nissan was a whole different story. The once-thriving company had been struggling to turn a profit for eight years. Purchasing and manufacturing costs were high and profit margins notoriously low. The company’s debt, even after the Renault investment, amounted to a staggering US$11 billion. Product innovation was at a standstill and the company was trying to compete with ageing and outdated car models. When Ghosn got to Nissan, he found deeper problems, including a culture of blame where no one was willing to accept responsibility for mistakes. One reason, he discovered, was that most Nissan managers did not have clearly defined areas of responsibility and authority. Another

impediment was the lack of trust, communication and collaboration across departments. When something went wrong, the sales area blamed product planning, product planning blamed engineering, engineering blamed sales, then sales blamed finance, and nothing ever got solved. Ghosn knew he was facing a do-or-die situation – either fix these fundamental problems, or Nissan would die. Toyota was a tough competitor, gaining market share at a profit and being rightly known as the world’s best automotive company, with outstanding products and production processes, making Nissan’s job even more difficult. Further, new challenges kept mounting up, such as the meltdown in demand caused by the 2008–10 global financial crisis (when car sales plummeted worldwide), changing tastes of consumers and new technologies. To be successful, Ghosn would need to steer Renault and Nissan through these difficult challenges and find ways to achieve synergies between the two large organisations. Source: Ghosn, C. (January 2002). Saving the Business without Losing the Company. Harvard Business Review, 37–45.

QU E S T I O N What advice would you give Carlos Ghosn about using structural design to help turn Nissan around? What structural changes might solve Nissan’s problems with poor coordination and shatter the pervasive culture of blame?

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NEW MANAGER SELF-ASSESSMENT WHAT ARE YOUR LEADERSHIP BELIEFS? The fit between a new manager and the organisation is often based on personal beliefs about the role of leaders. Things work best when organisation design matches a new manager’s beliefs about his or her leadership role. To understand your leadership beliefs, please answer each item below as Mostly true or Mostly false for you. Think about the extent to which each statement reflects your beliefs about a leader’s role in an organisation. Mark as Mostly true the four statements that are most true for you, and mark as Mostly false the four that are least true for you. MOSTLY TRUE

MOSTLY FALSE

1 A leader should take charge of the group or organisation. 2 The major tasks of a leader are to make and communicate decisions. 3 Group and organisation members should be loyal to designated leaders. 4 The responsibility for taking risks lies with the leaders. 5 Leaders should foster member discussions about the future. 6 Successful leaders make everyone’s learning their highest priority. 7 An organisation needs to be always changing the way it does things to adapt to a changing world. 8 Everyone in an organisation should be responsible for accomplishing organisational goals. Scoring and Interpretation: Each question pertains to one of two subscales of leadership beliefs. Questions 1–4 reflect position-based leadership beliefs. This is the belief that the most competent and loyal people are placed in positions of leadership where they assume responsibility and authority for the group or organisation. Questions 5–8 reflect non-hierarchical leadership beliefs. This belief is that the group or organisation faces a complex system of adaptive challenges, and leaders see their job as facilitating the flow of information among members and their full engagement to respond to those challenges. The way you respond may reveal your personal beliefs about position-based versus non-hierarchical leadership. Position-based beliefs typically work for managers in a traditional vertical hierarchy or mechanistic organisation. Non-hierarchical beliefs typically work for managers engaged with horizontal organising or organic organisations, such as managing teams, projects and re-engineering. Source: This questionnaire is based on Richard M. Wielkiewicz. (May/June 2000). The Leadership Attitudes and Beliefs Scale: An Instrument for Evaluating College Students’ Thinking About Leadership and Organizations. Journal of College Student Development, 41, 335−46.

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ORGANISING THE VERTICAL STRUCTURE

Fletcher Challenge, based in New Zealand, engaged in the capital-intensive and risky business of oil exploration and drilling as well as many other businesses, such as construction and building materials manufacturing. Shell took over these energy assets in 2000.

Source: Courtesy The Fletcher Trust Archives, Fletcher Challenge

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The organising process leads to the creation of organisation structure, which defines the way tasks are divided and resources deployed. Organisation structure is defined as:

◗◗ the set of formal tasks assigned to individuals and departments ◗◗ formal reporting relationships, including lines of authority, decision responsibility, number of hierarchical levels and span of managers’ control

◗◗ the design of systems to ensure effective coordination of employees across departments.3 Ensuring coordination across departments is just as critical as defining the departments to begin with. Without effective coordination systems, no structure is complete. The set of formal tasks and formal reporting relationships provides a framework for vertical control of the organisation. The characteristics of vertical structure are portrayed in the organisation chart, which is the visual representation of an organisation’s structure. A sample organisation chart for a soft drink bottling plant is illustrated in EXHIBIT 7.1. The plant has four major departments – finance, HR, production and marketing. The organisation chart delineates the chain of command, indicates departmental tasks and shows how they fit together, and provides order and logic for the organisation. Every employee has an appointed task, line of authority and decision responsibility. The following sections discuss several important features of vertical structure in more detail.

organising The deployment of organisational resources to achieve strategic goals. organisation structure The framework in which the organisation defines how tasks are divided, resources are deployed and departments are coordinated.

organisation chart The visual representation of an organisation’s structure.

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EXHIBIT 7.1 Organisation chart for a soft drink bottling plant

Managing Director

Director Human Resources

Finance Director

Production Manager

Director Marketing

Information Centre

Benefits Administrator

Maintenance Supervisor

Eastern Region Sales

Financial Analyst

Industrial Relations Manager

Quality Control Manager

Southern State Sales

Bottling Plant Superintendent

Western Region Sales

Chief Accountant

Accounts Payable

Bottling supervisors

Payroll clerk

WO R K S P E C I A L I S AT I O N work specialisation The degree to which organisational tasks are subdivided into individual jobs; also called division of labour.

Organisations perform a wide variety of tasks. Work can be performed more efficiently if employees are allowed to specialise.4 Work specialisation, sometimes called division of labour, is the degree to which organisational tasks are subdivided into separate jobs. Work specialisation in EXHIBIT 7.1 is illustrated by the separation of production tasks into bottling, quality control and maintenance. Employees within each department perform only the tasks relevant to their specialised function. When organisations face new strategic issues, managers often create new positions or departments to deal with them. For example, Sony added a new position of chief information security officer (CISO) to its hierarchy after hackers accessed millions of customer files on the supposedly secure Sony network. Many corporations have created a new position for chief diversity officer because of the importance today of creating an environment where minorities and women can flourish. Even the position of chief information officer (CIO) was practically unheard of even a decade ago, but almost every government agency, non-profit organisation, and business firm has a CIO today. When work specialisation is extensive, employees specialise in a single task. Jobs tend to be small, but they can be performed efficiently. Work specialisation is readily visible on an automobile assembly line where each employee performs the same task over and over again. It would not be efficient to have a single employee build the entire car or even perform a large number of unrelated jobs.

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Despite the apparent advantages of specialisation, many organisations are moving away from this principle. With too much specialisation, employees are isolated and do only a single, boring job. In addition, too much specialisation creates separation and hinders the coordination that is essential for organisations to be effective. Many companies are implementing teams and other mechanisms that enhance coordination and provide greater challenge for employees.

C H A I N O F CO M M A N D The chain of command is an unbroken line of authority that links all employees in an organisation and shows who reports to whom. It is associated with two underlying principles. Unity of command means that each employee is held accountable to only one supervisor. The scalar principle refers to a clearly defined line of authority in the organisation that includes all employees. Authority and responsibility for different tasks should be distinct. All persons in the organisation should know to whom they report, as well as the successive management levels all the way to the top. For example, at Sony, the new CISO reports to the CIO, who reports to the CEO.5 In EXHIBIT 7.1, the payroll clerk reports to the chief accountant, who in

chain of command An unbroken line of authority that links all individuals in the organisation and specifies who reports to whom.

turn reports to the head of finance, who in turn reports to the managing director.

AU T H O R I T Y, R E S P O N S I B I L I T Y A N D D E L E GAT I O N The chain of command illustrates the authority structure of the organisation. Authority is the formal and legitimate right of a manager to make decisions, issue orders and allocate resources to achieve organisationally desired outcomes. Authority is distinguished by three characteristics:6

◗◗ Authority is vested in organisational positions, not people. Managers have authority because of the positions they hold, and other people in the same positions would have the same authority.

authority The formal and legitimate right of a manager to make decisions, issue orders and allocate resources to achieve organisationally desired outcomes.

◗◗ Authority flows down the vertical hierarchy. Positions at the top of the hierarchy are vested with more formal authority than are positions at the bottom.

◗◗ Authority is accepted by subordinates. Although authority flows from the top down, subordinates comply because they believe that managers have a legitimate right to issue orders. The acceptance theory of authority argues that a manager has authority only if subordinates choose to accept his or her commands. If subordinates refuse to obey because the order is outside their zone of acceptance, a manager’s authority disappears.7 Responsibility is the flip side of the authority coin. Responsibility is the duty to perform the task or activity as assigned. Typically, managers are assigned authority commensurate with their responsibilities. When managers have responsibility for task outcomes but little authority, the job is possible but difficult. They rely on persuasion and luck. When managers have authority exceeding responsibility, they may become tyrants, directing authority towards frivolous outcomes.8 Accountability is the mechanism through which authority and responsibility are brought into alignment. Accountability means that the people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command.9 For organisations to function well, employees must be aware that they are accountable for a task and accept the responsibility and authority for performing it. The term DRI, meaning ‘directly responsible individual’, typically appears on meeting agendas so that everyone knows who is responsible for what.10 Performance of all managers is monitored and bonus payments are often tied to successful outcomes.

responsibility The duty to perform the task or activity an employee or other stakeholder has been assigned.

accountability The fact that the people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command.

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Some top managers at Caterpillar had trouble letting go of authority in the new structure because they were used to calling all the shots, but the new structure was an important part of returning the company to profitability.

INNOVATIVE WAY CATERPILLAR Caterpillar, which makes large construction equipment, engines and power systems, had almost total control of its markets until the mid–1980s, when a combination of global recession and runaway inflation opened the door to a host of new competitors, including Japan’s Komatsu. Suddenly, the company was losing US$1 million a day, seven days a week. When George Schaefer took over as CEO, he and other top managers decided to undertake a major transformation to make sure Caterpillar wasn’t caught flat-footed again. They started with structure. One major problem Schaefer saw was that the organisation didn’t have clear accountability. Schaefer pushed authority, responsibility and accountability dramatically downward by reorganising Caterpillar into several new business divisions that would be judged on divisional profitability. Business units could now design their own products, develop their own manufacturing processes and set their own prices rather than getting permission or directives from headquarters. The division managers were strictly accountable for how they used their new decision-making authority. Each division was judged on profitability and return on assets (ROA), and any division that couldn’t demonstrate 15 per cent ROA was subject to elimination. The CEO held regular meetings with each division president and kept notes of what they said they

would achieve. Then, at the next meeting, he would review each manager’s performance compared to their stated commitments. The compensation plan was also overhauled to base managers’ bonuses on meeting divisional plan targets. Previously, if things went wrong, division managers would blame headquarters. The clear accountability of the new structure forced people to find solutions to their problems rather than assigning blame, and 2012 saw record sales, revenues (US$65 875 million) and profits (US$8573 million) for Caterpillar in a globally challenging environment. The end of the mining boom and the threat of another economic crisis have slowed investment in heavy industries that provide Caterpillar their primary revenue streams, with revenue in 2015 sliding to US$47 011 million from its previous high in 2013 – more than halving the operating profit of the company. The decline in economic conditions has also seen the company’s employment figures drop from 125 341 (2013) to 105 700 (2016) worldwide; however the company has expanded its focus on research and development to ensure it remains competitive in the long run – continuing its tradition of innovation with more than 7000 patents granted to date.

Sources: Neilson, G. L. & Pasternack, B. A. (17 August 2005). The Cat That Came Back. Strategy + Business, 40, 32–45; Caterpillar 2012 Annual Report, p. 5, http://www .caterpillar.com/cda/files/2674611/7/2012_Year_in_Review_updated%20maps_9.11.13_ENGLISH.pdf (accessed 21 December 2013); Caterpillar 2015 Executive Summary, http://s7d2.scene7.com/is/content/Caterpillar/C10888310 (accessed 9 March 2017).

delegation The process managers use to transfer authority and responsibility to positions below them in the hierarchy.

Another important concept related to authority is delegation.11 Delegation is the process managers use to transfer authority and responsibility to positions below them in the hierarchy. Most organisations today encourage managers to delegate authority to the lowest possible level to provide maximum flexibility to meet customer needs and adapt to the environment. However, as at Caterpillar, many managers found delegation difficult. When managers can’t delegate, they undermine the role of their subordinates and prevent people from doing their jobs effectively. Techniques for effective delegation are discussed in the Management In Practice box on page 342.

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LIN E AND STA FF A UT HORITY An important distinction in many organisations is between line authority and staff authority; terms that reflect whether managers work in line departments or staff departments in the organisation’s structure. Line departments perform tasks that reflect the organisation’s primary goal and mission. In a software company, line departments make and sell the product. In an Internet-based company, line departments would be those that develop and manage online offerings and sales. Staff departments include all those that provide specialised skills in support of line departments. Staff departments have an advisory relationship with line departments and typically include marketing, labour relations, research, accounting and human resources. Line authority means that people in management positions have formal authority to direct and control immediate subordinates. Staff authority is narrower and includes the right to advise, recommend and counsel in the staff specialists’ area of expertise. It is a communication relationship; staff specialists advise managers in technical areas. For example, the finance department of a manufacturing firm would have staff authority to coordinate with line departments about which accounting forms to use to facilitate equipment purchases and standardise payroll services. BP’s safety department, created in the wake of the 2010 BP-Transocean Deepwater Horizon oil rig explosion (an event referred to at various points in this textbook), advises managers in line departments on risk management, agreements with contractors and other safetyrelated issues. Safety staff specialists are embedded throughout the company, including on exploration projects and in refineries. Unlike many staff specialists, BP’s safety unit has broad power to challenge line managers’ decisions if it considers them too risky.12 To understand the importance of the chain of command and clear lines of authority, responsibility and delegation, consider the Deepwater Horizon oil rig explosion. Activities were so loosely organised that no one seemed to know who was in charge or what their level of authority and responsibility was. When the explosion occurred, confusion reigned. Twenty-three-year-old Andrea Fleytas issued a mayday (distress signal) over the radio when she realised no one else had done so, but she was chastised for overstepping her authority. One manager says he didn’t call for help because he wasn’t sure he had authorisation to do so. Still another said he tried to call to shore but was told that the order needed to come from someone else. Crew members knew the emergency shutdown needed to be triggered, but there was confusion over who had the authority to give the okay. As fire spread, several minutes passed before people got directions to evacuate. Again, an alarmed Fleytas turned on the public address system and announced that the crew was abandoning the rig. ‘The scene was very chaotic,’ said worker Carlos Ramos. ‘There was no chain of command. Nobody in charge.’ In the aftermath of the explosion and oil spill, several American federal agencies were also in the hot seat because of loose oversight and confusion over responsibility that led to delays and disagreements that prolonged the suffering of local communities.13

TAKE A MOMENT As a new manager, delegate authority and responsibility to employees so they can quickly respond to customer needs and other shifts in the environment. Don’t hoard control and limit the effectiveness and creativity of others.

line authority A form of authority in which individuals in management positions have the formal power to direct and control immediate employees. staff authority The number of employees who report to a supervisor, also called span of control.

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S PA N O F M A NAG E M E N T span of management The number of employees who report to a supervisor; also called span of control.

The span of management is the number of employees reporting to a supervisor. Sometimes called the span of control, this characteristic of structure determines how closely a supervisor can monitor subordinates. Traditional views of organisation design recommended a span of management of about seven to 10 subordinates per manager. However, many lean organisations today have spans of management as high as 30 or 40 and even higher. At PepsiCo, Inc.’s Gamesa cookie operation in Mexico, for instance, employees are trained to keep production running smoothly and are rewarded for quality, teamwork and productivity. Teams are so productive and efficient that Gamesa factories operate with around 56 subordinates per manager.14 Research over the past 40 or so years shows that span of management varies widely and that several factors influence the span.15 Generally, when supervisors must be closely involved with subordinates, the span should be small, and when supervisors need little involvement with subordinates, it can be large. The following list describes the factors that are associated with less supervisor involvement and thus larger spans of control:

◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗

work performed by employees is stable and routine employees perform similar work tasks employees are concentrated in a single location employees are highly trained and need little direction in performing tasks rules and procedures defining task activities are available support systems and personnel are available for the manager little time is required in non-supervisory activities, such as coordination with other departments or planning

◗◗ managers’ personal preferences and styles favour a large span

MANAGEMENT IN PRACTICE HOW TO DELEGATE The attempt by top management to decentralise decision making often gets bogged down because middle managers are unable to delegate. Managers may cling tightly to their decision-making and task responsibilities. Failure to delegate occurs for several reasons: managers are most comfortable making familiar decisions; they feel they will lose personal status by delegating tasks; they believe they can do a better job themselves; or they have an aversion to risk – they will not take a chance on delegating because performance responsibility ultimately rests with them. Yet decentralisation offers an organisation many advantages. Decisions are made at the right level, lower-level employees are motivated and employees can develop decision-making skills. Overcoming barriers to delegation to gain these advantages is a

major challenge. The following approach can help each manager delegate more effectively:

✚✚ Delegate the whole task. A manager should delegate an entire task to one person rather than dividing it among several people. This gives the individual complete responsibility and increases his or her initiative while giving the manager some control over the results.

✚✚ Select the right person. Not all employees have the same capabilities and degree of motivation. Managers must match talent to task if delegation is to be effective. They should identify employees who have made independent decisions in the past and have shown a desire for more responsibility.

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✚✚ Ensure that authority equals responsibility. Merely assigning a task is not effective delegation. Managers often load employees with increased responsibility but do not extend their decision-making range. In addition to having responsibility for completing a task, the worker must be given the authority to make decisions about how best to do the job.

✚✚ Give thorough instruction. Successful delegation includes information on what, when, why, where, who and how. The employee must clearly understand the task and the expected results. It is a good idea to write down all provisions discussed, including required resources, and when and how the results will be reported.

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✚✚ Maintain feedback. Feedback means keeping open lines of communication with the employee to answer questions and provide advice, but without exerting too much control. Open lines of communication make it easier to trust employees. Feedback keeps the employee on the right track.

✚✚ Evaluate and reward performance. Once the task is completed, the manager should evaluate results, not methods. When results do not meet expectations, the manager must assess the consequences. When they do meet expectations, the manager should reward employees for a job well done with praise, financial rewards when appropriate and delegation of future assignments.

SOURCES: Horton, T. R. (September 1992). Delegation and Team Building: No Solo Acts Please. Management Review, 58–61; Schwartz, A. E. (June 1987). The Why, What, and to Whom of Delegation. Management Solutions, 31–8; Delegation (June 1986), Small Business Report, 38–43; Douglas, M. E. (February 1987). How to Delegate Safely. Training and Development Journal, 8.

TALL VERSUS FLAT ST RUC T UR E The average span of control used in an organisation determines whether the structure is tall or flat. A tall structure has an overall narrow span and more hierarchical levels. A flat structure has a wide span, is

horizontally dispersed and has fewer hierarchical levels. Having too many hierarchical levels and narrow spans of control is a common structural problem for organisations. In a survey conducted for The Conference Board, a non-profit business membership and research group, 72 per cent of managers surveyed said they believed their organisations had too many levels of management.16 The result may be that routine decisions are made too high in the organisation, which pulls higher-level executives away from important, long-range strategic issues and limits the creativity, innovativeness and accountability of lower-level managers.17 The trend in recent years has been towards wider spans of control as a way to facilitate delegation.18 One recent study found that the span of management for CEOs has doubled over the past two decades, rising from about five to around 10 managers reporting directly to the top executive, with the span of management for those managers also increasing. At the same time, the types of positions in the top team are shifting, with the position of chief operating officer (COO) declining and positions such as CIO or chief marketing officer being added to the top team.19 A number of factors may influence a top executive’s optimum span of control. People who are new to their positions typically want a wider span of control to help them evaluate their executives and learn about more aspects of the business. A CEO who must spend a lot of time interacting directly with customers, partners, or regulators as part of her or his job will need a narrower span of control, allocating more responsibility to direct reports and freeing up more time for external activities; while a CEO involved in a major internal transformation may need a wider span of control to stay on top of what is happening all across the organisation.20 EXHIBIT 7.2 illustrates how an international metals company was reorganised. The multilevel set of managers shown in panel a was replaced with 10 operating managers and nine staff specialists reporting directly to the CEO, as shown in panel b. The CEO welcomed this wide span of subordinates because it fitted his style, his management team was top quality and needed little supervision, and they were all located on the same floor of an office building.

tall structure A management structure characterised by an overall narrow span of management and a relatively large number of hierarchical levels. flat structure A management structure characterised by an overall broad span of control and relatively few hierarchical levels.

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a. Old, tall structure

Managing Director

Executive

Executive

Staff specialists (6)

EXHIBIT 7.2 Reorganisation to increase span of management for managing director of an international metals company

Executive

General Manager

Operating managers (5)

Operating managers (4)

Operating managers (10)

Staff specialists (3)

Staff specialists (5)

Staff specialists (5)

b. New, flat structure

Operating managers (10)

Managing Director

Staff specialists (9)

C E N T R A L I S AT I O N A N D D E C E N T R A L I S AT I O N centralisation The location of decision authority at a single point, usually near top organisational levels. decentralisation The dispersed location of decision authority, usually near lower organisational levels.

Centralisation and decentralisation relate to the hierarchical level at which decisions are made. Centralisation means that decision authority is located at a single point, usually near the top of the organisation. With decentralisation, decision authority is pushed out and downward to lower organisation levels. Organisations may have to experiment to find the correct hierarchical level at which to make decisions. For example, most large school systems in America are highly centralised. However, a study by William Ouchi found that three large urban school systems that shifted to a decentralised structure – giving school principals and teachers more control over staffing, scheduling, and teaching methods and materials – performed better and more efficiently than centralised systems of similar size.21 Government leaders in Great Britain hoped the same would happen when they decentralised the National Health Service (NHS). The system underwent the most radical restructuring since it was founded in 1948, with a key part of the plan to shift control of the multibillion annual health care budget to doctors at the local level. Leaders believe decentralisation cuts costs, simplifies and streamlines procedures, and reduces inefficiency by ‘putting power in the hands of patients and clinicians’.22 In Australia and other Western countries, the trend over the past 30 years has been towards greater decentralisation of organisations. Decentralisation is believed to relieve the burden on top managers, make greater use of workers’ skills and abilities, ensure that decisions are made close to the action by well-informed people and permit more rapid response to external changes. However, this trend does not mean that every organisation should decentralise all decisions. Within many companies, there is often a ‘tug of war between centralisation and decentralisation’, as top executives want to centralise some operations to eliminate duplication while business division managers want to maintain decentralised control to ensure operations are tailored to their specific needs.23 Managers should diagnose their own organisational situation and select the decision-making

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level that will best meet the organisation’s needs. Factors that typically influence centralisation versus decentralisation are as follows:

◗◗ Greater change and uncertainty in the environment are usually associated with decentralisation. Today, most organisations feel greater uncertainty because of intense global competition; as a result, many have decentralised.

◗◗ The amount of centralisation or decentralisation should fit the firm’s strategy. For example, Google thrived for years with a decentralised approach that allowed creative people to go in their own direction and run their areas as they saw fit. Decentralisation fitted with the strategy of allowing creative people to innovate and respond quickly to consumer needs. As the company grew large, however, it began to lose its focus with the freewheeling approach. Larry Page has brought centralisation to Google to help it become more consistent and competitive in the post-PC era. Page stopped dozens of non-essential or unsuccessful projects and reorganised the company to focus on key product areas and give top executives more accountability and responsibility for results.24

◗◗ In times of crisis or risk of organisation failure, authority may be centralised at the top. Returning to our example of BP, the company centralised its exploration, development and production operations so that a single executive oversees the upstream operations. Previously, this was a job for three executives, but replacement BP CEO Robert Dudley believed that a strong centralised structure was needed to manage risk.

R EMEMBE R THIS ◗◗ ◗◗

Organising refers to the deployment of organisational resources to achieve strategic goals.

◗◗ ◗◗

An organisation chart is the visual representation of an organisation’s structure.

◗◗

Work specialisation, sometimes called division of labour, is the degree to which organisational tasks are subdivided into individual jobs.

◗◗

The chain of command is an unbroken line of authority that links all individuals in the organisation and specifies who reports to whom.

◗◗

Authority is the formal and legitimate right of a manager to make decisions, issue orders and allocate resources to achieve outcomes desired by the organisation.

◗◗

Responsibility is the flip side of the authority coin; it refers to the duty to perform the task or activity that one has been assigned.

◗◗

Accountability means that people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command.

◗◗

Managers may have line authority, which refers to the formal power to direct and control immediate subordinates, or staff authority, which refers to the right to advise, counsel and recommend in the manager’s area of expertise.

◗◗

Span of management, sometimes called span of control, refers to the number of employees reporting to a supervisor.

Organisation structure is defined as the framework in which the organisation defines how tasks are divided, resources are deployed and departments are coordinated.

Fundamental characteristics of vertical organisation structure include work specialisation, chain of command, span of management, and centralisation and decentralisation.

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◗◗

A tall structure is characterised by an overall narrow span of management and a relatively large number of hierarchical levels.

◗◗

A flat structure is characterised by an overall broad span of management and relatively few hierarchical levels.

◗◗ ◗◗

Decentralisation means that decision authority is pushed down to lower organisation levels. Centralisation means that decision authority is located near top organisation levels.

7.2 departmentalisation The basis on which individuals are grouped into departments and departments into total organisations.

DEPARTMENTALISATION

Another fundamental characteristic of organisation structure is departmentalisation, which is the basis for grouping positions into departments, and departments into the total organisation. Managers make choices about how to use the chain of command to group people together to perform their work. Five approaches to structural design reflect different uses of the chain of command in departmentalisation, as illustrated in EXHIBIT 7.3. The functional, divisional and matrix are traditional approaches that rely on the chain of command to define departmental groupings and reporting relationships along the hierarchy. Two innovative approaches are the use of teams and virtual networks, which have emerged to meet organisational needs in a highly competitive, ever changing global environment. Each structural approach is described in detail in the following sections. 1 Vertical functional

EXHIBIT 7.3 Five approaches to structural design

Human Resources

Manufacturing

Accounting

2 Divisional

Product Division 1

Human Resources

Manufacturing

Product Division 2

Accounting

Human Resources

Manufacturing

Accounting

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3 Horizontal matrix

Human Resources

Manufacturing

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EXHIBIT 7.3 (continued)

Accounting

Product Division 1

Product Division 2

5 Network 4 Team-based Manufacturer

Designer

Central hub

Human Resources Agency

Marketer

V E RT I C A L F U N C T I O NA L A P P ROA C H In a functional structure, also called a unitary structure (U-form), activities are grouped together by common function from the bottom to the top of the organisation. The functional structure groups positions into departments based on similar skills, expertise and resource use. A functional structure can be thought of as departmentalisation by organisational resources, because each type of functional activity – accounting, HR, engineering, manufacturing – represents specific resources for performing the organisation’s task. People and facilities representing a common organisational resource are grouped into a single department.

HOW IT WO RKS Refer to EXHIBIT 7.1, on page 338, for an example of a functional structure. The major departments under the CEO are groupings of similar expertise and resources, such as accounting, HR, production, and marketing. Each of the functional departments is concerned with the organisation as a whole. The marketing department is responsible for all sales and marketing, for example, and the accounting department handles financial matters for the entire company. The functional structure is a strong vertical design. Information flows up and down the vertical hierarchy, and the chain of command converges at the top of the organisation. In a functional structure, people within a department communicate primarily with others in the same department to coordinate

functional structure An organisation structure in which positions are grouped into departments based on similar skills, expertise and resource use.

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work and accomplish tasks or implement decisions that are passed down the hierarchy. Managers and employees are compatible because of similar training and expertise. Typically, rules and procedures govern the duties and responsibilities of each employee, and employees at lower hierarchical levels accept the right of those higher in the hierarchy to make decisions and issue orders.

FUNC T IONA L A DVA NTA GE S A ND DI S A DVA NTA GE S Grouping employees in departments based on similar skills has many advantages for an organisation. Employees who perform a common task are grouped to permit economies of scale and efficient resource use. At the company illustrated in EXHIBIT 7.4, all information systems people work in the same department. They have the expertise to handle almost any problem within a single, large department. The large functional departments enhance the development of in-depth skills because people work on a variety of problems and are associated with other experts within their own department. Because the chain of command converges at the top, the functional structure offers a way to centralise decision making and provide unified direction from top managers. The primary disadvantages reflect barriers that exist across departments.

EXHIBIT 7.4 Functional structure for a large company

Chairman and CEO

Administration Manager & General Counsel

Government Affairs

Employee Relations

Executive General

Executive General

General Manager

Corporate Communications General Manager

International

Operations

Executive General

Executive General

Manager

Manager

Manager

Finance & Planning

Information Systems

Executive General

Executive General

Manager

Manager

Marketing Executive General Manager

Because people are separated into distinct departments, communication and coordination across functions are often poor. Poor coordination means a slow response to environmental changes, because innovation and change require involvement of several departments. Because the chains of command are separate beneath the top of the organisation, decisions involving more than one department may pile up at the top of the organisation and be delayed. The functional structure also stresses work specialisation and division of labour, which may produce routine, demotivating employee tasks. The advantages and disadvantages of a functional structure are summarised in EXHIBIT 7.5.

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✚ No triangles. The practice of only having direct conversations built respect within my team and resulted in very high performance. We had a simple rule: ‘I don’t speak to you about him, or you don’t speak to me about her’. No triangles; go direct to the source. It is a powerful tool that reduces conflict and clarifies accountability. It ensures you deal with the important issues and avoid wasted time handling personal disputes that simply burn energy.

✚ Manage your bacon wars. A major dispute once threatened to shut down the station: Should the bacon be soft or crispy? Your workplace will have Bacon Wars. They are seemingly small, irrelevant issues that grate on people but build up until they become distractions and affect productivity. It may be dirty coffee cups, people who are

consistently late for meetings, people playing on phones while someone is talking – they are offences that appear to be small but are often a symptom of a deeper issue. We must identify and probe our Bacon Wars, find out what’s underneath and resolve it quickly. If left and ignored, small problems will fester and undermine all the good things you are doing.

AUSTRALIAN MANAGER PROFILE Source: Courtesy Rachel Robertson

The Antarctic winter is harsh – temperatures hover around minus 35 degrees Celsius, there are constant blizzards, months of darkness, and you can’t get in or out of the place. Work becomes tedious and you know that nothing will change until the resupply ship arrives, a distant nine months away. It sounds extreme. But the reality is every workplace has an Antarctic winter. Every business has a period of time where the work slows down and work is just work. Three tools kept my team inspired, motivated and resilient through the long Antarctic winter.

✚ Respect trumps harmony. My expedition team was the most diverse team I had ever worked with. I didn’t recruit them, I was handed them. We were from vastly different backgrounds and a mix of professions including scientists, engineers, IT, trades, pilots and weather specialists. The interpersonal pressure was intense and privacy was scarce. It was impractical to think we’d all get along with each other all the time. Instead of ‘happy families’, we aimed for respect. Simple, professional courtesy and respect. Striving for a harmonious workplace is dangerous for two reasons. First, dysfunctional behaviour doesn’t disappear, it just goes underground, so the illusion of harmony remains. Second, it stifles innovation. People are often too afraid to put up their hand and offer a different view because they don’t want to rock the harmony boat. So, in your team, aim for respect, because ‘respect trumps harmony’, every time.

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SOURCE: Rachael Robertson (MBA, Melbourne), author, professional speaker and mentor.

ADVANTAGES

DISADVANTAGES

Efficient use of resources, economies of scale

Poor communication across functional departments

In-depth skill specialisation and development

Slow response to external changes, lagging innovation

Career progress within functional departments

Decisions concentrated at top of hierarchy, creating delay

Top manager direction and control

Responsibility for problems is difficult to pinpoint

Excellent coordination within functions

Limited view of organisational goals by employees

High-quality technical problem solving

Limited general management training for employees

EXHIBIT 7.5 Advantages and disadvantages of functional structure

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D I V I S I O NA L A P P ROAC H divisional structure An organisation structure in which departments are grouped based on similar organisational outputs.

By contrast to the functional approach, in which people are grouped by common skills and resources, the divisional structure groups departments together based on organisational outputs. Functional and divisional structures are illustrated in EXHIBIT 7.6. With a divisional structure, also called an M-form (multidivisional) or a decentralised form, separate divisions can be organised with responsibility for producing individual products, services, product groups, major projects or programs, divisions, businesses, or profit centres.25 The divisional structure is sometimes called a product structure, program structure or self-contained unit structure. Each of these terms means essentially the same thing: diverse departments are brought together to produce a single organisational output, whether it be a product, a program or a service to a single customer. In very large organisations, a divisional structure is often considered essential. Most large organisations have separate business divisions that perform different tasks, serve different clients or use different technologies. When a huge organisation produces products for different markets, the divisional structure works because each division is an autonomous business. For example, Google has seven product divisions, including YouTube, Chrome and Apps, Android, Knowledge (search), Ad Products, Geo and Commerce, and Google+ (social networking).26

a. Functional structure

President

R&D

Finance

b. Divisional structure

EXHIBIT 7.6 Functional versus divisional structures

Division 3 (Consumer Products)

Division 2 (Biotechnology)

Manufacturing

Finance

Marketing

President

Division 1 (Electronics)

R&D

Manufacturing

Marketing

R&D

Manufacturing

Finance

Marketing

Manufacturing

R&D

Finance

Marketing

HOW IT WO RKS In a divisional structure, divisions are created as self-contained units, with separate functional departments for each division. For example, in EXHIBIT 7.6, each functional department resource needed to produce the product is assigned to each division. Whereas in a functional structure, all research and development (R&D) engineers are grouped together and work on all products, in a divisional structure, separate R&D

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departments are created within each division. Each department is smaller and focuses on a single product line or customer segment. Departments are duplicated across product lines. The primary difference between divisional and functional structures is that in a divisional structure, the chain of command from each function converges lower in the hierarchy. In a divisional structure, differences of opinion among R&D, marketing, manufacturing and finance would be resolved at the divisional level rather than by the president. Thus, the divisional structure encourages decentralisation. Decision making is pushed down at least one level in the hierarchy, freeing the president and other top managers for strategic planning. Only if the divisions can’t agree, fail to coordinate, or start making decisions that hurt the organisation are some decisions pulled back up to the top.

GEOG RAPHIC - O R C USTOM E R - B A S E D DI V I S I O NS

McDonald’s has reinvented its product range in recent years to respond to consumers’ changing requirements, principally for more healthy products.

Source: McDonald’s

An alternative for assigning divisional responsibility is to group organisation activities by geographic region, as illustrated in EXHIBIT 7.7. In this structure, all functions in a specific country or region report to the same division manager. This structure focuses organisation activities on local market conditions, such as consumer preferences, industry regulations and infrastructure. Competitive advantage may come from the production or sale of a product adapted to a given country. For example, many large globally operating companies divide the world into three geographic markets: Asia Pacific/Japan, United States/Americas and Europe. Each division of such companies has all the resources to focus on the fierce competition in its part of the world. McDonald’s has divided its operations into five geographic divisions – the United States, Europe, Asia/Pacific/Middle East/Africa,

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Latin America and Canada – each with its own staff functions, such as human resources and legal, and its own president. McDonald’s CEO believed this geographic structure would help speed up decision making, improve communication with franchisees and enhance innovation.27 The Colgate-Palmolive company is organised into regional divisions: North America, Latin America, Europe/South Pacific and Greater Asia/Africa.28 The structure works for Colgate-Palmolive because personal care products often need to be tailored to cultural values and local customs.

EXHIBIT 7.7 Geographic-based global organisation structure

Chief Executive Officer

Corporate Staff

Australia and New Zealand Division

Americas Division

European Division

Asian Division

DIV ISIONA L A DVA NTAGE S A ND DI S A DVA NTA GE S By dividing employees and resources along divisional lines, the organisation will be flexible and responsive to change because each unit is small and tuned in to its environment. By having employees work on a single product line, their concern for customers’ needs is high. Coordination across functional departments is better because employees are grouped together in a single location and committed to one product line. Great coordination exists within divisions; however, coordination across divisions is often poor. Problems can occur when autonomous divisions go in opposite directions. The divisional structure also enables top management to pinpoint responsibility for performance problems in product lines. Because each division is a self-contained unit, poor performance can be assigned directly to the manager of that unit. Finally, employees’ goals typically are directed towards product success rather than towards their own functional departments. Employees develop a broader goal orientation that can help them develop into general managers. The divisional structure also has well-defined disadvantages. The main disadvantage is duplication of resources and the high cost of running separate divisions. Instead of a single research department in which all research people use a single facility, there may be several. The organisation loses efficiency and economies of scale. Because departments within each division are small, there is a lack of technical specialisation, expertise and training. For medium-sized organisations, the choice between functional and divisional structure is difficult because each represents different strengths and weaknesses (see also EXHIBIT 7.8).

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ADVANTAGES

DISADVANTAGES

Fast response, flexibility in an unstable environment

Duplication of resources across divisions

Fosters concern for customers’ needs

L ess technical depth and specialisation in divisions

Excellent coordination across functional departments

Poor coordination across divisions

Easy pinpointing of responsibility for product problems

Less top management control

Emphasis on overall product and division goals

Competition for corporate resources

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EXHIBIT 7.8 Advantages and disadvantages of divisional structure

Development of general management skills

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A functional structure groups positions into departments based on similar skills, expertise and resource use – enhancing economies of scale and efficient use of resources.

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A divisional structure groups departments together based on organisational outputs, such as individual products, major projects, businesses or profit centres.

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As organisations get larger, they tend to adopt a divisional structure as they develop more and more products, and service more and more locations.

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A divisional structure favours centralisation, in contrast to functional structures that favour decentralisation.

7.3

MATRIX APPROACH

The matrix approach combines aspects of both functional and divisional structures simultaneously, in the same part of the organisation.29 The matrix structure evolved as a way to improve horizontal coordination and information sharing.30 One unique feature of the matrix is that it has dual lines of authority. In EXHIBIT 7.9, on the following page, the functional hierarchy of authority runs vertically, and the divisional hierarchy of authority runs horizontally. While the vertical structure provides traditional control within functional departments, the horizontal structure provides coordination across departments. The matrix structure therefore provides a formal chain of command for both functional (vertical) and divisional (horizontal) relationships. As a result of this dual structure, some employees actually report to two supervisors simultaneously.

H OW I T WO R K S The matrix structure is often used by global organisations, such as Dow Corning and Asea Brown Boveri (ABB). The problem for global organisations is to achieve simultaneous coordination of various products within each country or region and for each product line. An example of a global matrix structure is illustrated in EXHIBIT 7.10, overleaf. The two lines of authority are geographic and product. To see how the matrix works, consider that the geographic boss in Germany coordinates all affiliates in Germany, and

matrix approach An organisation structure that utilises functional and divisional chains of command simultaneously in the same part of the organisation.

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the plastics products boss coordinates the manufacturing and sale of plastics products around the world. Managers of local affiliate companies in Germany would report to two superiors: the country boss and the product boss. The dual authority structure violates the unity-of-command concept described earlier in this chapter, but is necessary to give equal emphasis to both functional and divisional lines of authority. Dual lines of authority can be confusing, but after managers learn to use this structure, the matrix provides excellent coordination simultaneously for each geographic region and each product line. In Australia, the building and construction industry is served by professional engineering and architecture organisations who design and project-manage everything from roads and bridges to city

EXHIBIT 7.9 Dual-authority structure in a matrix organisation

Managing Director

General Manager Finance

General Manager Engineering Applications

General Manager Manufacturing

General Manager Marketing

Product Manager A Two-boss employees

Horizontal chain of command for product divisions

Product Manager B

Product Manager C Vertical chain of command for functions

Chief Executive Officer

EXHIBIT 7.10 Global matrix structure Germany

Latin America

Worldwide plastic products Worldwide glass fibres Worldwide insulation products Affiliate Managers

Argentina/Brazil

Spain/Portugal

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buildings. Most of these firms, such as GHD, Aurecon, Arup and a host of others, are organised as matrix organisations and are sometimes combined with an overarching divisional structure. A typical matrix for these professional service firms would include the disciplines of engineering, building and architecture as the matrix columns and the major projects as the matrix rows. The success of the matrix structure depends on the abilities of people in key matrix roles. Two-boss employees – those who report to two supervisors simultaneously – must resolve conflicting demands from the matrix bosses. They must confront senior managers and reach joint decisions. They need excellent human relations skills with which to confront managers and resolve conflicts. The matrix boss is the product or functional boss, who is responsible for one side of the matrix. The top leader is responsible for the entire matrix. The top leader oversees both the product and functional chains of command. His or her responsibility is to maintain a power balance between the two sides of the matrix. If disputes arise between them, the problem will be ‘kicked upstairs’ to the top leader.31

MATRIX A DVA NTA GES A ND D I S A DVA NTA GE S The matrix can be highly effective in a complex, rapidly changing environment in which the organisation needs to be flexible, innovative and adaptable.32 The conflict and frequent meetings generated by the matrix allow new issues to be raised and resolved. The matrix structure makes efficient use of human resources because specialists can be transferred from one division to another. A major problem with the matrix is the confusion and frustration caused by the dual chain of command.33 Matrix bosses and two-boss employees have difficulty with the dual reporting relationships. The matrix structure also can generate high conflict because it pits divisional against functional goals in a domestic structure, or product line versus country goals in a global structure. Rivalry between the two sides of the matrix can be exceedingly difficult for two-boss employees to manage. This problem leads to the third disadvantage: time lost to meetings and discussions devoted to resolving these conflicts. Often the matrix structure leads to more discussion than action because different goals and points of view are being addressed. Managers may spend a great deal of time coordinating meetings and assignments, which takes time away from core work activities. The advantages and disadvantages of the matrix structure are summarised in EXHIBIT 7.11.

ADVANTAGES

DISADVANTAGES

More efficient use of resources than single hierarchy

Frustration and confusion from dual chain of command

Flexibility, adaptability to changing environment

High conflict between two sides of matrix

Development of both general and specialist management skills

Many meetings, more discussion than action

Interdisciplinary cooperation, expertise available to all divisions

Human relations training needed

Enlarged tasks for employees

Power dominance by one side of matrix

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two-boss employee An employee who reports to two supervisors simultaneously. matrix boss A product or functional boss, responsible for one side of the matrix. top leader The overseer of both the product and the functional chains of command, responsible for the entire matrix.

EXHIBIT 7.11 Advantages and disadvantages of matrix structure

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Three traditional approaches to departmentalisation are functional, divisional and matrix.

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In a matrix structure two-boss employees report to two supervisors simultaneously.

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Each approach to departmentalisation has distinct advantages and disadvantages.

The matrix approach uses both functional and divisional chains of command simultaneously in the same part of the organisation.

A matrix boss is a functional or product supervisor responsible for one side of the matrix. In a matrix structure, the top leader oversees both the product and the functional chains of command and is responsible for the entire matrix.

7.4

See Chapter 13 for a detailed discussion on teams.

TEAM-BASED APPROACH

Probably the most widespread trend in departmentalisation has been the effort by organisations to implement team concepts. The vertical chain of command is a powerful means of control, but passing all decisions up the hierarchy takes too long and keeps responsibility at the top. The team-based approach gives managers a way to delegate authority, push responsibility further down the organisation and create participative teams that engage the commitment of workers. This approach enables organisations to be more flexible and responsive in the competitive global environment. Chapter 13 discusses teams in detail.

H OW I T WO R K S cross-functional team A group of employees assigned to a functional department that meets as a team to resolve mutual problems.

permanent teams A group of participants from several functions who are permanently assigned to solve ongoing problems of common interest.

One approach to using teams in organisations is through cross-functional teams, which consist of employees from various functional departments who are responsible for meeting as a team and resolving mutual problems. Team members typically still report to their functional departments, but they also report to the team, one member of whom may be the leader. Cross-functional teams are used to provide needed horizontal coordination to complement an existing divisional or functional structure. A frequent use of cross-functional teams is for change projects, such as new product or service innovation. For example, Toyota uses cross-functional teams to bring a new car through the design stages to tooling up, manufacturing, supplier management, and then marketing and sales. The second approach is to use permanent teams, groups of employees who are brought together in a way similar to a formal department. Each team brings together employees from all functional areas focused on a specific task or project, such as parts supply and logistics for an automobile plant. Emphasis is on horizontal communication and information sharing because representatives from all functions are coordinating their work and skills to complete a specific organisational task. Authority is pushed down to lower levels, and frontline employees are often given the freedom to make decisions and take action on their own. Team members may share or rotate team leadership. With a team-based structure, the entire organisation is made up of horizontal teams that coordinate their work and work directly with customers to accomplish the organisation’s goals. Imagination Ltd, Britain’s largest design firm, is based entirely on teamwork. Imagination Ltd puts together a diverse team at the beginning of each new project it undertakes, whether it be creating a spectacular firework display on Sydney Harbour for New Year’s

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Eve celebrations (2011–14) or the lighting for Disney cruise ships, or debuting the Jaguar F-type to the Australian market in 2016. The team then works closely with stakeholders throughout the project to ensure their curated solutions meet the challenge set by the client.34 Imagination Ltd has managed to make every project a smooth, seamless experience by building a culture that supports teamwork, as described in the innovative way box below.

INNOVATIVE WAY TEAMS WORK AT IMAGINATION LTD The essence of teamwork is that people contribute selflessly, putting the good of the whole above their own individual interests. It doesn’t always work that way, but Londonbased Imagination Ltd, Europe’s largest independent design and communications agency, seems to have found the secret ingredient to seamless teamwork. According to Adrian Caddy, Imagination’s creative director, ‘The culture at Imagination is this: You can articulate your ideas without fear.’ Imagination Ltd has made a name for itself by producing award-winning, often highly theatrical programs. For example, in February 2006, it staged a launch event for the Harry Potter and the Prisoner of Azkaban DVD and video by inviting 800 guests to a historic London building where it had recreated four movie sets, among them the Great Hall at the Hogwarts School of Witchcraft and Wizardry. When Ted Baker opened its flagship store in Tokyo, Imagination Ltd wanted to create a quintessentially British experience for customers, one that would encourage ongoing social media engagement. As customers entered the store they were greeted by a Ted-taxi that took them on a ‘journey’ around London. Over 2000 images of people riding in the Ted-taxi were uploaded onto Facebook. Accomplishing such feats are teams of designers, architects, lighting experts, writers, theatre people, film directors and artists, in addition to IT specialists, marketing experts and other functional specialties. By having employees with a wide range of skills, the company is able

to put together a diverse team to provide each client with a new approach to its design problems. Imagination is deliberately non-hierarchical; only four people have formal titles, and on most project teams no one is really in charge. Teams meet weekly, and everyone participates in every meeting from the very beginning, so there is no perception that any particular talent is primary – or secondary. Information technology specialists, production people and client-contact personnel are just as much a part of the team as the creative types. In addition, each person is expected to come up with ideas outside his or her area of expertise. The philosophy is that people at Imagination must be willing to make all kinds of suggestions and also to take all kinds of suggestions. So many ideas get batted around, revised and adapted at the weekly meetings that no one can claim ownership of a particular element of the project. The team also works closely with the client as a source of ideas and inspiration. Talent and respect help to make the system work. Imagination hires its people carefully, based not only on the quality of their work but also on their open-mindedness and curiosity about the world beyond their functional area of expertise. Then, the company makes sure everyone’s work is so closely integrated that people gain an understanding and respect for what others do. ‘The integrated approach breeds respect for one another,’ says writer Chris White. ‘When you work alone, or in isolation within your discipline, you can get an overblown sense of your own importance to a project.’

Sources: Fishman, C. (April 2000). Total Teamwork: Imagination Ltd. Fast Company, 156–68; Wardle, K. (1 February 2006). Confetti: Imagination Creates One Enchanted Evening. Special Events website, http://specialevents.com/corporate; http://www.imagination.com/en/our-work/london-calling-ted-baker (accessed 4 November 2013).

TEAM- A P P ROA C H A DVA NTA G E S A ND DI S A DVA NTA GE S The team approach breaks down barriers across departments and improves coordination and cooperation. Team members know one another’s problems and compromise rather than blindly pursue their own goals – this is particularly important for complex projects, where horizontal cooperation

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(in addition to coordination) is essential for success.35 The team concept also enables the organisation to adapt more quickly to customer requests and environmental changes and speeds decision making because decisions need not go to the top of the hierarchy for approval. Another big advantage is the morale boost. Employees are typically enthusiastic about their involvement in bigger projects rather than narrow departmental tasks. At video games company Ubisoft, for example, each studio is set up so that teams of employees and managers work collaboratively to develop new games. Employees don’t make a lot of money, but they’re motivated by the freedom they have to propose new ideas and put them into action.36 Yet the team approach has disadvantages as well. Employees may be enthusiastic about team participation, but they may also experience conflicts and dual loyalties. A cross-functional team may make different work demands on members than do their department managers, and members who participate in more than one team must resolve these conflicts. A large amount of time is devoted to meetings, increasing the coordination time required. Unless the organisation truly needs teams to coordinate complex projects and adapt to the environment, it will lose production efficiency with them. Finally, the team approach may cause too much decentralisation. Senior department managers who traditionally made decisions might feel left out when a team moves ahead on its own. Team members often do not see the big picture of the corporation and may make decisions that are good for their group but bad for the organisation as a whole. For this reason, it is essential that managers ensure the goals of each team continue to contribute to the overarching objectives of the organisation. The advantages and disadvantages of the team structure are summarised in EXHIBIT 7.12.

EXHIBIT 7.12 Advantages and disadvantages of team structure

ADVANTAGES

DISADVANTAGES

Some advantages of functional structure

Dual loyalties and conflicts

Reduced barriers among departments, increased compromise

Time and resources spent on meetings

Less response time, quicker decisions

Unplanned decentralisation

Better morale, enthusiasm from employee involvement Reduced administrative overheads

V I RT UA L N E T WO R K A P P ROA C H The most recent approach to departmentalisation extends the idea of horizontal coordination and collaboration beyond the boundaries of the organisation. In a variety of industries, vertically integrated, hierarchical organisations are giving way to loosely interconnected groups of companies with permeable boundaries.37 Outsourcing, which means farming out certain activities, such as manufacturing or credit processing, has become a significant trend that allows organisations, small and large, to focus on their core strengths and products. The pharmaceuticals company Pfizer is using an innovative approach that lets some employees pass off certain parts of the jobs to an outsourcing firm in India with the click of a button. Rather than shifting entire functions to contractors, this ‘personal outsourcing’ approach allows

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people to shift only certain tedious and time-consuming tasks to be handled by the outsourcing partner while they focus on higher-value work.38 Some organisations take this networking approach to the extreme to create an innovative structure. The virtual network structure means that the firm subcontracts many of its major functions to separate organisations and coordinates their activities from a small organisation at headquarters.39

HOW IT WO RKS The organisation may be viewed as a central hub surrounded by a network of outside specialists, as illustrated in EXHIBIT 7.13. Rather than being housed under one roof, services such as accounting, design, manufacturing and distribution are outsourced to separate organisations that are connected electronically to the central office.40 Networked computer systems, collaborative software, and the

virtual network structure An organisational structure in which the organisation subcontracts most of its major functions to separate companies and coordinates their activities from a small headquarters organisation.

Internet enable organisations to exchange data and information so rapidly and smoothly that a loosely connected network of suppliers, manufacturers, assemblers and distributors can look and act as one seamless company. The idea behind networks is that a company can concentrate on what it does best and contract out other activities to companies with distinctive competence in those specific areas. This enables a company to do more with less.41 The nature of the virtual network structure means that subcontractors flow into and out of the system when needed. Much like building blocks, parts of the network can be added or taken away to meet changing needs.42 The virtual network is a continually evolving group of organisations that unite temporarily to exploit specific opportunities or attain strategic advantages, and then disband when objectives are met.43

Accounts receivable company (Australia)

Design company (Canada)

Transportation company (Korea)

Company core (hub)

Distribution company (Europe)

Manufacturing company (Asia)

VIRTUA L NETWO RK A DVA NTAGE S A ND DI S A DVA NTA GE S The biggest advantage to the virtual network approach seems to be competitiveness on a global scale. The extreme flexibility of a network approach is illustrated by the anti-government protests and the overthrow of leaders in Tunisia and Egypt in 2011.44 A collection of anti-government protester groups shared a similar mission and goals (seeking to overthrow existing political regimes by inciting a revolution); however without a single point of authority to set an agenda, the groups were free to act on their own. Through shared beliefs, these otherwise separate groups joined together through social media and phone networks to mastermind the Arab Spring uprisings. In effect, through a clear set of overarching goals, group members were able to align their inputs to achieve an outcome desired by the group. This is, in an

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EXHIBIT 7.13 Network approach to departmentalisation

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abstract way, essentially what organisations do. In this case, the virtual network of protest groups was able to achieve the goals with great success – coordinating demonstrations, staging coups and in some cases waging civil war to overthrow their political regimes. Because the protest ‘organisation’ was made of many loosely connected (networked) parts, the ability for authorities (competitors) to counteract their strategic moves was almost impossible. ‘Attack any single part of it, and the rest carries on largely untouched,’ wrote one journalist about the network.45 Similarly, today’s business organisations can benefit from a flexible network approach that lets them shift resources and respond quickly. Network organisations, even small ones, can be truly global. A network organisation can draw on resources worldwide to achieve the best quality and price, and can sell its products and services worldwide. A second advantage is workforce flexibility and challenge. Flexibility comes from the ability to hire whatever services are needed, such as engineering design or maintenance, and to change a few months later without constraints from owning plant, equipment and facilities. The organisation can continually redefine itself to fit new product and market opportunities. This structure is perhaps the leanest of all organisation forms because little supervision is needed. A network organisation may have only two or three levels of hierarchy, compared with ten or more in traditional organisations.46 One of the major disadvantages is lack of hands-on control.47 When the Commonwealth Bank of Australia took over Colonial Bank Group at a purchase price of some AU$8 billion in late 2000, it wanted to keep hold of Colonial’s First State (CFS) Investment Managers division, a successful retail funds manager. With such takeovers, a strategic question is always whether to leave such divisions alone after an acquisition or to integrate them to some extent into the acquirer’s business stream. This question of structure is not straightforward, and in this case a critical factor for keeping the value in the business was keeping key executives on board at CFS. Some two years later, key executives were still there and still expanding the business. CFS’s profit vindicated the decision that the company should operate entrepreneurially and not be absorbed into the mainstream of the Commonwealth’s bureaucracy. Chris Cuffe, long-serving CEO of CFS, kept the independent structure and used the parent company relationship as a strength in two main ways. First is the use of the strong balance sheet associated with being part of a major bank, which allows for activities and risk-taking approaches that would otherwise not be possible. Second, there have been many referrals of venture capital financing deals from the mainstream parent bank, providing CFS with a marketing advantage. Although some would expect economies of scale from integrating and centralising CFS into the mainstream of the major bank, the structure that has been adopted – leaving CFS to operate separately – has kept its key people challenged and operating creatively, while tapping into the advantages of being part of a giant Australian company.48 However, nothing lasts forever: Cuffe and other key executives later moved on to other challenges and the business found others to lead and sustain it. Managers do not have all operations under one roof and must rely on contracts, coordination, negotiation and electronic linkages to hold things together. Each partner in the network necessarily acts in its own self-interest. The weak and ambiguous boundaries create higher uncertainty and greater demands on managers for defining shared goals, coordinating activities, managing relationships and keeping people focused, motivated, and coordinating activities so that everything functions as intended.49 Customer service and loyalty can also suffer if outsourcing partners fail to perform as expected.50 Finally, in this type of organisation, employee loyalty can weaken. Employees might feel

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that they can be replaced by contract services. A cohesive corporate culture is less likely to develop, and turnover tends to be higher because emotional commitment between organisation and employee is fragile. These advantages of a virtual network structure, along with the disadvantages, are summarised in EXHIBIT 7.14.

ADVANTAGES

Global competitiveness Workforce flexibility/challenge Reduced administrative overhead DISADVANTAGES

No hands-on control Can lose organisational part Employee loyalty weakened

CASE STUDY STRIDA BICYCLES: A GLOBALLY NETWORKED COMPANY How do two people run an entire company that sells thousands of high-tech folding bicycles all over the world? Steedman Bass and Bill Bennet do it with a virtual network approach that outsources design, manufacturing, customer service, logistics, accounting and everything else to other organisations. Bass, an avid cyclist, got into the bicycle business when he and his partner Bennet bought the struggling British company Strida, which was having trouble making enough quality bicycles to meet even minimum orders. The partners soon realised why Strida was struggling. The design for the folding bicycle was a clever engineering idea, but it was a manufacturing nightmare. Bass and Bennet immediately turned over production engineering and new product development to an American bicycle designer, still with intentions of building the bikes at the Birmingham factory.

However, a large order from Italy sent them looking for other options. Eventually, they transferred all manufacturing to Ming Cycle Company of Taiwan, which builds the bikes with parts sourced from parts manufacturers in Taiwan and mainland China. Finally, the last piece of the puzzle was to contract with a company in Birmingham that would take over everything else – from marketing to distribution. Bass and Bennet concentrate their energies on managing the partnerships that make the network function smoothly. Ultimately the rights to the brand were bought in 2006 by Ming Cycle, which was still licensed to produce Strida products. Strida bikes have continued to sell well into a market niche and have won a series of design awards including the Treehugger’s Best Green Award (USA) in 2011 and was the winner of the 2015 Taiwan Excellence Awards.

Sources: Wheatley, M. (September 2003). Cycle Company with a Virtual Spin. Management Today, 78–81; Tapscott, D. (third quarter 2001). Rethinking Strategy in a Networked World. Strategy & Business, 24, 34–41; Anand, N. (2000). Modular, Virtual, and Hollow Forms of Organization Design. Working paper, London Business School; Dess, G. G., McLaughlin, K. J., Priem, R. L. and Rasheed, A. M. A. (1995). The New Corporate Architecture. Academy of Management Executive, 9:3, 7–20; Strida website, http://www.strida.com.

EXHIBIT 7.14 Advantages and disadvantages of a virtual network structure

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MANAGEMENT IN PRACTICE WOULD YOU LIKE TO WORK IN YOUR PYJAMAS? Would you like to work in your pyjamas? You wouldn’t normally think of a large company allowing this to happen (even on a semi-regular basis), yet the number of companies that encourage work-from-home or telecommuting programs might surprise you. IBM, SAP, Dell, Xerox and Apple all feature in the ‘Top 25 Companies for Work-From-Home Jobs’ list published by Business Insider Australia. Escaping lengthy commuting times, costly parking fees, and the office grind of 9–5 sounds like a dream to many people, but working solo has its down side. Most people who are accustomed to working in an office go through a bumpy transition when they switch to working virtually. Here are just a few of the good and bad things about working on your own:

✚✚ Pro: You can be more productive. Many people find they can get more done working from home. For one thing, you might gain a couple of extra hours a day that you used to spend commuting. When reporters, editors, designers and the numerous other professionals who put together Inc. magazine experimented with putting out an issue by working entirely outside the office, most of them found that they accomplished more work in an environment where they could focus for long stretches of time without distractions.

✚✚ Con: It’s all up to you to make it work. It takes discipline, self-management and organisation skills to make sure you complete all the jobs you’ve agreed to do. Some people can’t resist funny websites, the television, the kids and pets or the refrigerator long enough to actually get any work done. These types typically don’t do well working from home and need the structure of an office to keep them motivated and productive. On the other hand, some people find that they work too much and have to learn to set boundaries. ‘My work–life balance sucks,’ said Matt Trifiro, who directs the virtual company 1000 Markets from his home.

✚✚ Myth (-busted?): You can set your own schedule and define your own work. If you want to sleep in and work later in the day, fine, but that will require a job that allows it. Freelancing and contract-based work can often allow this; however, many organisations will still set your work hours to suit their organisational schedules, particularly if only part of their workforce is based outside of their office. If starting later is your preference, you might consider seeking employment from a time zone that suits you best. For example, working as an online tutor for a university in Adelaide might be perfect if you live in Brisbane and like to sleep in a little. In short, you can choose the companies you want to work for – anywhere in the world – to make your work compatible with your life.

✚✚ Con: Lack of recognition and feedback can create selfdoubt, stress and frustration. Lack of recognition is a common complaint among virtual workers. In addition, it is often hard to assess what your client really thinks of you and your performance. A lot of virtual solopreneurs don’t get regular feedback, which can lead to self-doubt – and the solitary nature of the work doesn’t help. ‘I was spending all day in my tiny apartment, not talking to anyone,’ said one virtual worker. Many people counteract the isolation of virtual work by taking their laptop to a coffee shop or spending some time at a ‘co-working centre’, where they can rent an office space on a daily basis.

✚✚ And finally . . . A blog on the ThereItIs website offered a lighthearted look at some of the pros and cons of virtual work: You never again have to worry about a bad hair day or spend an hour getting dressed for work. But you just might miss the chance to ‘power dress’ once in a while. Interestingly, in a world where many organisations are promoting flexible work conditions, Marissa Mayer who runs Yahoo! brought in a policy in 2013 which forbids Yahoo! staff from working from home and requires them all to come to the physical workplace every day.

SOURCES: Based on Max Chafkin. (April 2010). The Office Is Dead. Long Live the Office: The Case, and the Plan, for the Virtual Company. Inc., 62–73; Laurie Sheppard. (2011). Challenges to Working Virtually. Creating at Will website, http://creatingatwill.com/challenges-to-working-virtually (accessed 17 August 2012); Sara Fletcher. (14 August 2012). 5 Challenges of Working from Home. Recruiting Blogs, http://www.recruitingblogs.com/profiles/blogs/5-challenges-of-working-from-home (accessed 16 August 2012); Perks and Challenges of Virtual Work. ThereItIs.com, http://blog.thereitis.com/post/22640167629/challenges-of-virtual-work (accessed 17 August 2012); and Alvin Lee. Working From Home: The End Of An Era? http://www.forbes.com/sites/insead/2013/04/17/working-from-home-the-end-of-an-era/ (accessed 6 March 2014).

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Popular contemporary approaches to departmentalisation include team and virtual network structures.

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A permanent team is a group of employees from all functional areas permanently assigned to focus on a specific task or activity.

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A team-based structure is one in which the entire organisation is made up of horizontal teams that coordinate their activities and work directly with customers to accomplish organisational goals.

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With a virtual network structure, the organisation subcontracts most of its major functions to separate companies and coordinates their activities from a small headquarters organisation.

◗◗

The modular approach is one in which a manufacturing company uses outside suppliers to provide large chunks of a product such as an automobile, which are then assembled into a final product by a few employees.

◗◗

Both the team and the network approach have distinct advantages and disadvantages.

A cross-functional team is a group of employees from various functional departments that meet as a team to resolve mutual problems.

ORGANISING FOR HORIZONTAL COORDINATION 7.5

One reason for the growing use of teams and networks is that many managers recognise the limits of traditional vertical organisation structures in a fast-shifting environment. In general, the trend is towards breaking down barriers between departments, and many companies are moving towards horizontal structures based on work processes rather than departmental functions.51 However, regardless of the type of structure, every organisation needs mechanisms for horizontal integration and coordination. The structure of an organisation is not complete without designing the horizontal as well as the vertical dimensions of structure.52

T H E N E E D F O R COO R D I NAT I O N As organisations grow and evolve, two things happen. First, new positions and departments are added to deal with factors in the external environment or with new strategic needs, as described earlier in the chapter. As companies add positions and departments to meet changing needs, they grow more complex, with hundreds of positions and departments performing incredibly diverse activities. Second, senior managers have to find a way to tie all these departments together. The formal chain of command and the supervision it provides is effective, but it is not enough. The organisation needs systems to process information and enable communication among people in different departments and at different levels. Coordination refers to the managerial task of adjusting and synchronising the diverse activities among different individuals and departments. Collaboration means a joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose and that are typically greater than what any of the individuals or departments could achieve working alone.53

coordination The managerial task of adjusting and synchronising the diverse activities among different individuals and departments. collaboration A joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose.

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re-engineering The radical redesign of business processes to achieve dramatic improvements in cost, quality, service and speed.

Without coordination, a company’s left hand will not act in concert with its right hand, causing problems and conflicts. Coordination is required regardless of whether the organisation has a functional, divisional or team structure. Employees identify with their immediate department or team, taking its interest to heart, and they may not want to compromise and collaborate with other units for the good of the organisation as a whole. The dangers of poor coordination are reflected in recent quality and safety issues with Toyota vehicles and the inadequate initial response by top managers. A panel investigating the situation pinpointed lack of information sharing and poor communication and collaboration across different units as one distinct problem.54 Microsoft’s late entry to the smartphone and tablet markets is also an example of poor coordination and collaboration between divisions. Top managers are trying to change that with a massive, but tricky, reorganisation.55 Microsoft will likely use a variety of structural mechanisms, described in the following sections, to encourage greater collaboration across the organisation’s four broad units and try to put the spark back in the company. Microsoft is a huge organisation, with more than 100 000 employees, which makes coordination even more challenging. The problem is amplified in the international arena because organisational units are differentiated not only by goals and work activities, but also by geographical distance, time differences, cultural values and perhaps language. Toyota, for instance, is a huge organisation with divisions all over the world. How can managers ensure that needed coordination and collaboration will take place in their company, both domestically and globally? Coordination is the outcome of information and cooperation. Managers can design systems and structures to promote horizontal coordination and collaboration. EXHIBIT 7.15 illustrates the evolution of organisational structures, with a growing emphasis on horizontal coordination. Although the vertical functional structure is effective in stable environments, it does not provide the horizontal coordination needed in times of rapid change. Innovations such as cross-functional teams, task forces and project managers work within the vertical structure but provide a means to increase horizontal communication and cooperation. The next stage involves re-engineering to structure the organisation into teams working on horizontal processes. Re-engineering refers to the radical redesign of business processes to achieve dramatic improvements in cost, quality, service and speed. Because the focus of re-engineering is on horizontal workflows rather than function, re-engineering generally leads to a shift away from a strong vertical structure to one emphasising stronger horizontal coordination. The vertical hierarchy is flattened, with perhaps only a few senior executives in traditional support functions such as finance and human resources.

EXHIBIT 7.15 Evolution of organisation structures

Traditional vertical structure

Cross-functional teams and project managers

Re-engineering to horizontal teams

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TA S K F O R C E S , T E A M S A N D P ROJ E CT M A NAG E M E N T A task force is a temporary team or committee designed to solve a short-term problem involving several departments.56 Task force members represent their departments and share information that enables coordination. In addition to creating task forces, companies also set up cross-functional teams, as described earlier. A cross-functional team furthers horizontal coordination because participants from several departments meet regularly to solve ongoing problems of common interest.57 This team is similar to a task force except that it works with continuing rather than temporary problems and might exist for several years. Team members think in terms of working together for the good of the whole rather than just for their own department. For example, top executives at one large consumer products company had to hold frequent marathon meetings to resolve conflicts among functional units. Functional managers were focused on achieving departmental goals and engaged in little communication across units. Resolving the conflicts that arose was time-consuming and arduous  for everyone involved. Establishing a crossfunctional team solved the problem by ensuring regular horizontal communication and cooperation regarding common issues and problems.58 Companies also use project managers to increase coordination between functional departments. A project manager is a person who is responsible for coordinating the activities of several departments for the completion of a specific project.59 Project managers might also have titles such as product manager, integrator, program manager or process owner. The distinctive feature of the project manager position is that the person is not a member of one of the departments being coordinated. Project managers are located outside the departments and have responsibility for coordinating several department to achieve desired project outcomes. Project managers are critical today because many organisations are continually reinventing themselves, creating flexible structures and working on projects with an ever-changing assortment of people and organisations.60 Project managers might have to move in and out of new projects at a moment’s notice. In some organisations, project managers are included on the organisation chart, as illustrated in EXHIBIT 7.16. The project manager is drawn on one side of the chart to indicate authority over the project but not over the people assigned to it. Dashed lines to the project manager indicate responsibility for coordination and communication with assigned team members, but department managers retain line authority over functional employees.

EXHIBIT 7.16 Example of project manager relationships to other departments

President, Yacht Division

Finance Budget Analyst

Engineering

Purchasing

Marketing

Product Designer

Project Manager, Sails and Masts

Buyer Market Researcher

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TAKE A MOMENT As a new manager, be a team or task force member who reaches out to facilitate horizontal coordination. Do not limit yourself to your own function. Share information across departmental boundaries to improve horizontal communication and understanding. Build your people skills to influence and persuade as an effective project manager.

R E L AT I O NA L COO R D I NAT I O N relational coordination Refers to frequent horizontal coordination and communication carried out through ongoing relationships of shared goals, shared knowledge and mutual respect.

The highest level of horizontal coordination is relational coordination. Relational coordination refers to ‘frequent, timely, problem-solving communication carried out through [employee] relationships of shared goals, shared knowledge, and mutual respect’.61 Relational coordination isn’t a structural device or mechanism such as a project manager, but rather is part of the very fabric and culture of the organisation. In an organisation with a high level of relational coordination, people share information freely across departmental boundaries, and people interact on a continuous basis to share knowledge and solve problems. Coordination is carried out through a web of ongoing positive relationships rather than because of formal coordination roles or mechanisms.62 Employees coordinate directly with each other across units. The desire for relational coordination is reflected in the changing physical environment of many of today’s offices. Rather than having people separated into cubicles, companies are using open offices with quiet spaces designed for conversation and impromptu problem solving. Studies have shown that having people work in close proximity to one another does increase collaboration.63 To build relational coordination into the fabric of the organisation, managers invest in training people in the skills needed to interact with one another and resolve cross-departmental conflicts based on shared goals rather than emphasising goals of their separate departments. People are given freedom from strict work rules so they have the flexibility to interact and contribute wherever they are needed, and rewards are based on team efforts and accomplishments. Front-line supervisors typically have smaller spans of control so they can develop close working relationships with subordinates and coach and mentor employees. When relational coordination is high, people share information and coordinate their activities without having to have bosses or formal mechanisms telling them to do so.

INNOVATIVE WAY FLIGHT COORDINATION Airlines face many challenges, but one that they face hundreds of times on a daily basis is getting airplanes loaded and off the ground safely and on time. Flight departure is a highly complex process. It involves numerous employees from various departments – such as ticket agents, pilots, flight attendants, baggage handlers, gate agents, mechanics, ramp agents, fuel attendants, and so forth – performing multiple tasks within a limited time period, under uncertain and ever-changing conditions. If all these groups aren’t tightly coordinated, a successful on-time departure is difficult to achieve.

Singapore’s Changi Airport is one of the busiest in the world and has some of the shortest turnaround times in the business. For Dutch airline, KLM, Changi has the shortest turnaround times in its network. After a 13 hour flight from Amsterdam’s Schiphol Airport, staff have just 70 minutes for approximately 425 passengers to disembark the aircraft, clean the cabin, load fresh food, refuel, unload and load luggage and cargo, change crew, complete safety inspections and load another 425 passengers for the return flight. On-time performance

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is only possible for KLM’s flight crew because the managers of each task promote relational coordination to achieve superior on-time performance and a high level of customer satisfaction. As everyone is relying on each other, blame for delays is levelled at the whole team, rather than an individual. In this way, when things go wrong they are able to support each other, rather than accuse one another – it is in everyone’s best interest to work towards on-time departure.

The emphasis on the team focuses everyone on their shared goals of on-time departure, accurate baggage handling and customer satisfaction. Because delay becomes a team problem, people are motivated to work closely together and coordinate their activities rather than looking out for themselves and trying to avoid or shift blame. Supervisors work closely with employees, but their role is less ‘being the boss’ than it is facilitating learning and helping people do their jobs.

Sources: Jody Hoffer Gittell. (Spring 2000). Paradox of Coordination and Control. California Management Review, 42:3, 101–17; KLM. (19 July 2016). Do What You Can Without Messing Up Operations, https://blog.klm.com/do-what-you-can-without-messing-up-operations/

R EMEMBE R THIS ◗◗

In addition to the vertical structure, every organisation needs mechanisms for horizontal integration and coordination.

◗◗

Coordination refers to the managerial task of adjusting and synchronising the diverse activities among different individuals and departments.

◗◗

Collaboration means a joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose.

◗◗

As organisations grow, they add new positions, departments and hierarchical levels, which leads to greater coordination problems.

◗◗

Ways to increase horizontal coordination include task forces, teams, project managers and relational coordination.

◗◗

A task force is a temporary team or committee formed to solve a specific short-term problem involving several departments.

◗◗

A project manager is a person responsible for coordinating the activities of several departments for the completion of a specific project.

◗◗

Companies often shift to a more horizontal approach after going through re-engineering, which refers to the radical redesign of business processes to achieve dramatic improvements in cost, quality, service and speed.

◗◗

Relational coordination refers to frequent horizontal coordination and communication carried out through ongoing relationships of shared goals, shared knowledge and mutual respect.

7.6

FACTORS SHAPING STRUCTURE

Vertical hierarchies continue to thrive because they provide important benefits for organisations. Some degree of vertical hierarchy is often needed to organise a large number of people effectively to accomplish complex tasks within a coherent framework. Without a vertical structure, people in a large, global firm wouldn’t know what to do. However, in today’s environment, an organisation’s vertical structure often needs to be balanced with strong horizontal mechanisms to achieve peak performance.64

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How do managers know whether to design a structure that emphasises the formal, vertical hierarchy or one with an emphasis on horizontal communication and collaboration? The answer lies in the organisation’s strategic goals and the nature of its technology. EXHIBIT 7.17 illustrates that forces affecting organisation structure come from both outside and inside the organisation. External strategic needs, such as environmental conditions, strategic direction and organisational goals, create topdown pressure for designing the organisation in such a way as to fit the environment and accomplish strategic goals. Structural decisions also take into consideration pressures from the bottom up – that is, from the technology and work processes that are performed to produce the organisation’s products and services. Contingency Factors Strategy EXHIBIT 7.17 Contingency factors that influence organisation structure

Environment Technology

Traditional vertical structure or flexible horizontal structure

Company performance

ST R U C T U R E F O L L OW S ST R AT E GY Studies demonstrate that business performance is strongly influenced by how well the company’s structure is aligned with its strategic intent and the needs of the environment, so managers strive to pick strategies and structures that are congruent.65 In Chapter 6, we discussed several strategies that business firms can adopt. Two strategies proposed by Michael E. Porter are differentiation and cost leadership.66 With a differentiation strategy, the organisation attempts to develop innovative products unique to the market. With a cost leadership strategy, the organisation strives for internal efficiency. Typically, strategic goals of cost efficiency occur in more stable environments, while goals of innovation and flexibility occur in more uncertain environments. The terms mechanistic and organic can be used to explain structural responses to strategy and the business environment.67

See Chapter 6 for a discussion on the several strategies that business firms can adopt.

Goals of efficiency and a stable environment are associated with a mechanistic system. This type of organisation typically has a rigid, vertical, centralised structure, with most decisions made at the top. The organisation is highly specialised and characterised by rules, procedures and a clear hierarchy of authority. With goals of innovation and a rapidly changing business environment, however, the organisation tends to be much looser, free-flowing and adaptive, using an organic system. The structure is more horizontal, and decision-making authority is decentralised. People at lower levels have more responsibility and authority for solving problems, enabling the organisation to be more fluid and adaptable to changes.68 EXHIBIT 7.18 shows a simplified continuum that illustrates how structural approaches are associated with strategic goals and influences from the environment. The pure functional structure is appropriate for achieving internal efficiency goals. The vertical functional structure uses task specialisation and a strict chain of command to gain efficient use of scarce resources, but it does not enable the organisation to be

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flexible or innovative. In contrast, horizontal teams are appropriate when the primary goal is innovation and flexibility to cope with an uncertain environment. Each team is small, is able to be responsive, and has the people and resources necessary for performing its task. The flexible horizontal structure enables organisations to differentiate themselves and respond quickly to the demands of a shifting environment but at the expense of efficient resource use. New strategies also shape structure in government organisations. EXHIBIT 7.18 also illustrates how other forms of structure represent intermediate steps on the organisation’s path to efficiency or innovation. The functional structure with cross-functional teams and project managers provides greater coordination and flexibility than the pure functional structure. The divisional structure promotes differentiation because each division can focus on specific products and customers, although divisions tend to be larger and less flexible than small teams. EXHIBIT 7.18 does not include all possible structures, but it illustrates how structures can be used to facilitate the organisation’s strategic goals. Functional structure

Functional with interdepartmental task forces, integrators

Divisional structure

Horizontal teams

Strategic goals: differentiation, innovation, flexibility Strategic goals

Strategic goals: cost leadership, efficiency, stability

ST R U C T U R E F I T S T H E T E C H NO L O GY Technology includes the knowledge, tools, techniques, and activities used to transform organisational inputs into outputs.69 Technology includes machinery, employee skills and work procedures. A useful way to think about technology is as ‘production activities’. The production activities may be to produce website content, steel castings, television programs or computer software. Technologies vary between manufacturing and service organisations.

WOODWA RD’S MA NUFA C TUR I NG T E C HNO L O GY The most influential research into the relationship between manufacturing technology and organisation structure was conducted by Joan Woodward, a British industrial sociologist.70 She gathered data from 100 British firms to determine whether basic structural characteristics, such as administrative overhead, span of control and centralisation were different across firms. She found that manufacturing firms could be categorised according to three basic types of production technology explained below.

◗◗ Small-batch and unit production. Small-batch production firms produce goods in batches of one or a few products designed to customer specification. This technology also is used to make large, one-of-a-kind products, such as computer-controlled machines. Small-batch manufacturing is close to traditional skilled-craft work, because human beings are a large part of the process. Examples of

EXHIBIT 7.18 Relationship of strategic goals to structural approach

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items produced through small-batch manufacturing include custom clothing, special-order machine tools, space capsules, satellites and submarines.

◗◗ Large-batch and mass production. Mass production technology is distinguished by standardised production runs. A large volume of products is produced and all customers receive the same product. Standard products go into inventory for sale as customers need them. This technology makes greater use of machines than does small-batch production. Machines are designed to do most of the physical work and employees complement the machinery. Examples of mass production are automobile assembly lines and the large-batch techniques used to produce tobacco products and textiles.

◗◗ Continuous process production. In continuous process production, the entire workflow is

technical complexity The degree to which complex machinery is involved in the production process to the exclusion of people.

mechanised in a sophisticated and complex form of production technology. Because the process runs continuously, it has no starting and stopping. Human operators are not part of actual production because machinery does all the work. Human operators simply read dials, fix machines that break down and manage the production process. Examples of continuous process technologies are chemical plants, distilleries, petrol refineries and nuclear power plants. The difference among the three manufacturing technologies is called technical complexity. Technical complexity is the degree to which machinery is involved in the production to the exclusion of people. With a complex technology, employees are hardly needed except to monitor the machines. The structural characteristics associated with each type of manufacturing technology are illustrated in EXHIBIT 7.19. Note that centralisation is high for mass production and low for small-batch and continuous process. Unlike small-batch and continuous process production, standardised mass-production machinery requires centralised decision making and well-defined rules and procedures. The administrative ratio and the percentage of indirect labour required also increase with technological complexity. Because the production process is non-routine, closer supervision is needed. More indirect labour, in the form of maintenance people, is required because of the machinery’s complexity; thus, the indirect/direct labour ratio is high. Span of control for first-line supervisors is greatest for mass production. On an assembly line, jobs are so routine that a supervisor can handle an average of 48 employees. The number of employees per supervisor in small-batch and continuous process production is lower because closer supervision is needed. Overall, small-batch and continuous process firms typically have somewhat loose, flexible structures (organic), and mass production firms typically have tight vertical structures (mechanistic). Woodward found that the relationship between structure and technology was directly related to company performance. Low-performing firms tended to deviate from the preferred structural form, often adopting a structure appropriate for another type of technology. High-performing organisations had characteristics similar to those listed in EXHIBIT 7.19.

SERV IC E T EC HNOLO GY Examples of service organisations include consulting companies, law firms, brokerage houses, airlines, hotels, advertising companies, amusement parks and educational organisations. In addition, service technology characterises many departments in large corporations, even manufacturing firms. In a manufacturing company, such as Ford Motor Company, the legal, human resources, finance, and market research departments all provide service. Thus, the structure and design of these departments reflect their own service technology rather than the manufacturing plant’s technology. Service technology is defined below.

◗◗ Intangible output. The output of a service firm is intangible. Services are perishable and, unlike physical products, cannot be stored in inventory. The service is either consumed immediately or lost

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MANUFACTURING TECHNOLOGY SMALL BATCH

MASS PRODUCTION

CONTINUOUS PROCESS

Low

Medium

High

Centralisation

Low

High

Low

Top administrator ratio

Low

Medium

High

Indirect/direct labour ratio

1/9

1/4

1/1

Supervisor span of control

23

48

15

Written (vertical)

Low

High

Low

Verbal (horizontal)

High

Low

High

Organic

Mechanistic

Organic

Technical complexity of production technology Structural characteristics:

Communication:

Overall structure

Source: Based on Joan Woodward, Industrial Organizations: Theory and Practice (London: Oxford University Press, 1965).

forever. Manufactured products are produced at one point in time and can be stored until sold at another time.

◗◗ Direct contact with customers. Employees and customers interact directly to provide and purchase the service. Production and consumption are simultaneous. Service firm employees have direct contact with customers. In a manufacturing firm, technical employees are separated from customers, so no direct interactions occur.71 One distinct feature of service technology that directly influences structure is the need for employees to be close to the customer.72 Structural characteristics are similar to those for continuous manufacturing technology, shown in EXHIBIT 7.19. Service firms tend to be flexible, informal and decentralised. Horizontal communication is high because employees must share information and resources to serve customers and solve problems. Services also are dispersed with each unit often being small and located geographically close to customers. For example, banks, hotels, fast-food franchises and doctors’ offices disperse their facilities into regional and local offices to provide faster and better service to customers. Some services can be broken down into explicit steps, so that employees can follow set rules and procedures. An interesting example comes from India, where Dr Devi Shetty runs a hospital that performs open-heart surgery for about 10 per cent of the cost charged by hospitals in the Western economies, without reduced quality, by applying standardised operating procedures and principles of mass production. His approach is in line with a trend toward lean services that looks at how to design service work to improve both quality and efficiency. ‘In healthcare, you can’t do one thing and reduce the price,’ Dr Shetty says. ‘We have to do 1000 small things.’73 When services can be standardised, a tight centralised structure can be effective, but service firms in general tend to be more organic, flexible, and decentralised.

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EXHIBIT 7.19 Relationship between manufacturing technology and organisation structure

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TAKE A MOMENT As a new manager, recognise how structure fits the contingency factors of strategy, environment and technology. Design the right mix of structural characteristics to fit the contingency factors.

R EMEMBE R THIS

SUSTAINABLE DEVELOPMENT ORGANISING FOR SUSTAINABLE DEVELOPMENT

◗◗

Contingency factors of strategic goals, environment and technology influence the correct structural approach.

◗◗

A mechanistic, vertical structure is appropriate for a cost leadership strategy, which typically occurs in a stable environment.

◗◗

An organic, horizontal approach is needed for a differentiation strategy and when the organisation needs flexibility to cope with an uncertain environment.

How should an organisation organise and best arrange and allocate resources in order to achieve a mature state of sustainability? Perhaps the most sensible way to approach this question is to work backwards from a future desired state. Suppose you work in a bank, manufacturing company, consulting firm or university: what would you like to achieve in terms of maturity in sustainability, and then, how would you get from here to there? To choose a way of structuring and organising for sustainability, it is important to first develop a sustainability strategy (earlier in this chapter we proposed that structure in general should follow strategy). In generic terms, we propose that the generic strategy would involve strong stakeholder engagement, values that include social and environmental outcomes as well as financial performance, broad involvement of employees in activities that achieve these broader outcomes and a bundling of this into a long-term vision for the organisation in the economy and society. Depending on where the organisation is starting from, we can assume there needs to be a work plan that is implemented to take these strategy elements forward. This would involve stakeholder consultation and relationship building, environmental policies and possibly investments, employee education and training, and the development of an organisational culture that is long-term rather than short-term-focused, inclusive of stakeholder concerns and broadens the performance measures of the organisation. Ultimately, the very role of the organisation can be modified in order to achieve the mature aim of ‘doing well by doing good’. Organising for this work and change requires leadership from the centre and the top of the organisation, and also widespread implementation and decision making. Hence, we would suggest that there needs to be a centrally appointed person or group in charge of and accountable for the formulation and implementation of the progress towards broad and mature sustainable development across the organisation. Some companies appoint a chief sustainability officer (CSO) with just those responsibilities; however, whether this is or is not done in name, there is a need to have strong leadership to move the company forward and change such fundamentals as values, vision, strategy and culture. So, a central unit in the organisation and a senior person with influence in the organisation is a starting point for moving forward. In the Coca-Cola organisation, global CEO Muhtar Kent has decided that he personally is also the CSO as an integral part of his job and responsibilities, and under his leadership Coke is actively pursuing water-use neutrality, packaging recovery, much improved energy efficiency, and bottling plant environmental achievements and recycling, such as turning used Coke bottles into clothing. In global information systems company SAP, specially appointed CSO Peter Graf drove a 20 per cent reduction in the use of paper in just one year. Global companies such as Dow, Orange and Cisco have appointed CSOs. In Australian engineering consulting firm SKM (employing over 6000 people), Dr Nick Fleming was appointed CSO, responsible for reducing carbon output in the firm by 30 per cent, and for ensuring that sustainable development becomes fully integrated into decisions and work processes, internally and externally to the firm. SKM is owned by its staff, and has decided not to have a separate unit which implements sustainability, but rather as much as possible to embed the principles of sustainability into all its activities and services.74

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RESPONSE TO THE MANAGEMENT CHALLENGE

UNLOCKING THE VALUE OF STRATEGIC ALLIANCES: RENAULT AND NISSAN Returning to the opening example, the problem confronting Carlos Ghosn at Nissan was largely one of structural design. Ghosn wanted to use elements of structure to define authority and responsibility for managers, promote accountability and improve coordination so that Nissan could bring out new products and regain a competitive edge.

Structure is a powerful tool for reaching strategic goals, and a strategy’s success is often determined by its fit with organisational structure. Creating strategic synergies between Renault and Nissan required structural changes to fit such a strategy. Carlos Ghosn used structural changes to help revive Nissan and restore its competitive position in the car industry. One of his first steps was to clarify managers’ areas of responsibility and authority, and implement mechanisms to ensure accountability. Positions were redesigned so that managers who previously acted as advisers had direct line authority and a clear understanding of how they were expected to contribute to the organisation. The compensation and

PA R T F O U R : O R G A N I S I N G

advancement systems were also revised. The major structural change Ghosn made was to create nine cross-functional management teams that would determine a detailed turnaround plan for the organisation. Ghosn believed the team approach was the best way to get managers to see beyond the functional and regional boundaries that were hampering collaboration and new product development and creating a culture of blame. Each team was made up of managers from various functional areas. For example, the purchasing team consisted of members from purchasing, engineering, manufacturing and finance. Within three months, the teams had created a detailed blueprint for Nissan’s turnaround. Within three years, implementation of various aspects of the plan had returned Nissan to profitability. Brilliant new products such as the dazzling Nissan 370Z were produced. The crossfunctional teams continue as an integral part of Nissan’s management structure, helping ensure continued horizontal communication and collaboration to help the company compete in the turbulent car industry. Ghosn has formally become the CEO of both Nissan and Renault, and restructured these companies to get the most out of model sharing and other synergies between them. The alliance between these two companies is very much more than having the same person as CEO: technologies and all forms of ‘know-how’ are now openly shared, with the resulting synergies claimed to be worth US$2 billion in 2009. Products, technologies and other systems are equitably shared through a jointly managed French-Japanese, Renault-Nissan structure and culture. Strong cross-shareholdings are an important piece of this cooperative joint venture. Subsequently, Nissan launched environmentally friendly cars. On 2 August 2009 Nissan unveiled the very first version of its electric vehicle, the Nissan Leaf, which went on sale in Japan and the United States in late 2010 and across global markets from 2012. This is a vehicle that does not emit any CO2 when driven – in fact, it has no exhaust pipe. The hybrid car category in Europe has gained in popularity as the infrastructure to recharge vehicles has improved and sales of the Leaf more than tripled in the United States after Nissan adjusted the price of the vehicle. But Japan, supported by a government subsidy, is currently Nissan’s

biggest market where sales surpassed 30 000 in just its third year on the market. The world’s first mass produced 100 per cent electric car has exceeded 85 000 sales globally since 2010 and has become a top seller in its segment. Ghosn believes that electric vehicles will account for as much as 10 per cent of the global market by 2020. Global sales for Nissan have maintained a steady climb since 2008, with a market share of around 6.5 per cent and China their largest overall customer. The Renault-Nissan alliance established a new research facility in Silicon Valley in 2013 to focus on new technological advances that can offer key potential to their customers (such as humanmachine interfaces). The company entered Interbrand’s list of best Global Green Brands in 2012 and has since climbed to fifth position.

Source: Shutterstock.com/Stefan Ataman

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Sources: Nissan website, http://www.nissan.com.au/webpages/about/ Electric_vehicles.html?utm_medium=cpc&utm_source=google&utm_ term=nissan%20electric%20car&utm_campaign=-+Nissan+Leaf+Search++Awareness&utm_content=sre9xzGUP_9454589873; Charging into the Future: How Nissan, world leader in zero-emission mobility, is changing perceptions among fleet and corporate buyers. European Financial Review, http://www .europeanfinancialreview.com/?p=5704 (accessed 5 November 2013); Ohnsman, A. (27 September 2013). Nissan Channels Tesla: Offers Free Leaf Charging In Texas. Bloomberg, http://www.bloomberg.com/news/201309-26/nissan-channels-tesla-offers-free-leaf-charging-in-texas.html (accessed 5 November 2013); Nissan Leaf Sales Surpass 30,000 in Japan. Nissan Motor Company, http://www.nissan-global.com/EN/NEWS/2013/_STORY/131008-01-e. html (accessed 5 November 2013); Ohnsman, A. (29 August 2013). Nissan Joins Tesla Selling California Green Car Credits. Bloomberg, http://www.bloomberg. com/news/2013-08-29/nissan-joins-tesla-selling-california-green-car-credits.html.

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DISCUSSION QUESTIONS 1 Sandra Holt, manager of Electronics Assembly, asked Hector Cruz, her senior technician, to handle things in the department while she worked on the budget. Sandra needed peace and quiet for at least a week to complete her figures. After 10 days, she discovered that Hector had hired a senior secretary, not realising that Sandra had promised interviews to two other people. Evaluate Sandra’s approach to delegation. 2 If you wanted to add a group of big data scientists to a large organisation, such as Coles Group Ltd, would you centralise the scientists in a central pool at headquarters or decentralise them to separate divisions? Discuss your reasons. 3 Contrast centralisation with span of control. Would you expect these characteristics to affect each other in organisations? Why? 4 Would you expect the structure of a company such as Facebook, which operates almost entirely online, to differ from the structure of a bricks-and-mortar company, such as Bunnings, which uses the Internet only for some things, such as customer service and online retail? Why, or why not? 5 The divisional structure is often considered almost the opposite of a functional structure. Do you agree? Briefly explain the major differences in these two approaches to departmentalisation. 6 The Hay Group published a report that some managers have personalities suited to horizontal relationships such as project management that achieve results with little formal authority. Other managers are more suited to operating roles with much

ETHICAL CHALLENGE

formal authority in a vertical structure. In what type of structure – functional, matrix, team or virtual network – do you believe your personality would best fit? Which structure would be the most challenging for you? Give your reasons. 7 What is the network approach to structure? Is the use of authority and responsibility different compared with other forms of departmentalisation? Explain. 8 Why are divisional structures frequently used in large organisations? Does it make sense for a huge company such as Singapore Airlines to stay in a functional structure? 9 An international matrix structure tends to be organised by product divisions and geographic regions. Why would these two chains of command be used rather than product and function, as in domestic organisations? Explain. 10 Experts say that organisations are becoming increasingly decentralised, with authority, decision-making responsibility and accountability being pushed further down into the organisation. How will this trend affect what will be asked of you as a new manager? The chapter suggested that structure should be designed to fit strategy. Some theorists argue that strategy should be designed to fit the organisation’s structure. With which theory do you agree? Explain. 11 Describe the primary differences between manufacturing and service technology. How do these differences influence the type of structure that will be most effective?

A MATTER OF DELEGATION

Tom Harrington loved his job as an assistant quality control officer for Rockingham Toys. After six months of unemployment, he was anxious to make a good impression on his boss, Frank Golopolus. One of his responsibilities was ensuring that new product lines met industry safety guidelines. Rockingham had made several manufacturing changes over the past year. Golopolus and the rest of the quality control team had been working 60-hour weeks to troubleshoot the new production process.

Harrington was aware of numerous changes in product safety guidelines that he knew would affect the new toys the company was producing. Golopolus was also aware of the guidelines, but he was taking no action to implement them. Harrington wasn’t sure whether his boss expected him to implement the new procedures. The ultimate responsibility was his boss’s, and Harrington was concerned about moving ahead on his own. To cover for his boss,

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he continued to avoid the questions that he received from the factory floor, but he was beginning to wonder whether Rockingham would have time to make changes with the Christmas season rapidly approaching. Harrington felt loyalty to Golopolus for giving him a job and didn’t want to alienate him by interfering. However, he was beginning to worry what might happen if he didn’t act. Rockingham had a fine product safety reputation and was rarely challenged on matters of quality. Should he question Golopolus about implementing the new safety guidelines?

W H AT D O YO U D O ? 1 Prepare a memo to Golopolus, summarising the new safety guidelines that affect the Rockingham product line and recommending implementation. 2 Mind your own business. Golopolus hasn’t said anything about the new guidelines, and you don’t want to overstep your authority. You’ve been unemployed and need this job. 3 Send copies of the reports anonymously to the operations manager, who is Golopolus’s boss.

Source: Based on Wallace, D. (March–April 1993). The Man Who Knew Too Much: What Would You Do? Business Ethics, II, 7–8.

GROUP CHALLENGE

FAMILY BUSINESS

Step 1. In groups of three to five students, assume that you are a consulting team to a family business. The family has used an inheritance to acquire a medium-sized pharmaceutical company. Last year, sales were down 10 per cent from the previous year. Indeed, business has declined over the past three years, even though the pharmaceutical industry has been growing. The family that acquired the business seeks your help. Step 2. Your task as a group is to rank the priority of the departmental functions in the order of importance for assigning additional resources to improve business in the future. Step 3. Individually, rank the following 10 functions in order of importance, and make a note of your reasons: • distribution • manufacturing • market research

CASE FOR CRITICAL ANALYSIS

• new-product development • human resources • product promotion • quality assurance • sales • legal and governmental affairs • finance and accounting Step 4. As a group, discuss the order of importance for the 10 functions, sharing your reasons for how functional priority should relate to the company’s strategic needs. Step 5. How does the group’s reasoning and ranking differ from your original thinking? Step 6. What did you learn about organisation structure and design from this exercise?

COLES

The first Coles grocery store was started in 1914 by George Coles in Collingwood, with the philosophy of lowering the costs of living for Australian families. He used a small inheritance to start the small grocery store, and it was immediately successful. The location was good, and George had given careful consideration to the needs of balancing family and work life, maintaining a contented staff and creating a store environment that others would respect.

Following the Second World War the organisation went through rapid expansion, shifting from full service stores where staff would help pick products for customers, to what we consider normal today with self-service stores. The expansion in stores meant that the organisation had to give more focus to activities other than food retailing, with logistics, warehousing and distribution systems becoming increasingly central to business operations.

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Coles has continued to grow and adapt with technological innovations a hallmark of the company’s approach to business. In 1993, the Internet provided a new opportunity for the business to explore value creation, and the flybuys program attracted 3.5 million members within its first year of operation. Coles was also early to market in trialling online shopping, with trials in Melbourne starting in 1999. Further market innovation came with the diversification to petrol stations, with Coles Express service stations forming part of Coles market offering in 2004. Coles has continued to expand and break new ground under its new ownership. Acquired by Wesfarmers in 2007, Coles has focused on a mix of customer experience and sustainability initiatives.

ON THE JOB VIDEO CASE

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QU E S T I O N S 1 Based on the information available in the case, sketch a picture of the organisational structure after the rapid growth following WWII. What type of structure is this? Explain. 2 Based on the information available in the case, sketch a picture of the organisational structure following the adoption of modern technologies (such as the Internet) and diversified products (such as service stations). Has the original type of organisation structure changed? Explain. 3 Should Coles consider an alternative structure? What types of factors would need to exist or emerge to make changing the organisation’s current structure a priority?

HONEST TEA: DESIGNING ORGANISATION STRUCTURE

Watch the following video to see how Honest Tea approaches its management functions. QUESTIO NS 1 What are some of Seth Goldman’s responsibilities as “TeaEO” of Honest Tea? Provide at least three detailed examples.

2 How does Goldman’s experience as the founder of the company influence his ability to delegate? 3 Referring to Woodward’s research on manufacturing technology and structure, how would you categorise Honest Tea’s production? In what ways has this probably influenced the company’s structure?

ENDNOTES 1 ‘5 Richest Tech Billionaires Who Dropped Out of University,’ WhatCulture, 30 September 2013, http://www.valvesoftware.com/company/people.html (accessed 30 September 2013); ‘Our People, ’Valve Web site, http://www.valvesoftware.com/company/people. html (accessed 30 September 2013); Claire Suddath,’Why There Are No Bosses at Valve,’ Bloomberg Businessweek, 27 April 2012, www .businessweek.com/articles/2012-04-27/whythere-are-no-bosses-at-valve (accessed 10 August 2012); Rachel Emma Silverman,’Who’s the Boss? There Isn’t One,’ The Wall Street Journal, 20 June 2012, B1; and Alex Hern, ‘Valve Software: Free Marketeer’s Dream, or Nightmare?’ New Statesman, 3 August 2012, www. newstatesman.com/blogs/economics/2012/08/valve-software-free-marketeers-dream-ornightmare (accessed 10 August 2012). 2 Julia Werdiger, ‘BP Appoints New Chief of Production,’ The New York Times, 24 November 2012, B3. 3 Child, J. (1984). Organization: A Guide to Problems and Practice, 2nd edn (London: Harper & Row). 4 Smith, A. (1937). The Wealth of Nations (New York: Modern Library). 5 John Bussey, ‘Has Time Come for More CIOs to Start Reporting to the Top?’ The Wall Street Journal, 17 May 2011, http://online.wsj.com/article/SB10001424052748704281504576327510 720752684.html (accessed 14 August 2012).

6 Daft, R. L. (1992). Organization Theory and Design, 4th edn (St Paul: West), pp. 387–8. 7 C. I. Barnard. (1938). The Functions of the Executive (Cambridge, MA: Harvard University Press). 8 Stewart, T. A. (6 November 1989). CEOs See Clout Shifting. Fortune, 66. 9 O’Loughlin, M. J. (November 1990). What Is Bureaucratic Accountability and How Can We Measure It? Administration & Society, 22:3, 275–302. 10 Adam Lashinsky. (23 May 2011). Inside Apple. Fortune,125–34. 11 Leana, C. R. (1986). Predictors and Consequences of Delegation. Academy of Management Journal, 29, 754–74. 12 Clifford Krauss and Julia Werdiger (30 September 2010). BP’s New Chief, Not Formally in the Role, Is Already Realigning Senior Managers. The New York Times, B3; and Guy Chazan. (29 September 2010). BP’s New Chief Puts Emphasis on Safety. The Wall Street Journal, http://online.wsj.com/article/SB10001424052748704116004575521394170919842.html (accessed 14 August 2012). 13 Ian Urbina. (5 June 2010). In Gulf, It Was Unclear Who Was in Charge of Oil Rig. The New York Times; and Douglas A. Blackmon et al. (27 May 2010). There Was ‘Nobody in Charge’. The Wall Street Journal. 14 George Anders. (24 March 2008). Overseeing More Employees – With Fewer Managers (Theory & Practice column), The Wall Street Journal.

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15 Barbara Davison. (2003). Management Span of Control: How Wide Is Too Wide? Journal of Business Strategy, 24:4, 22–9; Paul D. Collins and Frank Hull. (March 1986). Technology and Span of Control: Woodward Revisited. Journal of Management Studies, 23, 143–64; David D. Van Fleet and Arthur G. Bedeian. (1977). A History of the Span of Management. Academy of Management Review, 2, 356–72; and C. W. Barkdull. (May 1963). Span of Control – A Method of Evaluation. Michigan Business Review, 15, 25–32. 16 Reported in Brian Dive. (26 August 2008). Hierarchies for Flow and Profit. Strategy + Business, http://www.strategybusiness.com/article/08315 (accessed 25 May 2010). 17 Dive. Hierarchies for Flow and Profit; and Gary Neilson, Bruce A. Pasternack and Decio Mendes. (10 December 2003). The Four Bases of Organizational DNA. Strategy + Business, 33: 48–57. 18 Anders. Overseeing More Employees; Davison. Management Span of Control; Brian Dive. (July–August 2003). When Is an Organization Too Flat? Across the Board, 20–3; Brian Dumaine. (3 July 1989). What the Leaders of Tomorrow See. Fortune, 48–62; and Raghuram G. Rajan and Julie Wulf. The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies. Working paper, reported in Caroline Ellis. (Summer 2003). The Flattening Corporation. MIT Sloan Management Review, 5. 19 Gary L. Neilson and Julie Wulf. (April 2012). How Many Direct Reports? Harvard Business Review, 112–19; John Bussey. (17 May 2011). Has Time Come for More CIOs to Start Reporting to the Top? The Wall Street Journal, http://online.wsj.com/article/SB100014240527 48704281504576327510720752684.html (accessed 14 August 2012). 20 Gary L. Neilson, ‘Diagnosing Your Top Team’s Span of Control,’ Strategy + Business Online (9 April 2012), http://www.strategy-business.com/article/00107?gko=ce37c (accessed 1 October, 2013). 21 William G. Ouchi. (March–April 2006). Power to the Principals: Decentralization in Three Large School Districts. Organization Science, 17:2, 298–307. 22 Sarah Lyall. (24 July 2010). Britain Plans to Decentralize Health Care. The New York Times, http://www.nytimes.com/2010/07/25/world/europe/25britain.html?pagewanted=all (accessed 14 August 2012). 23 Andrew Campbell, Sven Kunisch, and Günter Müller-Stewens, ‘To Centralize or Not to Centralize?’ McKinsey Quarterly, June 2011, www.mckinseyquarterly.com/To_centralize_or_ not_to_centralize_2815 (accessed 14 August 2012). 24 Miguel Helft, ‘Larry Page Looks Ahead,’ Fortune (14 January 2013): 50–57. 25 R. E. Miles et al., ‘Designing Organizations to Meet 21st-Century Opportunities and Challenges.’ 26 Helft, ‘Larry Page Looks Ahead.’ 27 Branch, S. (3 February 1997). So Much Work, So Little Time. Fortune, 115–17; Tharp, M. (17 April 1986). LSI Logic Corp. Does as the Japanese Do. The Wall Street Journal, 6. 28 Kramer, R. J. (1993). Organizing for Global Competitiveness: The Geographic Design (New York: The Conference Board), pp. 29–31; http://www.colgate.com/app/Colgate/US/Corp/AnnualReports/2009/Financial-Highlights/Growth-Highlights-Of-Five-Divisions.cvsp (accessed 25 March 2014). 29 Burns, L. R. (1989). Matrix Management in Hospitals: Testing Theories of Matrix Structure and Development. Administrative Science Quarterly, 34, 349–68. 30 The discussion of matrix structure is based on S. H. Appelbaum, D. Nadeau, and M. Cyr, ‘Performance Evaluation in a Matrix Organization: A Case Study,’ Industrial and Commercial Training 40, no. 5 (2008): 236–241; T. Sy and S. Cote, ‘Emotional Intelligence: A Key Ability to Succeed in the Matrix Organization,’ Journal of Management Development 23, no. 5 (2004):439; L. R. Burns, ‘Matrix Management in Hospitals: Testing Theories of Matrix Structure and Development,’ Administrative Science Quarterly 34 (1989):349–368; Carol Hymowitz, ‘Managers Suddenly Have to Answer to a Crowd of Bosses,’ The Wall Street Journal, 12 August 2003; and Stanley M. Davis and Paul R. Lawrence, Matrix (Reading, MA: Addison-Wesley,1977). 31 Davis, S. M. and Lawrence, P. R. (1977). Matrix (Reading: Addison-Wesley). 32 Robert C. Ford and W. Alan Randolph. (1992). Cross-Functional Structures: A Review and Integration of Matrix Organization and Project Management. Journal of Management, 18:2, 267–94; and Thomas Sy and Laura Sue D’Annunzio. (2005). Challenges and Strategies of Matrix Organizations: Top-Level and Mid-Level Managers’ Perspectives. Human Resources Planning, 28:1, 39–48. 33 These disadvantages are based on Sy and D’Annunzio. Challenges and Strategies of Matrix Organizations; and Michael Goold and Andrew Campbell. (June 2003). Making Matrix Structures Work: Creating Clarity on Unit Roles and Responsibilities. European Management Journal, 21:3, 351–63. 34 Fishman, C. (April 2000). Total Teamwork: Imagination Ltd. Fast Company, 156–68.

35 Morieux, Y. (October, 2013) As work gets more complex, 6 rules to simplify, TED Talk, https://www.ted.com/talks/yves_morieux_as_work_gets_more_complex_6_rules_to_ simplify?language=en (accessed 9 March 2017). 36 Geoff Keighley. (September 2005). Massively Multinational Player. Business 2.0, 64–6. 37 Melissa A. Schilling and H. Kevin Steensma, ‘The Use of Modular Organizational Forms: An Industry-Level Analysis,’ Academy of Management Journal 44, no. 6 (December 2001): 1149–1169. 38 Jena McGregor, ‘The Chore Goes Offshore,’ BusinessWeek (23, 30 March 2009): 50–51. 39  Coleman, H. G. Jr, Matthews, J. A., Miles, G., Miles, R. E. and Snow, C. C. (1997). Organizing in the Knowledge Age: Anticipating the Cellular Form. Academy of Management Executive, 11:4, 7–24; Miles, R. E. and Snow, C. C. (Spring 1995). The New Network Firm: A Spherical Structure Built on a Human Investment Philosophy. Organizational Dynamics, 5–18. 40 Miles, R. E. and Snow, C. C. (Spring 1986). Organizations: New Concepts for New Forms. California Management Review, 28, 62–73; Wilson, J. W. and Dobrzynski, J. H. (3 March 1986). And Now, the Post-Industrial Corporation. BusinessWeek, 64–74. 41 N. Anand, ‘Modular, Virtual, and Hollow Forms of Organization Design,’ working paper, London Business School (2000); Don Tapscott, ‘Rethinking Strategy in a Networked World,’ Strategy + Business 24 (Third Quarter 2001): 34–41. 42 Dess, G. G., McLaughlin, K. J., Priem, R. L. and Rasheed, A. M. A. (1995). The New Corporate Architecture. Academy of Management Executive, 9:3, 7–20. 43 Dess et al. The New Corporate Architecture; Byrne, J. (20 December 1993). The Horizontal Corporation. BusinessWeek, 76–81. 44 Charles Levinson and Margaret Coker, ‘The Secret Rally That Sparked an Uprising; Cairo Protest Organizers Describe Ruses Used to Gain Foothold Against Police,’The Wall Street Journal Online, 11 February 2011, http://online.wsj.com/article/SB1000142405274870 4132204576135882356532702.html (accessed 16 August 2012). 45 Dexter Filkins, ‘Profusion of Rebel Groups Helps Them Survive in Iraq,’ The New York Times, 2 December, 2005, www.nytimes.com/2005/12/02 /international/middleeast/02insurgency. html (accessed 30 August 2010). 46 Raymond E. Miles, ‘Adapting to Technology and Competition: A New Industrial Relations System for the Twenty-First Century,’ California Management Review (Winter 1989): 9–28; and Miles and Snow, ‘The New Network Firm.’ 47 Dess et al. The New Corporate Architecture. 48 Kavanagh, J. (13 September 2001). Strategy. Business Review Weekly, 58. 49 Raymond E. Miles et al., ‘Designing Organizations to Meet 21st-Century Opportunities and Challenges,’ Organizational Dynamics 39, no. 2 (2010): 93–103. 50 Steven Pearlstein, ‘Lifeguard’s Ordeal Is Parable about Outsourcing,’  The Washington Post, 14 July, 2012, www.washingtonpost.com/business/lifeguards-ordeal-is-parable-aboutoutsourcing/2012/07/13/gJQAN6TtkW_story.html (accessed 16 August 2012). 51 Laurie P. O’Leary. (Spring 1996). Curing the Monday Blues: A U.S. Navy Guide for Structuring Cross-Functional Teams. National Productivity Review, 43–51; and Alan Hurwitz. (May–June 1996). Organizational Structures for the ‘New World Order’. Business Horizons, 5–14. 52 Jay Galbraith, Diane Downey and Amy Kates. (2002). Processes and Lateral Capability. Designing Dynamic Organizations (New York: AMACOM), Chapter 4. 53 Thomas Kayser. (Summer 2011). Six Ingredients for Collaborative Partnerships. Leader to Leader, 48–54. 54 Panel Says Toyota Failed to Listen to Outsiders. USA Today, 23 May 2011, http://content. usatoday.com/communities/driveon/post/2011/05/toyota-panel-calls-for-single-us-chiefpaying-heed-to-criticism/1 (accessed 16 August 2012). 55 Nick Wingfield, ‘Seeking Spark, Microsoft Revamps Its Structure,’ http://www. nytimes.com/2013/07/12/technology/microsoft-revamps-structure-and-management. html?pagewanted=all (accessed 11 July 2013). 56 William J. Altier. (February 1987). Task Forces: An Effective Management Tool. Management Review, 52–7. 57 Henry Mintzberg. (1979). The Structure of Organizations (Englewood Cliffs, NJ: Prentice Hall). 58 Neilson, G., Pasternack, B. A. and Mendes, D. (10 December 2003). The Four Bases of Organizational DNA. Strategy + Business, 33, 48–57. 59 Paul R. Lawrence and Jay W. Lorsch. (November–December 1967). New Managerial Job: The Integrator. Harvard Business Review, 142–51. 60 Ronald N. Ashkenas and Suzanne C. Francis. (November–December 2000). Integration Managers: Special Leaders for Special Times. Harvard Business Review, 108–16.

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61 Jody Hoffer Gittell. (2003). The Southwest Airlines Way: Using the Power of Relationships to Achieve High Performance (New York: McGraw-Hill). 62 This discussion is based on Jody Hoffer Gittell. (November 2002). Coordinating Mechanisms in Care Provider Groups: Relational Coordination as a Mediator and Input Uncertainty as a Moderator of Performance Effects. Management Science 48:11, 1408–26; J. H. Gittell. (Winter 2004). The Power of Relationships. Sloan Management Review,16–17; and J. H. Gittell, The Southwest Airlines Way. 63 University of Michigan study, reported in Rachel Emma Silverman, ‘The Science of Serendipity in the Workplace,’ The Wall Street Journal, 1 May 2013, B6. 64 Claudio Feser. (Summer 2012). Long Live Bureaucracy. Leader to Leader, 57–65; and Harold J. Leavitt. (March 2003). Why Hierarchies Thrive. Harvard Business Review, 96–102, discuss the benefits and problems of vertical hierarchies. See Timothy Galpin, Rod Hilpirt and Bruce Evans. (2007). The Connected Enterprise: Beyond Division of Labor. Journal of Business Strategy, 28:2, 38–47, for a discussion of the advantages of horizontal over vertical designs. 65 Eric M. Olson, Stanley F. Slater and G. Tomas M. Hult. (2005). The Importance of Structure and Process to Strategy Implementation. Business Horizons, 48, 47–54; and Dale E. Zand. (2009). Strategic Renewal: How an Organization Realigned Structure with Strategy. Strategy & Leadership, 37:3, 23–8. 66 Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press), pp. 36–46. 67 Tom Burns and G. M. Stalker (1961). The Management of Innovation (London: Tavistock). 68 John A. Coutright, Gail T. Fairhurst and L. Edna Rogers. (1989). Interaction Patterns in Organic and Mechanistic Systems. Academy of Management Journal, 32, 773–802.

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69 For more on technology and structure, see Denise M. Rousseau and Robert A. Cooke, ‘Technology and Structure: The Concrete, Abstract, and Activity Systems of Organizations,’ Journal of Management 10 (1984): 345–361; Charles Perrow, ‘A Framework for the Comparative Analysis of Organizations,’ American Sociological Review 32 (1967): 194–208; and Denise M. Rousseau, ‘Assessment of Technology in Organizations: Closed versus Open Systems Approaches,’ Academy of Management Review 4 (1979): 531–542. 70 Joan Woodward, Industrial Organizations: Theory and Practice (London: Oxford University Press, 1965); and Joan Woodward, Management and Technology (London: Her Majesty’s Stationery Office, 1958). 71 Peter K. Mills and Thomas Kurk, ‘A Preliminary Investigation into the Influence of Customer-Firm Interface on Information Processing and Task Activity in Service Organizations,’ Journal of Management 12 (1986): 91–104; Peter K. Mills and Dennis J. Moberg, ‘Perspectives on the Technology of Service Operations,’ Academy of Management Review 7 (1982): 467–478; and Roger W. Schmenner, ‘How Can Service Businesses Survive and Prosper?’ Sloan Management Review 27 (Spring 1986): 21–32. 72 Richard B. Chase and David A. Tansik, ‘The Customer Contact Model for Organization Design,’ Management Science 29 (1983): 1037–1050; and Gregory B. Northcraft and Richard B. Chase, ‘Managing Service Demand at the Point of Delivery,’ Academy of Management Review 10 (1985): 66–75. 73 Geeta Anand, ‘The Henry Ford of Heart Surgery,’ The Wall Street Journal, 25 November 2009, A16. 74 Coca-Cola, http://www.thecoca-colacompany.com/citizenship/index.html (accessed 25 March 2014); SKM, http://www.skmconsulting.com/Knowledge-and-Insights/ News/2008/SKM-appoints-CSO.aspx (accessed 25 March 2014).

CHAPTER 8 M A N AGING C H A NGE A ND IN NOVAT ION

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define innovation and organisational change

2 explain how disruptive innovation and the ambidextrous approach are possible responses to the forces that drive innovation and change in today’s organisations

3 describe the exploration activities that organisations can undertake to ensure their products and technologies remain relevant for the work that they do and the value they create

4 explain the value of cooperation, creativity, a bottom-up approach, internal contests, idea incubators, idea champions, and new-venture teams for innovation

5 describe the benefits of training and development for influencing employees and organisational culture

6 identify a range of organisation development activities managers can use to support organisational change

7 explain the challenges to implementing organisational change, including critical success factors such as people and culture, overcoming resistance, and developing and implementing tactics using force field analysis.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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REINVENTING SAMSUNG Samsung Electronics began selling black-and-white televisions in South Korea in the early 1970s and soon expanded its product line and extended its markets around the world. But when Samsung chairman Kun-Hee Lee visited a Los Angeles retailer two decades later, he had a painful experience. While customers inspected and admired the cutting-edge equipment from companies such as Sony, Nokia and Motorola, Samsung’s products sat gathering dust on back shelves, ignored even by the sales people. It was a wake-up call to Lee, who realised that foreign consumers had come to regard Samsung products as cheap, low-quality replicas, suitable only for the bargain bin. Back home in South Korea, things weren’t looking so bright, either. To celebrate the growing success of Samsung Group (the electronics firm’s parent company) Lee had given Samsung mobile phones to friends and colleagues. Within days, he began receiving complaints that the phones were defective. Humiliated, Lee issued an order that $50 million worth of inventory from the

company’s Gumi factory be piled in a heap in the courtyard and destroyed. Top managers and employees watched as workers smashed phones, fax machines and other products under a banner proclaiming that Samsung would become known as a world-class innovator. ‘We must change no matter what,’ the chairman proclaimed. But managers knew it wouldn’t be easy. Samsung’s culture was focused on imitation, not innovation, and its strong traditions made it ultra-resistant to change. Sources: Breen, B. (December 2005). The Seoul of Design. Fast Company, 90–9; Lewis, P. (19 September 2005). A Perpetual Crisis Machine. Fortune, 58–76.

QU E S T I O N S If you were a manager at Samsung, what steps would you have taken to encourage creativity and get designers and engineers to come up with innovative products rather than make cheap imitations? What techniques would you have used to overcome resistance and implement the desired changes? However, given the recent controversy over Samsung Galaxy7 phones failing and in some cases catching fire due to overheating, is there such a thing as too much innovation?

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NEW MANAGER SELF-ASSESSMENT DO YOU HAVE TRUE DETERMINATION? Think about typical projects or hobbies that you initiate at home, university or work. Respond to each of the following questions as honestly as possible. MOSTLY TRUE

MOSTLY FALSE

1 I often set a goal but later choose to pursue a different one. 2 I have been obsessed with a certain idea or project for a short time but later lose interest. 3 I have difficulty maintaining my focus on projects that take more than a few months to complete. 4 New ideas and projects sometimes distract me from previous ones. 5 I finish whatever I begin. 6 Setbacks don’t discourage me. 7 I am diligent. 8 I am a hard worker. For items 1-4, give yourself 1 point for each False and 0 points for each True. Reverse this for items 5–8, with 1 point for each True and 0 points for each False. Scoring and Interpretation: the score on these questions measures your determination, which is defined as your perseverance and passion for long-term goals. Determination is a key trait for change agents who must persevere through resistance and setbacks to succeed with implementation of a significant innovation. The determination score predicted achievement in challenging situations among cadets at West Point and final-round contestants of the Scripps National Spelling Bee. Individuals high in determination do not swerve from their change implementation goals. The determination scale is composed of two parts. Questions 1–4 measure ‘consistency of interest’ and Questions 5–8 measure ‘perseverance of effort,’ so you can compare your scores on those two subscales. The average score for a group of students 25–34 was approximately 5 for determination, 2 for consistency of interest, and 3 for perseverance of effort. Source: Duckworth, A. L., & Quinn, P. D. (2009). Development and validation of the short grit scale (Grit-S). Journal of Personality Assessment 91(2), 166−174. Used with permission.

The Samsung managers struggling with change were not alone in their predicament. Many firms in Australia, New Zealand, the United States, Europe and Japan recognise the need for greater innovation in products and services to keep pace with technological and societal advances and compete with the growing power of companies in China and other developing countries. Rather than focusing on ways to improve efficiency and cut costs, today’s companies are rewiring their organisations for creativity and innovation. Some observers of business trends suggest that the knowledge economy of the 1990s and early 2000s is being transformed into the creativity economy. As more high-level knowledge work is outsourced to less-developed countries, companies everywhere are evolving to the next level, generating economic value from creativity, imagination and innovation.1

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For many Australian organisations, becoming more innovative is their greatest challenge and opportunity. Most Australian organisations find it difficult to compete on cost with Asian competitors. Creativity and innovation are not just a ‘nice-to-have’ but are essential capabilities for survival. This applies across Australia’s big banks such as Westpac and ANZ and the country’s biggest mining company BHP Billiton, to the smallest of niche players in every corner of the economy. Glance through recent back issues of just about any business magazine and you will see the best innovators in business today – from Fast Company’s ‘Most Innovative Companies’ to Forbes’s ‘World’s Most Innovative Companies List’ – everyone is talking about innovation and extolling the virtues of companies that do it right. It is not just private businesses championing the need for innovation. The Queensland Government has demonstrated its support of the creative economy through the Advance Queensland innovation initiative, which provides funding for innovation and entrepreneurship activities in private businesses and public organisations.2 Innovation is at the top of everyone’s priority list today, but managing innovation and change has always been an important management capability. If organisations don’t successfully change and innovate, they die. Consider that just 71 of the companies on Fortune magazine’s first list of America’s 500 largest corporations, compiled in 1955, survived the next half-century.3 Every organisation, at some time, faces the need to change swiftly and dramatically to cope with a changing environment. For example, Nokia was the world’s largest maker of mobile phone handsets, but it lost its leading position by failing to match popular products like the Apple iPhone.4 And as described in this chapter’s management challenge, Samsung Electronics was becoming a brand associated with cheap, low-quality knockoffs until managers implemented new processes that transformed the company into a hotbed of innovation. ‘We cannot live without change,’ said previous Samsung Vice Chairman and CEO Jong-Yong Yun. ‘The race for survival in this world is not to be the strongest, but to be the most adaptive.’5 Samsung has been at the leading edge of OLED television screen development, producing curved screen televisions, transparent displays and integrating TV screens into mirrors for commercial applications.6 The company has also teamed up with Facebook’s newly acquired Oculus development team to produce the Samsung Gear 360 video camera – bringing good quality virtual reality video production to a consumer friendly price point.7 Adaptive certainly describes Samsung’s shift towards innovative products, and demonstrates that changing the focus of an organisation and reinvigorating its creative potential – even a huge multinational manufacturing company such as Samsung – is achievable.

INNOVATION AND THE CHANGING WORKPLACE 8.1

Organisational change is defined as the adoption of a new idea or behaviour by an organisation.8

Sometimes change and innovation are spurred by forces outside the organisation’s locus of control, such as when a powerful customer demands annual price cuts, a key supplier goes out of business or when new government regulations go into effect. Implementing change is typically one of the most difficult aspects of management. Many organisations struggle with changing successfully. In some cases, employees don’t have the desire or motivation to come up with new ideas, or their ideas are not heard by managers who could put them into practice. In other cases, managers learn about good ideas but have trouble getting cooperation from employees for implementation.

organisational change The adoption of a new idea or behaviour by an organisation.

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W H Y D O P E O P L E R E S I ST C H A NG E ? Managers and others involved in promoting new ideas have noticed that many people, employees and managers alike, tend to prefer the status quo, which is one reason why change is so difficult. Understanding why employees resist change is a good start toward knowing how to help lead needed change in organisations.

SELF-INT EREST See Appendix to Chapter 6 for a discussion of loss aversion.

People typically resist a change they believe conflicts with their self-interests. A proposed change in job design, structure, or technology may increase employees’ workload, for example, or cause a real or perceived loss of power, prestige, pay or other benefit. Returning to our discussion of loss aversion from Appendix to Chapter 6, the fear of personal loss is perhaps the biggest obstacle to organisational change. Many people will do whatever they can to avoid loss. Consider the resistance of the taxi industry in Queensland (and other Australian states) to the introduction of Uber as a competitor. The taxi industry enjoyed an oligopoly-type industry with very little threat of competition from new market entrants. Understandably, when Uber and other ride-sharing companies (such as Lyft) began operations in areas traditionally serviced only by taxis, the threat of losing market share, and thus revenue and potentially jobs, provided ample motivation for taxi drivers and their associated union to pressure government to outlaw ride-sharing operations in Queensland. While ridesharing apps have now been legalised in Queensland, the taxi industry was able to secure AU$100 million in compensation from the Queensland Government through an ‘industry adjustment assistance package’ to help appease the taxi drivers that felt the legalisation was unfair to their industry.9

LA C K OF UNDERSTA NDI NG A ND T R US T Employees often distrust the intentions behind a change or do not understand the intended purpose of a change. If previous working relationships with a manager or promoter of an idea have been negative, resistance may occur. Qantas CEO Alan Joyce notes that the content of enterprise bargaining agreements for the company are ‘unbelievably complex’ and supports the notion of simplifying employee contract negotiations so that there are fewer clauses or limitations that can be negotiated by unions.10 The change programs restructuring Qantas’s business met significant employee resistance for more than five years; however, at the core of the changes is the goal to ensure that the company survives in an increasingly competitive airline industry. Qantas is one of the few national carriers in the world that is not controlled by government ownership, so it must survive through profitability rather than government subsidies. With each successive change to the business, resistance from employees has decreased as the company and its workforce increasingly understand that they rely on each other for success.

UNC ERTA INTY Uncertainty is a lack of information about future events. It represents a fear of the unknown. It is especially threatening for employees who have a low tolerance for change and fear anything out of the ordinary. They do not know how a change will affect them and worry about whether they will be able to meet the demands of a new procedure or technology.11 Hospitals that have spent millions of dollars adopting electronic medical records are having a hard time getting some doctors to use them. One reason is the uncertainty about how electronic records will change how doctors go about their daily work.12 Most people have at least some fear of the unknown and are more comfortable dealing with tried and true methods and techniques.13

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DIFFERE NT A SSESSMENTS A ND GO A L S Another reason for resistance to change is that employees who will be affected by a change or innovation may assess the situation differently from managers or promoters of a new idea. Critics frequently voice legitimate disagreements over the proposed benefits of a change. Managers in each department pursue different goals, and an innovation may detract from performance and goal achievement for some departments. At the pharmaceuticals company Pfizer, top executives wanted to implement a computerised system for collecting and processing research trial data, which could cut the cost of new drug development by 40 per cent. Research and development managers resisted, citing their concern that the automation and standardising of case report forms would hamper their flexibility and creativity.14 The above reasons for resistance are legitimate in the eyes of employees affected by change. Managers should not ignore resistance; instead, they should investigate the reasons and design strategies to gain acceptance by users.15 Later in this chapter, we will discuss some techniques that managers can use to overcome resistance and smoothly implement change.

D I S R U P T I V E I N NOVAT I O N

Source: Thinkstock/Tatsianama

As discussed previously, sometimes forces outside the organisation compel managers to look for changes, such as creating greater efficiencies in operations or other alterations to keep the organisation profitable. Other times, managers within the company see a need for product or service innovation. Disruptive innovation is becoming a goal for companies that want to remain competitive on a global disruptive innovation basis. Disruptive innovation refers to innovations in products, services, or processes that radically Innovations in products, change an industry’s rules of the game for producers and consumers. Companies that initiate disruptive services or processes that radically change an innovation are typically successful, while companies affected by a disruptive technology may be put out industry’s rules of the of business. DVDs all but wiped out the videotape industry, and now streaming video is threatening the game for producers and consumers. same fate for DVDs. Digital cameras appear to be eliminating the photographic film industry. A company called Square developed a credit card reader that plugs into a smartphone. This is a disruptive innovation in the trilliondollar financial services system for credit card payments. Square enabled millions of small businesses that couldn’t afford the transaction fees charged by financial companies to begin accepting credit cards.16 Many disruptive innovations come from small entrepreneurial firms like Square, founded by Twitter inventor Jack Dorsey. Some observers think companies in emerging markets such as China and India will produce a great percentage of such innovations in the coming years.17 In addition, Western firms are increasingly using an approach referred to as trickle-up innovation or reverse innovation. Rather than innovating in affluent countries Technological advances in smartphones have paved the way for mobile credit card readers from providers such as Square, Intuit GoPayment and Merchant and transferring products to emerging markets, companies Anywhere. This disruptive innovation has been a major step forward for small business owners, allowing them to accept credit card payments on the fly and such as General Electric (GE), John Deere, Nestlé, Procter with minimal transaction fees. The mobile readers are especially useful for & Gamble (P&G) and Xerox are creating innovative lowmerchants who sell their wares in outdoor environments, such as flea markets, arts and crafts fairs, and farmers’ markets. cost products for emerging markets and then quickly and

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inexpensively repackaging them for sale in developed countries. GE Healthcare’s team in China created a portable ultrasound machine that sold for less than 15 per cent of the cost of the company’s high-end machines. GE now sells the product around the world, and it grew to a US$278 million global product line within six years. John Deere developed a high-quality, low-cost tractor for farmers in India that was increasingly in demand in the United States among farmers reeling from the global financial crisis.18

T H E A M B I D E X T ROU S A P P ROA C H Change – especially major change that is associated with disruptive innovation – is not easy, and many organisations struggle with changing successfully. As discussed earlier in this chapter, in some cases, employees don’t have the desire or motivation to come up with new ideas, or their ideas never get heard by managers who could put them into practice. In other cases, managers learn about good ideas but have trouble getting cooperation from employees for implementation. Successful change requires that organisations be capable of both creating and implementing ideas, which means the organisation must learn to be ambidextrous.19 An ambidextrous approach means incorporating structures and processes that are appropriate for both the creative impulse and for the systematic implementation of innovations. For example, a loose, flexible structure and greater employee freedom are excellent for the creation and initiation of ideas; however, these same conditions often make it difficult to implement a change because employees are less likely to comply. Or, as one scholar put it, companies ‘that are healthy enough to consider innovation are also hearty enough to resist change’.20 With an ambidextrous approach, managers encourage flexibility and freedom to innovate and propose new ideas with creative departments, venture teams and other mechanisms we will discuss in this chapter, but they use a more rigid, centralised and standardised approach for implementing innovations. In the following section, we discuss technology and product changes, which typically rely on new ideas that bubble up from lower levels of the organisation.

CASE STUDY BUILDING A BETTER MOUSE …

Source: Thinkstock/triloks

ambidextrous approach Incorporating structures and processes that are appropriate for both the creative impulse and for the systematic implementation of innovations.

We all have them: old laptops stuffed into closets, computer monitors, hard drives, and printers crammed into the corners of the garage. And who can forget the mouse (five of them, actually, still attached to cords) jammed into a drawer? In a world focused on sustainability, the challenge for managers in the electronics industry is how to change and innovate when the large outer casings for our products won’t

go away. Fujitsu broke this barrier by developing a keyboard made from renewable materials. A year later, using organic materials as a substitute for plastic, the company unveiled a mouse casing that was 100 per cent biodegradable. Now, the race is on. Fujitsu’s innovations offer a visionary promise that one day, all our electronic devices will be part of the sustainability revolution.

Source: Staff writers. (25 January 2011). Fujitsu Unveils ‘World’s First’ Biodegradable Mouse. Business Green, http://www.businessgreen.com/bg/ news/1939343/fujitsu-unveils-worlds-biodegradable-mouse (accessed 25 January 2011).

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Every organisation must change and innovate to survive.

◗◗

Disruptive innovation refers to innovations in products, services or processes that radically change competition in an industry, such as the advent of streaming video or e-books.

Organisational change is defined as the adoption of a new idea or behaviour by an organisation. An ambidextrous approach means incorporating structures and processes that are appropriate for both the creative impulse and the systematic implementation of innovations.

CHANGING THINGS: NEW PRODUCTS AND TECHNOLOGIES 8.2

Organisations must embrace many types of change. One vital area for innovation is introducing new products and technologies. A product change is a change in the organisation’s product or service outputs. Product and service innovation is the primary way in which organisations adapt to changes in markets, technology and competition.21 Examples of new products include Apple’s iPad Air, Holden Bolt and Samsung’s Gear 360. The introduction of online filing of tax returns by the Australian Taxation Office is an example of a new service innovation. Product changes are related to changes in the technology of the organisation. A technology change is a change in the organisation’s production process, i.e. how the organisation does its work. Technology changes are designed to make the production of a product or service more efficient. The automation of several steps in the manufacturing process of avionics parts for Brisbane-based Micreo is one example of a technology change. Because of this change, employees now have more time to work on more complicated quality control processes to enhance both reliability and efficiency in the manufacturing process. Three critical innovation strategies for changing products and technologies are illustrated in EXHIBIT  8.1.22 The first strategy, exploration, involves designing the organisation to encourage creativity and the initiation of new ideas. The strategy of cooperation refers to creating conditions and systems to facilitate internal and external coordination and knowledge sharing. Finally, innovation roles means that managers put in place processes and structures to ensure that new ideas are carried forward for acceptance and implementation. Exploration Creativity

Cooperation

Entrepreneurship Idea champions

Experimentation

Horizontal coordination mechanisms

Idea incubators

Customers, partners

Skunkworks

Open innovation

New venture fund

New venture teams

E X P L O R AT I O N Exploration is the stage where ideas for new products and technologies are born. Managers design the organisation for exploration by establishing conditions that encourage creativity and allow new ideas to arise. Creativity, which refers to the generation of new ideas that might meet perceived needs or respond

product change A change in the organisation’s product or service outputs.

technology change A change that pertains to the organisation’s production process.

EXHIBIT 8.1 Three innovative strategies for new products and technologies

creativity The generation of novel ideas that might meet perceived needs or offer opportunities for the organisation.

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to opportunities for the organisation, is the essential first step in innovation.23 People noted for their creativity include: Edwin Land, who invented the Polaroid camera; Richard Tait and Whit Alexander, who came up with the idea for the mega-hit board game Cranium; and Swiss engineer George de Mestral, who created Velcro after noticing the tiny hooks on the burrs caught on his wool socks. Each of these people saw unique and creative opportunities in a familiar situation. Characteristics of highly creative people are illustrated in the left-hand column of EXHIBIT 8.2. Creative people often are known for originality, open-mindedness, curiosity, a focused approach to problem solving, persistence, a relaxed and playful attitude, and receptivity to new ideas.24 Creativity can also be designed into organisations. Companies or departments within companies can be organised to be creative and initiate ideas for change. Most companies want more highly creative employees and often seek to hire creative individuals. However, the individual is only part of the story and each of us has some potential for creativity. Managers are responsible for creating a work environment that allows creativity to flourish.25 The characteristics of creative organisations correspond to those of individuals, as illustrated in the right column of EXHIBIT 8.2. Creative organisations are loosely structured. People find themselves in a situation of ambiguity, assignments are vague, territories overlap, tasks are loosely defined and much work is done by teams. Managers in creative companies embrace risk and experimentation. They involve employees in a varied range of projects, so that people are not stuck in the rhythm of routine jobs, and they drive out the fear of making mistakes that can inhibit creative thinking.26 Research shows that successful innovations are often accompanied by a high rate of failure. SurePayroll, a payroll-services company, gives out an annual ‘best new mistake’ cash award to keep people taking creative risks. Similarly, Grey, an advertising agency, awards an annual ‘heroic failure’ trophy.27 Creative organisations are those that have an internal culture of playfulness, freedom, challenge and grass-roots participation.28 EXHIBIT 8.3 shows the world’s top 10 innovative companies from the 2013 list in Fast Company. The creative individual Persistence Commitment Focused approach

1.

Conceptual fluency Open-mindedness

Resources allocated to creative personnel and projects without immediate payoff Reward system encourages innovation Absolution of peripheral responsibilities

Originality

2.

5.

The creative organisation

1.

EXHIBIT 8.2 Characteristics of creative people and organisations

2.

5.

3. 4.

Playfulness Undisciplined exploration Curiosity

Open channels of communication Contact with outside sources Overlapping territories; crosspollination of ideas across disciplines Suggestion systems, brainstorming, freewheeling discussions

3. 4.

Less authority Independence Self-confidence

Freedom to choose and pursue problems Not a tight ship, playful culture, doing the impractical Freedom to discuss ideas; long time horizon

Assigning nonspecialists to problems Eccentricity allowed Hiring outside your comfort zone

Decentralisation, loosely defined positions, loose control Acceptance of mistakes; rewarding risk-taking People encouraged to challenge their bosses

Sources: Based on Gary A. Steiner, ed., The Creative Organization (Chicago: University of Chicago Press, 1965), pp. 16–18; Rosabeth Moss Kanter. (July–August 1982). The Middle Manager as Innovator. Harvard Business Review, 104–5; James Brian Quinn. (May–June 1985). Managing Innovation: Controlled Chaos. Harvard Business Review, 73–84; Robert I. Sutton. (September 2001). The Weird Rules of Creativity. Harvard Business Review, 94–103; and Bridget Finn. (April 2005). Playbook: Brainstorming for Better Brainstorming. Business 2.0, 109–14.

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RANK

COMPANY

REASON

1

Nike

Revolutionary new products and a culture of true believers

2

Amazon

Speeding up delivery and the delivery of change

3

Square

Spreading the mobile payments revolution

4

Splunk

Bringing big data to the masses

5

Fab

Evolving into the online destination for design wares

6

Uber

The epitome of a data-driven disruptive start-up

7

Sproxil

For sticking it to companies selling fraudulent goods

8

Pinterest

For unlocking our image obsession

9

Safaricom

Bridging the health care gap with telecom

Target

For shrinking the box

10

EXHIBIT 8.3 The world’s most innovative companies, 2013

Source: (March 2013). The World’s 50 Most Innovative Companies. Fast Company, 86−156.

Arts Centre, creating friends of the orchestra, patrons and donors’ database. Currently I am furthering my education in Business Management by undertaking a Master of Enterprise program at the University of Melbourne, Melbourne Business School that I anticipate I will complete in 2017. This course gives me in-depth practical knowledge, a solid foundation for my skill base, and each subject is taught by an inspiring expert in the creative environment of likeminded people. I developed my business skills in diverse fields and have achieved significant outcomes for an international renewable energy start-up company as a part of the business development team. As the director of Business Development for TB Clean Energy, my main focus was on raising funds, creating business opportunities and added value for the company, project management, strategic marketing – bringing technology to the international energy market, presentations and pitches to investors, negotiation of deals with corporate and government bodies, and successfully obtaining grant applications. I managed this project together with a great team made up of a project investigator, expert scientists and the chief financial officer. Within one year we achieved US$5 million in funding, a contract with a large

AUSTRALIAN MANAGER PROFILE

Source: Courtesy Yanna Talpis

I was born in Moscow, Russia and moved to Melbourne, Australia in 2000. I have completed Masters Degrees in Performance/Orchestral Conducting from both the Russian Academy of Music in Moscow and the University of Melbourne, Conservatorium of Music in 2003. I have directed many performances at these academies and since 2007 worked on a challenging project – formation of the Gold Coast Symphony Orchestra – the first professional orchestra on the Gold Coast. I have developed my business skill base through involvement in a range of music and other business activities. I have also undertaken formal training by participating in the Masters of Arts Management program run by the Australian Institute of Music (AIM) in conjunction with the Sydney Opera House. I gained first-hand experience in the challenges of raising funds, sponsorship, donations and philanthropy as the founder and artistic director of the Gold Coast Symphony Orchestra. Founding and incorporating the Gold Coast Symphony Orchestra, included obtaining Deductable Gift Recipient (DGR) status, attracting sponsorship and donors in order to support 50 professional musicians and projects/ concerts, creating performing opportunities, marketing, working closely with the Gold Coast

YA N NA TALPIS, BUSINESS DEVELOPMENT CONSULTA NT

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energy corporation in the United States and have further prospective deals. The main challenge was to break through barriers and convince potential investors and stakeholders in the added value and competitive advantages of our disruptive novel technology. Other challenges included dealing with a complex decision-making process with multiple dimensions of value, lots of uncertainty, multiple stakeholders and large number of alternatives. I have learned first-hand that opportunities come when weaknesses and problems are identified and managed through analysis, understanding of the marketplace, industry and competition. The key factors are to work collaboratively with the team and stakeholders, to have clarity on the purpose and objectives of the project, and to develop effective strategies: business, operation, implementation, marketing and growth.

Our team achieved the company’s goals by shifting the focus from what we don’t want, to how we can achieve what we do want. This process was based on sound, rational analysis, market research and other relevant information. We focused on problem solutions, decision analysis and internal and external resources. Our success was due to the team culture, expertise, dedication, cooperation and constant strategic innovation of the product and technology, services, delivery and optimisation. In my opinion, the most important qualities of a leader are to be clear about the purpose of a project and its objectives, to have confidence in the team, to be supportive and to work in collaboration with all stakeholders. From my experience, the key qualities of a manager are: in-depth knowledge, trustworthy personality, strategic thinker, effective communicator, have a creative approach and a be a visionary thinker. Contributed by Yanna Talpis

bottom-up approach Encouraging the flow of ideas from lower levels and making sure they are heard and acted upon by top executives.

Innovative companies use a bottom-up approach, which means encouraging the flow of ideas from lower levels and making sure they get heard and acted upon by top executives.29 At Intuit, managers sponsor design for delight (D4D) forums, typically attended by more than 1000 employees. Two employees who had been at Intuit for only a few months came up with the idea of an online social network for the D4D initiative. In the first year, the network generated 32 ideas that made it to market.30 Japanese pharmaceutical firm Eisai Company encourages a ground-up flow of ideas with innovation community forums that focus on specific issues related to health care. As a result, technology is now available in Japan for dispensing medications in a jelly-like substance that Alzheimer’s patients can swallow easily.31 This chapter’s Management in practice describes a fun technique some companies use to get people to come up with creative ideas for solving specific problems. Some companies also use internal innovation contests. Mike Hall, chief executive officer of Borrego Solar Systems, holds ‘innovation challenge’ contests on the company intranet to encourage his shy, introverted engineers to express their ideas for improving the business. Employees vote on their favourites, and the winning idea receives a cash prize. One idea that was implemented was using software that enables sales and engineering teams to collaborate.32 Managers at the accounting and consulting firm PricewaterhouseCoopers (PwC) challenged the stereotype that accountants are boring and unimaginative by sponsoring an American Idol-style contest to spur employees to come up with creative ideas.

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MANAGEMENT IN PRACTICE USE SIX THINKING HATS FOR BETTER IDEAS A technique that can promote broader thinking is called the six thinking hats, which was developed by Edward de Bono. The model encourages people in a group to combine negative and critical thinking with positive and creative thinking. Participants either literally or figuratively wear a hat to represent a distinct perspective. The wearing of the hats helps individuals step out of their comfort zone and generate creative ideas in a risk-free environment. The six hats technique can transform a typical non-productive meeting into a highly creative problem-solving endeavour.

Neutral

Organisational

Emotional

THE SIX HATS ✚✚ Pink hat: this thinking hat is neutral and concerned with just the objective facts, figures and information pertaining to a problem.

✚✚ Red hat: this hat allows an emotional response to the subject.

Optimistic

Creative

It is a perspective based on feelings, intuitions, instincts and hunches.

✚✚ Green hat: the green hat is the one that generates new ideas, possibilities, alternatives and unique solutions for better problem solving.

✚✚ Black hat: this is the negative, pessimistic and critical hat that focuses on why a suggestion will not work. When people wear this hat, they point out the flaws and false assumptions in an idea.

✚✚ Yellow hat: the yellow hat is the opposite of the black hat. It is optimistic and focuses on the values and benefits of an idea. Its focus is on what will work.

✚✚ Purple hat: this hat is concerned with group facilitation. The group leader typically assumes the purple hat role, although any member can wear the purple hat from time to time.

Negative

USING THE TECHNIQUE To apply the six hats technique, schedule a specific time during a creative problem-solving meeting when every person in the group wears the same colour of hat – that is, takes the same perspective. A time is set aside when everyone uses rational, fact-based thinking (white hat), emotional thinking (red hat), creative thinking (green hat), and so forth. The result is that each perspective (hat) is heard in sequence, and negative views or arguments do not overwhelm creativity. Everyone together has a time to think of good ideas, as well as a time for finding weak points.

SOURCE: Based on Edward de Bono, Serious Creativity: Using the Power of Lateral Thinking to Create New Ideas (New York: HarperBusiness, 1992).

Just as important as creating ideas is turning them into action. Sadly, research indicates that in some contexts, employee-derived ideas are implemented only once every six years.33 ‘There’s nothing worse for morale than when employees feel like their ideas go nowhere,’ says Larry Bennet, a professor of entrepreneurship.34 At PwC, all of the final ideas were assigned a senior ‘champion’ who help the teams further develop and implement their proposals. Additional ideas generated by

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the top 20 semi-finalists were assigned to an idea incubator group. An idea incubator is a mechanism that provides a safe place where ideas from employees throughout the company can be developed without interference from company bureaucracy or politics.35

R EMEMBE R THIS ◗◗ ◗◗ ◗◗ ◗◗

A product change is a change in the organisation’s products or services.

◗◗

Using a horizontal linkage model means that several departments, such as marketing, research and manufacturing, work closely together to develop new products.

◗◗

An idea incubator is an organisational program that provides a safe harbour where employees can generate and develop ideas without interference from company bureaucracy or politics.

Technology change refers to a change in production processes – how the organisation does its work. Exploration involves designing the organisation to encourage creativity and the initiation of new ideas. Successful product and service innovation depends on cooperation, both within the organisation and with customers and others outside the organisation.

8.3

idea incubator An in-house program that provides a safe harbour where ideas from employees throughout the organisation, can be developed without interference from company bureaucracy or politics.

Another important aspect of innovation is providing mechanisms for both internal and external coordination. Ideas for product and technology innovations typically originate at lower levels of the organisation and need to flow horizontally across departments. In addition, people and organisations outside the firm can be rich sources of innovative ideas. Lack of innovation is widely recognised as one of the biggest problems facing today’s businesses. Consider that 72 per cent of top executives surveyed by BusinessWeek and the Boston Consulting Group reported that innovation is a top priority, yet almost half said they are dissatisfied with their results in that area.36 Thus, many companies are undergoing a transformation in the way they find and use new ideas, focusing on improving both internal and external coordination and cooperation.

Source: Intuit

Innovative companies such as Intuit want everyone to continually be coming up with new ideas. Founder Scott Cook encourages creativity during the exploration phase by embracing failure as readily as they do success. ‘I’ve had my share of really bad ideas,’ Cook admits. Yet failure can have hidden possibilities. Sticky notes, such as those shown here on Intuit’s board, were invented at 3M Corporation based on a failed product – a not-very-sticky adhesive that resulted from a chemist’s attempts to create a superglue. Post-it Notes became one of the best-selling office products ever.

COOPERATION

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TAKE A MOMENT As a new manager, you can inspire people to be more creative by giving them opportunities to explore ideas outside their regular jobs and encouraging them to experiment and take risks. Be open-minded and willing to listen to ‘crazy ideas’, and let people know it’s okay to make mistakes.

IN TERNA L C O O RDINATIO N Successful innovation requires expertise from several departments simultaneously, and failed innovation is often the result of failed cooperation.37 For instance, recent studies at the Massachusetts Institute of Technology (MIT) suggest that keeping research and manufacturing close together helps companies be more innovative. Sony, once the epitome of Japanese business and innovation success, is struggling because the company hasn’t created a successful product in years. Sony has been battered by one disruptive new technology or unexpected competitor after another, but the biggest problem is poor cooperation within the organisation. The company had the technology to create a music player like the iPod long before Apple came out with it (co-founder Akio Morita actually envisioned such a device in the 1980s), but divisions couldn’t cooperate to bring the idea to fruition. Today, top executives complain about managers who refuse to share information or work with other divisions. Consequently, the company makes gadgets that overlap and cannibalise one another and it offers disjointed services for different products, rather than an integrated platform to deliver music, movies and games.38 ‘Innovation is a team sport,’ says Drew Boyd, a businessman who speaks about innovation to other companies.39 Companies that successfully innovate usually have the following characteristics:

1 People in research and marketing actively work with customers to understand their needs and develop solutions.

2 Technical specialists are aware of recent developments and make effective use of new technology. 3 A new product development process is advocated and supported by top management, and cuts across organisational functions and units.

4 Employees from key departments – research, manufacturing, marketing – cooperate in the development of the new product or service.

5 Each project is guided by a core cross-functional team from beginning to end.40 One approach to successful innovation is called the horizontal linkage model, which is illustrated in the centre circle of EXHIBIT 8.4.41 The model shows that the research, manufacturing, sales and marketing departments within an organisation simultaneously contribute to new products and technologies. People from these departments meet frequently in teams and task forces to share ideas and solve problems. Research people inform marketing of new technical developments to learn whether they will be useful to customers. Marketing people pass customer complaints to research to use in the design of new products and to manufacturing people to develop new ideas for improving production speed and quality. Manufacturing informs other departments whether a product idea can be manufactured within cost limits. Throughout the process, development teams keep in close touch with customers. A study by McKinsey found that 80 per cent of successful innovators periodically test and validate customer preferences during development of new products and services.42 Unfortunately, ‘new products can take

horizontal linkage model An approach to product change that emphasises shared development of innovations among several departments.

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on a life of their own within an organisation, becoming so hyped that there’s no turning back,’ wrote Joan Schneider and Julie Hall, co-authors of The New Launch Plan: 152 Tips, Tactics, and Trends from the Most Memorable New Products. This is likely what happened with Coca-Cola’s failed introduction of ‘New Coke’ in the mid-1980s and its more recent launch of Coke C2, a failed product aimed at 20- to 40-year old men that promised half the calories and carbohydrates but all the taste of original Coca-Cola. The product development team became so committed to the new product that they failed to look objectively at marketing data.43 The horizontal linkage model is increasingly important in a high-pressure business environment that requires rapidly developing and commercialising products and services. Speed is a pivotal strategic weapon in today’s global marketplace.44 This kind of teamwork is similar to that needed in a rugby or football game, where players run together, passing the ball back and forth as they move downfield.45 By using a horizontal linkage model for new product development for the mobile industry, Corning, creators of Gorilla Glass for smartphones and tablets, has been highly effective in rapidly taking products from idea to success in the marketplace. Famous innovation failures – such as Microsoft’s Zune music platform – usually violate the horizontal linkage model.

EXT ERNA L C O O RDINAT I O N EXHIBIT 8.4 shows that organisations look outside their boundaries to find and develop new ideas. Engineers and researchers stay aware of new technological developments. Marketing personnel pay attention to shifting market conditions and customer needs. Some organisations build formal strategic partnerships such as alliances and joint ventures to improve innovation success.

EXHIBIT 8.4 Coordination model for innovation

Open innovation mechanisms

New technologies

nisation Orga

Manufacturing Department

Research Department

Marketing Department

Horizontal linkages Formal innovation partners

Customers, market needs

Successful companies often include customers, strategic partners, suppliers and other outsiders directly in the product and service development process. One of the hottest trends is open innovation.46 In the past, most businesses generated their own ideas in-house and then developed, manufactured, marketed and distributed them, which is a closed innovation approach. Today, however, forward-looking companies

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open innovation are trying a different method. Open innovation means extending the search for and commercialisation Extending the search for of new ideas beyond the boundaries of the organisation and even beyond the boundaries of the industry, and commercialisation of new ideas beyond sharing knowledge and resources with other organisations and individuals outside the firm. the boundaries of the For example, game maker Rovio extended the organisation. commercialisation of the Angry Birds brand into books, movies and toys by letting outsiders license the popular gaming app.47 Some of the best-selling products from consumer products company Procter & Gamble, including the Swiffer SweeperVac, Olay Regenerist and Mr Clean Magic Eraser, were developed in whole or in part by someone outside the firm.48 Even Apple, which has always been famously ‘closed’ in many ways, has found a way to tap into the power of open innovation. For example, although the company sets guidelines and technological constraints, it allows anyone to create and market mobile applications for the iPhone in exchange for a small share of the revenue generated by the apps. Apple has reported that the App Store created over How does ebay keep coming up with new approaches to business and new US$8.5 billion in revenue for the company in 2016.49 sources of income? By tapping into the collective intelligence of customers, The Internet has made it possible for companies to tap into employees and outsiders. ‘It is far better to have an army of a million than a command and control system,’ said eBay’s former CEO Meg Whitman, referring ideas from around the world and let hundreds of thousands to eBay’s approach of letting buyers and sellers largely determine how the company operates. The company thrives on this process of open innovation. eBay of people contribute to the innovation process, which is also runs an annual Innovation Demo Expo to encourage eBay employees to come why some approaches to open innovation are referred to up with new and innovative ideas that would benefit eBay buyers and sellers. as crowdsourcing. Fiat introduced the first crowdsourced car, the Mio, in 2010. The automaker launched a website asking people to think about what the car of the future should be like, and more than 17 000 people around the world submitted ideas.50 Oscar de la Renta has a ‘digital inspiration board’ on the Internet, where anyone can upload images for new designs to inspire the next fashion collection. Goldcorp, a Canadian gold mining firm, asked people to examine its geologic data over the Internet and submit proposals for locations to find more gold. With a prize to the top 25 finalists of CAD$500 000, the company received more than 475 000 tips and solutions, which confirmed many suspected deposits and identified some new ones.51 Crowdsourcing is also being used to gather creative ideas for solving social problems. After the devastating earthquake in Haiti in 2010, for example, relief workers trying to dispatch health care workers and supplies had 400 street addresses that might be health clinics. They asked for help over the Internet in ‘geotagging’ (putting coordinates on a map) the addresses, and nearly all 400 were mapped within 24 hours. Having people physically check addresses might have taken weeks. Similarly, following the disastrous 2011 earthquake and tsunami in Japan, crowdsourced maps gave local relief workers a better picture of the situation and helped them set priorities for distribution of food, shelter and sanitation services.52 innovation by acquisition Another approach to innovation in recent years has been to buy start-up companies in order to obtain A strategy to obtain their innovating products and services, and often the talent behind them as well. This innovation by innovation by buying other acquisition strategy recognises that the cutting edge of innovation often happens with the young, small, companies, recognising that the cutting edge of entrepreneurial companies rather than inside the walls of established firms. Google bought Android, innovation often happens and Facebook bought Instagram and Oculus. Hotmail wasn’t originally created by Microsoft; rather, it with young, small, entrepreneurial companies was bought by the firm in 1997. Look at almost any large, successful company today, particularly in fastrather than inside the walls moving industries, and you will find examples of innovation by acquisition. of established firms.

Source: Shutterstock.com/Ken Wolter

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TAKE A MOMENT Even as a new manager, you can make sure people are communicating and cooperating across organisational boundaries. Implement mechanisms to help your team or department members stay in touch with what’s happening in other departments and in the marketplace.

INNOVATIVE WAY PROCTER & GAMBLE Some of Procter & Gamble’s (P&G) best-selling products – the SwifferVac, Crest Spin Brush, Mr Clean Magic Eraser, Valentino Rock ‘n Rose Eau de Parfum and Olay Regenerist – were all developed in whole or in part by someone outside of the company. The technology for the Mr Clean Magic Eraser was originally developed by Germany’s BASF for soundproofing and insulation in the construction and automotive industries and the Crest Spin Brush was invented by a small entrepreneurial firm in Cleveland. In pursuit of developing the best ideas possible, P&G’s chief executive officer A. G. Lafley set a goal to get 50 per cent of the company’s innovation from outside the organisation, up from about 35 per cent in 2004 and 10 per cent in 2000. The company’s top executives estimated that for every P&G researcher there were 200 scientists elsewhere who were just as good as their own researchers. So P&G developed a detailed, well-organised process for open innovation with its connect and develop strategy, which taps into networks of inventors, scientists, academics,

partners and suppliers to embrace the collective brains of the world. When P&G wanted to make snacks more fun by printing trivia questions, animal facts, jokes and cartoon characters on its Pringles potato crisps, it drew up a technology brief defining the problem and circulated it throughout the global network. It turned out that a small bakery in Bologna, Italy, had an ink-jet method for printing edible images on cakes that P&G was able to adapt for use on the potato crisps. The innovation of Pringles Prints helped P&G’s North America Pringles division achieve double digit growth for the next two years. But P&G doesn’t just look for extensions of its current product categories. An important part of its open innovation process is networking with external scientists in new areas that could lead to totally new businesses. For instance, who would have thought that the company that brings us laundry detergents and nappies could rival beauty titan Chanel in premium fragrance sales? P&G’s systematic innovation capability has driven its growth and success across a wide range of consumer product sectors.

Sources: Huston, L. and Sakkab, N. (March 2006). Connect and Develop; Inside Procter & Gamble’s New Model for Innovation. Harvard Business Review, 58–66; Cloyd, G. G. (December 2004). P&G’s Secret: Innovating Innovation. Industry Week, 26–34; von Stamm, B. (2004). Collaboration with Other Firms and Customers: Innovation’s Secret Weapon. Strategy & Leadership, 32, 3; Berner, R. (12 August 2002). Why P&G’s Smile Is So Bright. BusinessWeek, 58–60; Hof, R. D. (11 October 2004). Building an Idea Factory. BusinessWeek, 194–200; Sellers, P. (31 May 2004). P&G: Teaching an Old Dog New Tricks. Fortune, 167–80; Byron, E. (12 November 2007). Bottle Curve; P&G’s Push Into Perfume Tests a Stodgy Marketer. The Wall Street Journal.

I N NOVAT I O N RO L E S

idea champion A person who sees the need for and champions productive change within the organisation.

The third aspect of product and technology innovation is creating structural mechanisms to make sure new ideas are carried forward, accepted and implemented. Managers can directly influence whether entrepreneurship flourishes in the organisation by expressing support of entrepreneurial activities, giving employees a degree of autonomy, and rewarding learning and risk-taking.53 One important factor is fostering idea champions. Remember, change does not occur by itself. Personal energy and effort are required to promote a new idea successfully. When Texas Instruments studied 50 of its new-product introductions, a surprising

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fact emerged: every new product that failed lacked a zealous champion. In contrast, most of the new products that succeeded had a champion. Managers made an immediate decision: no new product would be approved unless someone championed it. Similarly, at SRI International, a contract research and development firm, managers use the saying ‘No champion, no product, no exception’.54 Research confirms that successful new ideas are generally those that are backed by someone who believes in the idea wholeheartedly and is determined to convince others of its value.55 Sometimes a new idea is rejected by top managers, but champions are passionately committed to a new idea or product despite rejection by others. For example, Robert Vincent was fired twice by two different division managers at a semiconductor company. Both times, he convinced the president and chairman of the board to reinstate him to continue working on his idea for an airbag sensor that measures acceleration and deceleration. He couldn’t get approval for research funding, so Vincent pushed to finish another project in half the time and used the savings to support the new product development.56 Championing an idea successfully requires roles in organisations, as illustrated in EXHIBIT 8.5. Sometimes a single person may play two or more of these roles, but successful innovation in most companies involves the interplay of different people, each adopting one role. The inventor comes up with a new idea and understands its technical value but has neither the ability nor the interest to promote it for acceptance within the organisation. The champion believes in the idea, confronts the organisational realities of costs and benefits, and gains the political and financial support needed to bring it to reality. The sponsor is a high-level manager who approves the idea, protects the idea and removes major organisational barriers to acceptance. The critic counterbalances the zeal of the champion by challenging the concept and providing a reality test against hard-nosed criteria. The critic prevents people in the other roles from adopting a bad idea.57 Another way to facilitate entrepreneurship is through a new-venture team. A new-venture team is a unit separate from the rest of the organisation that is responsible for developing and initiating a major innovation.58 New-venture teams give free rein to members’ creativity because their separate facilities and location unleash people from the restrictions imposed by organisational rules and procedures. These teams typically are small, loosely structured and flexible, reflecting the characteristics of creative organisations described earlier in this chapter, in EXHIBIT 8.2. One good example is Nestlé’s Nespresso venture, which developed a line of high-quality coffees packaged in individual capsules for use in specially designed coffee machines. The team found itself hampered by the large company’s rules, structures and regulations. In addition, the project faced resistance from managers who feared the new premium line would hurt the existing Nescafé brand. Top managers moved the Nespresso business outside the existing structure so it could thrive with an entrepreneurial culture and promote innovative ideas.59 Procter & Gamble has established several new-business creation groups that search for and develop breakthrough ideas that cross multiple businesses and divisions. These teams are partly responsible for a dramatic increase in P&G’s innovation success rate.60 One variation of a new-venture team is called a skunkworks.61 A skunkworks is a separate small, informal, highly autonomous and often secretive group that focuses on breakthrough ideas for a business. The original skunkworks, which still exists, was created by Lockheed Martin more than 50 years ago. The essence of a skunkworks is that highly talented people are given the time and freedom to let creativity reign.62 Consider the clandestine Google X lab, which was so hush-hush that, until The New York Times wrote about it, even many of Google’s employees didn’t know it existed. Google X is a top-secret lab in an undisclosed location where engineers are working on shoot-for-the-moon ideas like driverless cars,

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new-venture team A unit separate from the mainstream of the organisation that is responsible for developing and initiating innovations.

skunkworks A separate small, informal, highly autonomous, and often secretive group that focuses on breakthrough ideas for the business.

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new-venture fund A fund providing resources from which individuals and groups can draw to develop new ideas, products or businesses.

space elevators that can collect information from or haul things into space, and robots that can attend a conference for you while you stay at the office.63 Similarly, at GM, the location of the skunkworks facility known as Studio X is kept secret even from the automaker’s top executives.64 A related idea is the new-venture fund, which provides resources from which individuals and groups can draw to develop new ideas, products or businesses. At Pitney Bowes, for example, the New Business Opportunity (NBO) program provides funding for teams to explore potentially lucrative but unproven ideas. The NBO program is intended to generate a pipeline of new businesses for the mail and document management services company. Similarly, Royal Dutch Shell puts 10 per cent of its R&D budget into the GameChanger program, which provides seed money for innovation projects that are highly ambitious, radical or long term and would get lost in the larger product development system.65 With these programs, the support and assistance of senior managers are often just as important as the funding.66

TAKE A MOMENT As a new manager, have the courage to promote useful change. Are you an idea champion for changes or new ideas you believe in? To find out, complete the ‘Taking charge of change’ self-assessment in this chapter.

EXHIBIT 8.5 Four roles in organisational change

Develops and understands technical aspects of idea Does not know how to win support or make a business of it

Provides reality test Looks for shortcomings Defines hard-nosed criteria that idea must satisfy

Inventor

Champion

Critic

Sponsor

Believes in idea and visualises benefits Confronts realities of cost, resources Obtains financial and political support Overcomes obstacles

High-level manager who removes barriers Approves and protects idea within organisation

Sources: Based on Harold L. Angle and Andrew H. Van de Ven. Suggestions for Managing the Innovation Journey. In Research in the Management of Innovation: The Minnesota Studies, ed. A. H. Van de Ven, H. L. Angle and Marshall Scott Poole (Cambridge, MA: Ballinger/Harper & Row, 1989); and Jay R. Galbraith. (Winter 1982). Designing the Innovating Organization. Organizational Dynamics, 5–25.

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Some companies extend the search for and commercialisation of innovative ideas beyond the boundaries of the organisation – a process called open innovation.

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Crowdsourcing, an open innovation approach, taps into ideas from around the world and lets thousands or hundreds of thousands of people participate in the innovation process, usually via the Internet.

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To increase innovation, managers develop an internal culture, philosophy and structure that encourages entrepreneurial activity.

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An idea champion is a person who sees the need for change and is passionately committed to making it happen.

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One structural mechanism that promotes entrepreneurship is the new-venture team, which is a unit separate from the mainstream organisation that is responsible for initiating and developing innovations.

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A variation of the new-venture team is a skunkworks: a separate, informal, highly autonomous and often secretive group that focuses on breakthrough ideas.

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A new-venture fund provides financial resources from which individuals or teams can draw to develop new ideas, products or businesses.

8.4

CHANGING PEOPLE AND CULTURE

All successful changes involve changes in people as well as culture. For example, getting products to market fast requires that people learn to work collaboratively. Changes in people and culture pertain to how employees think – changes in mindset. People change pertains to just a few employees, such as sending a handful of middle managers to a training course to improve their leadership skills. Culture change pertains to the organisation as a whole, such as when the IRS shifted its basic mindset from an organisation focused on collection and compliance, to one dedicated to informing, educating and serving customers (taxpayers).67 In the business world, Jeff Immelt at General Electric (GE) strives to replace the company’s famous obsession with bottom-line results with a new culture of risk taking, bold thinking and creative energy. New top managers at General Motors (GM) have been praised for pulling the company back from bankruptcy and achieving impressive financial results, but even Dan Akerson, who stood down as chief executive officer in January 2014, has said that in terms of changing the bureaucratic, tradition-bound culture, GM was at only about 25 per cent of where it wanted to be. One of Akerson’s goals was to get more women into top jobs, partly because he believes women can lead the radical culture change GM needs. Today, four of the company’s 12 directors are female, a woman heads global product development and some of the company’s biggest plants are run by women.68 On 15 January 2014, Mary Barra was appointed to the position of chief executive officer of GM, becoming the first female chief executive officer of a global automaker. Barra has over 33 years’ experience at GM and originally trained as an engineer. She has been credited with modifying GM’s culture during her time as Vice President of Global Human Resources and injecting an innovative ethos.69

people change A change in the attitudes and behaviours of a few employees in the organisation. culture change A major shift in the norms, values, attitudes and mindset of the entire organisation.

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Culture change of the magnitude required at GE and GM is not easy. Indeed, executives routinely report that improving people and corporate culture is their most difficult job.70 Two specific tools for changing people and culture are training and development programs and organisational development (OD).

CASE STUDY GENERAL ELECTRIC GE has long been revered as a hard-driving company focused on cost cutting and process efficiency, evaluating and rewarding its managers based on the continual improvement of operations and their ability to achieve bottom-line results. However, since he took over as chief executive officer Jeff Immelt has been on a mission to change that efficiency and productivity oriented culture to a culture more attuned to creativity, risk taking and innovation. In today’s environment, Immelt knows that efficiency is not enough. To shift the culture towards bold thinking and creative energy, Immelt began evaluating top executives on innovation-oriented traits such as ‘external focus’ and ‘imagination and courage’. Bonuses are now linked to a manager’s ability to generate new ideas, improve customer satisfaction, and boost sales. Division heads are expected to submit at least three ‘Imagination breakthrough’ proposals a year which go before the monthly commercial council for evaluation and possible funding. Immelt has already committed at least US$5 billion to breakthrough projects that take GE into a new line of business, a new geographic region, or a new customer base. For example, GE’s development of sodium batteries, smart patient rooms and a joint venture with Honda to create a small jet engine have all originated from Imagination Breakthrough proposals. Immelt has invested in GE’s research facilities and other structural mechanisms that foster a culture of creativity and imagination and has over 2500 total patents worldwide. Some executives hold ‘idea jams’,

where people from various divisions brainstorm ideas. A ‘virtual idea box’ allows people to collaborate and submit ideas over the Internet. Though Immelt knows the cultural shift is difficult for most of GE’s managers and employees, he believes the change is essential to keep GE relevant and thriving in the changing world of the 21st century. ‘These guys just aren’t dreamer types,’ said one consultant about GE’s workforce. ‘It almost seems painful to them, like a waste of time.’ Significantly, the conglomerate has moved to ‘disrupt’ their previously successful business model of ‘globalisation’ which works by making performance-rich products for developed countries and then adapting them to meet more localised conditions and needs in emerging countries. GE has looked to invert this innovation model by focusing on local markets and technologies then distributing them globally. Their electrocardiogram machine is a good example of this. The breakthrough technology, which was developed to satisfy medical conditions in India and China (portability and price focused), led to the creation of a handheld device that is now being used at accident sites and in doctors‘ offices across the globe. The business results tell the story, and in his first 10 years+ at the top of the company, Immelt’s continuing drive for company-wide innovation delivered 60 per cent growth in revenue and a doubling of profits. He led the business to harness new technologies, processes and ways of working (known as business models) which drive innovative business success into the next decade.

Sources: http://www.ge.com/about-us/fact-sheet (accessed 4 November 2013); http://www.gereports.com/reverse-innovation-how-ge-isdisrupting-itself/ (accessed 4 November 2013); Linebaugh, Kate (2011). Immelt and GE, 10 Years In. The Wall Street Journal, http://online.wsj. com/news/articles/SB10001424053111903648204576552392321918126 (accessed 4 November 2013); Jeffrey R. Immelt, Vijay Govindarajan and Chris Trimble (1 October 2009). How GE is Disrupting Itself. Harvard Business Review, http://web.ebscohost.com.ezp.lib.unimelb.edu.au/ehost/ pdfviewer/pdfviewer?sid=bddcacdd-a718-486b-a818-0029a5946025%40sessionmgr14&vid=5&hid=23 (accessed 4 November 2013); Brady, D. (28 March 2005). The Immelt Revolution. BusinessWeek, 64.

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T R A I N I NG A N D D E V E L O P M E N T Training is one of the most frequently used approaches to changing people’s mindset. A company might offer training programs to large blocks of employees on subjects such as teamwork, diversity, emotional intelligence, quality circles, communication skills or participative management. General Electric, for example, initiated new courses in marketing and idea generation to help shift attitudes and values. Training and development programs aimed at changing individual behaviour and interpersonal skills are a big business for consultants, universities and training firms. Successful companies want to provide training and development opportunities for everyone, but they might particularly emphasise training and development for managers, with the idea that the behaviour and attitudes of managers will influence people throughout the organisation and lead to culture change. A number of Silicon Valley companies, including Intel, AMD and Sun Microsystems, regularly send managers to the Growth and Leadership Center (GLC), where they learn to use emotional intelligence to build better relationships. Nick Kepler, when he was director of technology development at AMD, was surprised to learn how his emotionless approach to work was intimidating people and destroying the rapport needed to shift to a culture based on collaborative teamwork.71

O RGA N I S AT I O N D E V E L O P M E N T Organisation development (OD) is a planned, systematic process of change that uses behavioural science knowledge and techniques, to improve an organisation’s health and effectiveness through its ability to adapt to the environment, improve internal relationships and increase learning and problem-solving capabilities.72 OD focuses on the human and social aspects of the organisation and works to change attitudes and relationships among employees, helping to strengthen the organisation’s capacity for adaptation and renewal.73 OD can help managers address at least three types of current problems outlined below.74

1 Mergers/acquisitions. The disappointing financial results of many mergers and acquisitions are caused by the failure of executives to determine whether the administrative style and corporate culture of the two companies fit. Executives may concentrate on potential synergies in technology, products, marketing and control systems, but fail to recognise that two firms may have widely different values, beliefs and practices. These differences create stress and anxiety for employees, and these negative emotions affect future performance. Cultural differences should be evaluated during the acquisition process, and OD experts can be used to smooth the integration of two firms.

2 Organisational decline/revitalisation. Organisations undergoing a period of decline and revitalisation experience a variety of problems, including a low level of trust, lack of innovation, high turnover and high levels of conflict and stress. The period of transition requires opposite behaviours, including confronting stress, creating open communication and fostering creative innovation to emerge with high levels of productivity. OD techniques can contribute greatly to cultural revitalisation by managing conflicts, fostering commitment and facilitating communication.

3 Conflict management. Conflict can occur at any time and place within a healthy organisation. For example, a product team for the introduction of a new software package was formed at a computer company. Made up of strong-willed individuals, the team made little progress because members could

organisation development (OD) The application of behavioural science techniques to improve an organisation’s health and effectiveness through its ability to cope with environmental changes, improve internal relationships and increase learning and problemsolving capabilities.

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not agree on project goals. At a manufacturing firm, salespeople promised delivery dates to customers that were in conflict with shop supervisor priorities for assembling customer orders. In a publishing company, two managers disliked each other intensely. They argued at meetings, lobbied politically against each other and hurt the achievement of both departments. Organisation development efforts can help resolve these kinds of conflicts, as well as conflicts that are related to growing diversity and the global nature of today’s organisations. Organisation development can be used to solve the types of problems just described and many others. However, to be truly valuable to companies and employees, organisation development practitioners go beyond looking at ways to settle specific problems. Instead, they become involved in broader issues that contribute to improving organisational life, such as encouraging a sense of community, pushing for an organisational climate of openness and trust, and making sure the company provides employees with opportunities for personal growth and development.75 One study looked at the results of an OD project in a large metropolitan government department that was plagued by extremely high turnover, low morale, ineffective leadership and internal conflicts. OD consultants used a variety of activities over a period of four years to solve the crisis threatening the department. It was a long and sometimes difficult process; however, the study not only found that the OD interventions had highly beneficial results, but also that the positive impact lasted over a period of 30 years, and is continuing.76

O RGA NISAT ION DEV E L O P ME NT A C T I V I T I E S A number of OD activities have emerged in recent years. Three of the most popular and effective include the following: team building A type of OD intervention that enhances the cohesiveness of departments by helping members learn to function as a team.

1 Team-building activities. Team building enhances the cohesiveness and success of organisational

survey feedback A type of OD intervention in which questionnaires on organisational climate and other factors are distributed among employees and their results reported back to them by a change agent.

2 Survey-feedback activities. Survey feedback begins with a questionnaire distributed to

large-group intervention An approach that brings together participants from all parts of the organisation (and may include key outside stakeholders as well) to discuss problems or opportunities and plan for major change.

groups and teams. For example, a series of OD exercises can be used with members of crossdepartmental teams to help them learn to act and function as a team. An OD expert can work with team members to increase their communication skills, facilitate their ability to confront one another and help them accept common goals. employees on values, climate, participation, leadership and group cohesion within their organisation. After the survey is completed, an OD consultant meets with groups of employees to provide feedback about their responses and the problems identified. Employees are engaged in problem solving based on the data.

3 Large-group interventions. The need for bringing about fundamental organisational change in today’s complex, fast-changing world prompted a growing interest in applications of OD techniques to large group settings.77 The large-group intervention approach brings together participants from all parts of the organisation – often including key stakeholders from outside the organisation as well – to discuss problems or opportunities and plan for change. A large-group intervention might involve 50 to 500 people and last several days. The idea is to include everyone who has a stake in the change, then to gather perspectives from all parts of the system, and enable people to create a collective future through sustained, guided dialogue. Large-group interventions reflect a significant shift in the approach to organisational change from earlier OD concepts and approaches. EXHIBIT 8.6 lists the primary differences between the traditional OD model and the large-scale intervention model of organisational change.78 In the later approach,

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Traditional organisation development model

Large-group intervention model

Focus for action: Information Source: Distribution: Time frame: Learning:

Specific problem or group

Entire system

Organisation Limited

Organisation and environment Widely shared

Gradual

Fast

Individual, small group

Whole organisation

Change process:

Incremental change

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EXHIBIT 8.6 Organisation development approaches to culture change

Rapid transformation

Source: Journal of Applied Behavioral Science by Barbara Benedict Bunker and Billie T. Alban. Copyright 1992 by Sage Publications Inc. Journals. Reproduced with permission of Sage Publications Inc. Journals in the format Textbook via Copyright Clearance Center.

the focus is on the entire system, which takes into account the organisation’s interaction with its environment. The source of information for discussion is expanded to include customers, suppliers, community members, even competitors, and this information is shared widely so that everyone has the same picture of the organisation and its environment. The acceleration of change when the entire system is involved can be remarkable. In addition, learning occurs across all parts of the organisation simultaneously, rather than in individuals, small groups or business units. The result is that the largegroup approach offers greater possibilities for fundamental, radical transformation of the entire culture, whereas the traditional approach creates incremental change in a few individuals or small groups at a time.

ORG ANISATIO N DEV ELOPM EN T S T E P S OD experts acknowledge that changes in corporate culture and human behaviour are tough to accomplish and require major effort. The theory underlying OD proposes three distinct stages for achieving behavioural and attitudinal change: (1) unfreezing, (2) changing and (3) refreezing.79 The first stage, unfreezing, means that people throughout the organisation are made aware of problems and the need for change. This stage creates the motivation for people to change their attitudes and behaviours. Unfreezing may begin when managers present information that shows discrepancies between desired behaviours or performance and the current state of affairs. In addition, managers need to establish a sense of urgency to unfreeze people and create an openness and willingness to change. The unfreezing stage is often associated with diagnosis, which uses an outside expert called a change agent. The change agent is an OD specialist who performs a systematic diagnosis of the organisation and identifies work-related problems. He or she gathers and analyses data through personal interviews, questionnaires and observations of meetings. The diagnosis helps determine the extent of organisational problems and helps unfreeze managers by making them aware of problems in their behaviour.

unfreezing The stage of organisation development in which participants are made aware of problems in order to increase their willingness to change their behaviour. change agent An OD specialist who contracts with an organisation to facilitate change.

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INNOVATIVE WAY GENERAL ELECTRIC’S WORK-OUT GE’s ‘work-out’ began in large-scale off-site meetings facilitated by a combination of top leaders, outside consultants and human resources specialists. In each business unit, the basic pattern was the same. Hourly and salaried workers came together from many different parts of the organisation in an informal three-day meeting to discuss and solve problems. Gradually, the work-out events began to include external stakeholders, such as suppliers and customers, as well as employees. Today, work-out is not an event, but a process of how work is done and problems solved at GE. The format for work-out includes seven steps:

✚✚ Choose a work process or problem for discussion. ✚✚ Select an appropriate cross-functional team, to include external stakeholders.

✚✚ Assign a ‘champion’ to follow through on recommendations.

✚✚ Meet with leaders, who are asked to respond to recommendations on the spot.

✚✚ Hold additional meetings as needed to implement the recommendations.

✚✚ Start the process all over again with a new process or problem. GE’s work-out process forces a rapid analysis of ideas, the creation of solutions and the development of a plan for implementation. Over time, this large-group process creates an organisational culture where ideas are rapidly translated into action and positive business results. This GE approach has been so effective in contributing to that company’s success, that it has been widely copied and adapted in many other organisations. However, few have been able to replicate the GE success rate and high impact on performance improvement.

✚✚ Meet for several days and come up with recommendations to improve processes or solve problems. Sources: Ulrich, D., Kerr, S., Ashkenas, R., Burke, D. and Murphy, P. (2002). The GE Work-Out: How to Implement GE’s Revolutionary Method for Busting Bureaucracy and Attacking Organizational Problems – Fast! New York: McGraw-Hill; Quinn, J. (November 1994). What a Work-Out! Performance, 58–63; Bunker, B. B. and Alban, B. T. (December 1992). Conclusion: What Makes Large Group Interventions Effective? Journal of Applied Behavioral Science, 28:4, 570–91.

changing The intervention stage of organisation development in which individuals experiment with new workplace behaviour.

refreezing The reinforcement stage of organisation development in which individuals acquire a desired new skill or attitude and are rewarded for it by the organisation.

The second stage, changing, occurs when individuals experiment with new behaviour and learn new skills to be used in the workplace. This process is sometimes known as intervention, during which the change agent implements a specific plan for training managers and employees. The changing stage might involve a number of specific steps.80 For example, managers put together a coalition of people with the will and power to guide the change, create a vision for change that everyone can believe in, and widely communicate the vision and plans for change throughout the company. In addition, successful change involves using emotion as well as logic to persuade people and empowering employees to act on the plan and accomplish the desired changes. The third stage, refreezing, occurs when individuals acquire new attitudes or values and are rewarded for them by the organisation. The impact of new behaviours is evaluated and reinforced. The change agent supplies new data that shows positive changes in performance. Managers may provide updated

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data to employees who demonstrate positive changes in individual and organisational performance. Top executives celebrate successes and reward positive behavioural changes. At this stage, changes are institutionalised in the organisational culture, so that employees begin to view the changes as a normal, integral part of how the organisation operates. Employees may also participate in refresher courses to maintain and reinforce the new behaviours.

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Organisation development (OD) is a planned, systematic process of change that uses behavioural science techniques to improve an organisation’s health and effectiveness through its ability to cope with environmental changes, improve internal relationships and increase learning and problemsolving capabilities.

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OD can help managers with the task of blending corporate cultures following mergers and acquisitions, as well as with many other people-related problems.

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Team building is an OD intervention that enhances cohesiveness by helping groups of people learn to work together as a team.

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With survey feedback, OD change agents survey employees to gather their opinions regarding corporate values, leadership, participation, cohesiveness and other aspects of the organisation, then meet with small groups to share the results and brainstorm solutions to problems identified by the results.

◗◗ Large-group intervention is an OD approach that brings together people from different parts of the organisation (and often including outside stakeholders) to discuss problems or opportunities and plan for change. OD practitioners recommend a three-stage approach for changing people’s attitudes and behaviour.

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Unfreezing is the stage in which people are made aware of problems and the need for change.

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Changing is the ‘intervention’ stage of OD, when change agents teach people new behaviours and skills and guide them in using them in the workplace.

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At the refreezing stage, people have incorporated new values, attitudes and behaviours into their everyday work and the changes become institutionalised in the culture.

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Culture change is a major shift in the norms, values and mindset of the entire organisation.

Unfreezing requires diagnosing problems, which uses a change agent who is an OD specialist who contracts with an organisation to help managers facilitate change.

8.5

IMPLEMENTING CHANGE

The final step to be managed in the change process is implementation (also see Appendix to Chapter 6). A new, creative idea will not benefit the organisation until it is in place and being fully used. Earlier in this chapter, we described some of the reasons that employees resist change. Strategies for overcoming resistance and implementing change typically involve three approaches: making people aware of the need for change by creating a sense of urgency, analysing resistance through the force-field technique and using selective implementation tactics that suit the situation.

See Appendix to Chapter 6 for a discussion of the implementation process.

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C R E AT I NG A S E N S E O F U RG E N C Y

INNOVATIVE WAY STAYING IN THE PICTURE: TED’S CAMERAS Cameras are now sold in so many places and ways that a traditional camera store is threatened in new and different ways like never before. Mobile phones contain increasingly good cameras. Cameras can be bought from thousands of places on the Internet, without GST being paid and with low overhead costs. Chemist shops and many others have entered the camera business and are extending their ranges. People are increasingly developing and printing their own photos, or storing them online in the Internet cloud for friends and families to see. So how does a bricks and mortar camera shop, founded in 1970, survive, much less prosper? Ted’s, with 23 physical stores and a complementary online business, offers great service and advice, and still allows customers to feel the prospective purchases, and talk face to face with trained staff, which is

a market segment that clearly has not disappeared. With 13 per cent of the Australian market, and above-industryaverage growth, this company has adapted to the threats of new technology and channels of distribution, to use innovations such as publishing kiosks in their stores, allowing customers to customise their photographic publications into books, calendars, cards and many other products, in store. Most recently, Ted’s CEO Nic Peasley, announced its latest adaptation to market conditions, stating that the company would focus on moving to smaller store sizes to balance the increasing cost of renting retail sites – noting that stores larger than 120 m2 were simply too expensive to consider. Ted’s is a long-established and trusted brand, with good back-up service, and it is using this brand equity to move into new technology areas that complement its camera sales

Source: Ted’s Cameras

performance gap A disparity between existing and desired performance levels.

Many people are not willing to change unless they perceive a problem or a crisis. However, many problems are subtle, so managers have to recognise and then make others aware of the need for change.81 A crisis or strong need for change lowers resistance. To effectively lead change, managers help employees and stakeholders feel the need for change rather than just giving them facts and figures. A need for change is a disparity between existing and desired performance levels – which is often identified as a performance gap. Managers are responsible for monitoring threats and opportunities in the external environment as well as strengths and weaknesses within the organisation to determine whether a need for change exists. Big problems are easy to spot, but sensitive monitoring systems are needed to detect gradual changes that can fool managers into thinking their company is doing fine. An organisation may be in greater danger when the environment changes slowly, because managers may fail to trigger an organisational response. Failing to use accurate monitoring systems to understand the ongoing performance of planned change can place the organisation in danger as, over time, the gap between the expectations of the stakeholders and the performance of the organisation can widen to the point of damaging reputation and revenue; before managers begin to identify that there is a problem.

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portfolio. It is a family-owned company, with Brian Blythe and his three children on the board, and a managing director appointed from outside the family, Richard Robinson. The company was ranked 1838 in the top 2000 companies in Australia in 2013, and continues to expand with its 2016 acquisition of Paxtons three imaging retail outlets in New South Wales. Ted’s uses emails, Web presence and other

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new technologies to augment its traditional offerings as it moves into its fifth decade of operations. After more than 40 years, this company has a proud tradition of never having had a loss-making year, and it intends to keep that record going, despite the heightened competition. It has embraced new technologies and added them on to its base and trusted, more traditional brand.

Sources: McColl, G. (7–13 October 2010). Right Said Ted. BRW, 32; http://www.ibisworld.com.au/car/default.aspx?entid=7521 (accessed 7 January 2014); ‘Teds Cameras to launch updated store model’. (27 July 2016). Appliance Retailer, http://www.applianceretailer.com.au/2016/07/teds-cameras-launchesnew-store-model/#WEeTCdV96pp (accessed 11 January 2017); Halliday, F. (30 November 2016). Teds Cameras picks up Paxtons. Channel News, https://www.channelnews.com.au/teds-cameras-picks-up-paxtons/ (accessed 11 January 2017).

R E S I STA N C E T O C H A NG E FORCE-FIELD A NA LYSIS Force-field analysis grew from the work of Kurt Lewin, who proposed that change was a result of the competition between driving and restraining forces.82 Driving forces can be thought of as problems or opportunities that provide motivation for change within the organisation. Restraining forces are the various barriers to change, such as a lack of resources, resistance from middle managers or inadequate employee skills. When a change is introduced, management should analyse the forces that drive change (problems and opportunities) as well as the forces that resist it (barriers to change). By selectively removing forces that restrain change, the driving forces will be strong enough to enable implementation, as illustrated by the move from A to B in EXHIBIT 8.7. As barriers are reduced or removed, behaviour will shift to incorporate the desired changes. Just-in-time (JIT) inventory control systems schedule materials to arrive at a company just as they are needed on the production line. Suppose that in a manufacturing company, management’s analysis showed that the driving forces (opportunities) associated with the implementation of JIT were: (1) large cost savings from reduced inventories; (2) savings from needing fewer workers to handle the inventory; and (3) a quicker, more competitive market response for the company. Restraining forces (barriers) discovered by managers were: (1) a freight system that was too slow to deliver inventory on time; (2) a facility layout Driving forces (need for change) Inventory cost savings

Restraining forces (barriers to change) Freight system

Driving forces

Inventory cost savings

Facilities layout

EXHIBIT 8.7 Using force-field analysis to change from traditional to just-in-time inventory system

Reduced restraining forces Use of trucks Addition of docks

Fewer workers

Fewer workers Worker skills More competitive market response

force-field analysis The process of determining which forces drive and which resist a proposed change.

Union resistance to job loss

A. Traditional inventory system

Training program More competitive market response

Desired movement

Reassignment

B. Just-in-time inventory system

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that emphasised inventory maintenance over new deliveries; (3) worker skills inappropriate for handling rapid inventory deployment; and (4) union resistance to loss of jobs. The driving forces were not sufficient to overcome the restraining forces. To overcome the resistance to JIT, managers attacked the barriers. An analysis of the freight system showed that delivery by truck provided the flexibility and quickness needed to schedule inventory arrival at a specific time each day. The problem with facility layout was met by adding four new loading docks. Inappropriate worker skills were attacked with a training program to instruct workers in JIT methods and in assembling products with uninspected parts. Union resistance was overcome by agreeing to reassign workers no longer needed for maintaining inventory to jobs in another plant. With the restraining forces reduced, the driving forces were sufficient to allow the JIT system to be implemented.

U S E I M P L E M E N TAT I O N TA CT I C S Managers can use specific tactics to overcome resistance and more smoothly put changes into action. Researchers have studied various methods for dealing with resistance to change. The following five tactics, summarised in EXHIBIT 8.8, have proven successful.83

EXHIBIT 8.8 Tactics for overcoming resistance to change

APPROACH

WHEN TO USE

Communication, education

Change is technical. Users need accurate information and analysis to understand change.

Participation

Users need to feel involved. Design requires information from others. Users have power to resist.

Negotiation

Group has power over implementation. Group will lose out in the change.

Coercion

A crisis exists. Initiators clearly have power. Other implementation techniques have failed.

Top management support

Change involves multiple departments or reallocation of resources. Users doubt legitimacy of change.

Source: Reprinted by permission of Harvard Business Review. Based on ‘Choosing Strategies for Change’ by J. P. Kotter and L. A. Schlesinger, March–April 1979. Copyright © 1979 by the Harvard Business School Publishing Corporation. All rights reserved.

TAKE A MOMENT As a new manager, recognise that people often have legitimate and rational reasons for resisting change. Don’t try to bulldoze a change through a wall of resistance. Use force-field analysis to evaluate the forces that are driving a change and those that are restraining it. Try communication and education, participation and negotiation to melt resistance and enlist the support of top-level managers. Use coercion to implement a change only when absolutely necessary.

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TOP MANA GEM ENT SUP P O RT One survey found that 80 per cent of companies that are successful innovators have top executives who frequently reinforce the importance of innovation both verbally and symbolically.84 The visible support of top management helps overcome resistance. For instance, one of the primary correlates of the success of new business ventures is the strong support of top managers, which gives the project legitimacy.85 Top management support symbolises to all employees that the change is important for the organisation. Top management support is especially important when a change involves multiple departments or when resources are being reallocated among departments. Without top management support, changes can get bogged down in squabbling among departments or contradictory orders from lower-level managers.

INNOVATIVE WAY ENSR When top executives at ENSR began hearing that high employee turnover was hurting the company’s relationships with clients, they knew that something had to be done. ENSR is a full-service environmental services firm with around 3000 employees in 90 locations around the world. Long-term relationships with clients are the key to ENSR’s success. To attack the turnover problem, managers embarked on a process of changing the culture. To make people aware of the need for change (unfreezing), ENSR’s president and CEO travelled with the senior vice president of human resources (HR) to the largest 50 or so of ENSR’s global locations. They held round-table style meetings with employees and leadership workshops with ENSR managers. The change

stage included training. Surveys were conducted to find out what employees considered their primary needs. For example, supervisors were trained in how to help lowerperforming employees improve their performance and how to provide greater challenge and rewards to employees who showed high potential for leadership. Within a few years, new behaviours became the norm. Turnover dropped from 22 per cent to only 9 per cent, one of the lowest rates in the industry, and employees were recognised and rewarded for meeting high individual and collective goals (refreezing). ENSR continues to attract highquality employees to fill job openings, which helps to keep the high-performance culture alive.

Sources: Based on Bob Kelleher, ‘Employee Engagement Carries ENSR Through Organizational Challenges and Economic Turmoil,’ Global Business and Organizational Excellence 28, no. 3 (March–April 2009): 6–19.

COMMUNIC AT ION A ND EDUCAT I O N Communication and education are used when people who may resist change need information about it. Education is especially important when the change involves new technical knowledge or users are unfamiliar with the idea. Managers should also remember that implementing change requires speaking to people’s hearts (touching their feelings) as well as to their minds (communicating facts). Emotion is a key component in persuading and influencing others. People are much more likely to change their behaviour when they understand the rational reasons for doing so and see a picture of change that influences their feelings.86

PARTICIPAT ION Participation involves users and potential resisters in designing the change. This approach is timeconsuming but it pays off because users understand and become committed to the change. At Learning Point Associates, which needed to change dramatically to meet new challenges, the change team drew up a comprehensive road map for transformation but had trouble getting the support of most managers.

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The managers argued that they hadn’t been consulted about the plans and didn’t feel compelled to participate in implementing them.87 Studies have shown that proactively engaging front-line employees in upfront planning and decision making about changes that affect their work results in much smoother implementation.88 Participation also helps managers to determine potential problems and understand the differences in perceptions of change among employees.

NEGO T IAT ION Negotiation is a more formal means of achieving cooperation. Negotiation uses formal bargaining to win acceptance and approval of a desired change. For example, if the marketing department fears losing power when a new management structure is implemented, top managers may negotiate with marketing to reach a resolution. Companies that have strong unions frequently must formally negotiate change with the unions (as highlighted by the taxi industry and Qantas examples discussed earlier in this chapter). The change may become part of the union contract reflecting the agreement of both parties.

C OERC IO N Coercion means that managers use formal power to force employees to change. Resisters are told to accept the change or lose rewards or even their jobs. In most cases, this approach should not be used because employees feel like victims, are angry at change managers, and may even sabotage the changes. However, coercion may be necessary in crisis situations when a rapid response is urgent. For example, a number of top managers at Coca-Cola had to be reassigned or let go after they refused to go along with a new CEO’s changes aimed at revitalising the sluggish corporation.89 Managers can soften resistance and facilitate change and innovation by using smart techniques. By showing support for the change, communicating with employees, providing training and closely involving employees in the change process, managers can smooth implementation. In addition, change agents should never underestimate the importance of top management support for any change effort to succeed.

CASE STUDY A MINI CRISIS OF CULTURE AND PERFORMANCE When the German car manufacturer BMW took over the British Rover group in the mid 1990s, it acquired the famed Mini, which at the time had sold more than five and a half million cars over 40 years of production. Top executives soon broke up the Rover group and sold it piece by piece, keeping the Mini brand with an eye towards a product overhaul. However, new managers at the Cowley manufacturing plant in Oxford, England, soon realised that they had inherited something else besides the Mini – a poisonous culture born out of decades of apathy, labour–management conflict and low productivity. The factory workers didn’t seem to feel any pride in their work or commitment to the organisation’s success. In fact, most of them seemed to leave their minds

and hearts at the gate when they came to work. What little enthusiasm they showed was directed toward criticising management failures. Top executives at BMW, a company known for its high-quality products, advanced engineering and high performance, had clear plans for upgrading the Cowley facility, elevating manufacturing processes to worldclass standards and launching a new Mini that subsequently has taken the automotive world by storm. But managers at Cowley knew that unless they could first change the ‘us versus them’ attitude of the workforce, the project was doomed to failure. Managers at BMW’s Cowley, Oxford plant, faced the need for a major cultural overhaul. They began by

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shifting the plant to a self-directed team-based structure and training employees to work as part of a team. Teambuilding sessions, cross-training and coaching by external consultants helped people make the transition from working on a traditional assembly line to working in teams of eight to 15 members who rotate jobs and solve production problems. One person within each team is designated to be responsible for continuous team development, with a reduction in other day-to-day duties. The next aspect of the ‘wings’ (Working in Groups) change program was to involve employees directly in determining other changes the factory could make to improve effectiveness. Every two weeks, each of the three shifts shuts down production for a 45-minute period to discuss ideas for technology changes. As managers

implemented the ideas, more and more employees began to participate. BMW also instituted a ‘back to the track’ scheme that puts managers and directors on the production lines working side-by-side with plant workers. Employees saw first-hand that they – not the managers – were the ones with expertise and knowledge for solving production problems. The approach helped bridge the gulf between management and labour, and enhanced the empowerment process. Within three years, BMW had implemented more than 8000 ideas from employees. Production targets were exceeded by more than 60 per cent, contributing to significant cost savings. Plant workers now feel like an important part of the business rather than like pieces of production equipment.

Source: Watkins, J. (6 November 2003). A Mini Adventure. People Management, 32.

R EMEMBE R THIS ◗◗ ◗◗

A need for change is a disparity between actual and desired performance.

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There are many legitimate reasons why people resist change, such as self-interest, uncertainty or lack of trust.

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Force-field analysis is a technique for determining which forces drive a proposed change and which forces restrain it.

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Driving forces are problems or opportunities that provide motivation to change.

Many people aren’t willing to change unless they perceive a crisis, so managers need to create a sense of urgency that change is really needed.

Restraining forces are barriers such as a lack of resources or inadequate employee skills. The support of top executives is crucial to the successful implementation of a change. In addition, managers use a variety of techniques to smooth the implementation process.

Once the strategy and the structure for achieving mature sustainability is in place, implementation can proceed. It is important to note that organisational strategy relies on the acceptance of employees to adapt their ways of working to conform to new or revised goals set by senior management. This acceptance should never be taken for granted. For the workforce to willingly adopt new ways of working requires careful attention to employees' rational and emotional needs. Typically, this consideration is expressed through education and training, incentives and strong leadership and role modelling by managers. Perhaps the first thing to do in moving an organisation forward on sustainable development is to assess the value of the change. To do this, managers need to identify the gap between current environmental and social performance and the desired future state – the goals of the change. Understanding if their own company's goals are reasonable or even aspirational requires managers to identify the performance targets of other organisations with respect to sustainability.

SUSTAINABLE DEVELOPMENT IMPLEMENTING SUSTAINABLE DEVELOPMENT IN THE ORGANISATION

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As well, managers need to make themselves aware of the sentiments of internal stakeholders, such as employees and shareholders. Once the goals have been reviewed and agreed on, managers should continue to be sensitive to current stakeholder expectations, particularly employees’ mindset. There will be resistance and resistors. Some staff might feel comfortable with the existing state of the organisation and simply be averse to any changes at all. Others will see themselves as having something to lose from the new strategy, and yet others may just not understand or agree with the rationale for the strategy and hence not have their hearts in it. Workshops and training programs are often seen as useful activities to help employees identify the opportunities that change brings to an organisation. By giving staff a chance to share their thoughts, fears, hopes and insights, it is more likely that staff will begin to buy-in and accept the changes. For example, workshops can be designed in order that staff can come up with ideas to move sustainability forward – ideas such as saving on energy or materials use, improving supplier or customer relations, reducing water consumption, or improving working conditions and productivity. Further, these workshops can be extended to include external stakeholders, such as suppliers and key customers themselves. Meetings like these will generate new and innovative ideas. If done well, the workshops will build stakeholder relationship quality and engagement. Ultimately, the goal is to embed sustainability into the processes and values of the firm as well as its stakeholders’ procedures. A final piece of practical advice on managing changes, is to approach change as a rapid evolution rather than a revolution. Revolutions are risky and expensive, and they often fail. Evolutionary change focuses on incremental steps, and has a much higher likelihood of success. It requires carefully choosing pilot projects to demonstrate the success of the change. Work steadily on belief systems and incrementally build the new culture, broadening stakeholders’ own vision and goals.

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STUDY TOOLS

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RESPONSE TO THE MANAGEMENT CHALLENGE

REINVENTING SAMSUNG Samsung Electronics, described in the chapter-opening management challenge, has become a hotbed of technology and product change and is now the global leader in eight consumer electronics categories. The consulting firm Interbrand calculated that in 2006 Samsung was the world’s most valuable electronics brand. Between 2000 and 2005, the company won more awards from the Industrial Design Society than any other firm on the planet. One step executives took to create a new mindset that values creativity, cooperation and innovation over imitation and internal competition was to set up the Innovative Design Lab (IDS), where designers, engineers, marketers and managers from various disciplines took a year-long series of

courses aimed at fostering a collaborative environment. The courses also gave people the skills and confidence to risk thinking differently. At the IDS, designers are trained in how to better champion their ideas. Cross-discipline teams study consumers and create what-if scenarios about the world’s future buying patterns. Samsung stimulates creativity with the global design workshop, which sends employees to the world’s great art and design centres. Designers get Wednesday afternoons off to explore for ideas outside the office. Although managers admit it seemed like slow-going at first, over time these efforts transformed the culture at Samsung. The company also reflects the horizontal model. In the value innovation program (VIP) centre, cross-functional product teams work on problems and cutting-edge ideas without the interruption of phone calls,

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annoying administrative tasks or other day-to-day matters that distract people from the project. In a major shift from the past, Samsung is also involved in collaborative relationships with other organisations, such as a partnership with XM Satellite Radio to produce the first portable satellite radio combined with a digital music player. By 2011, Samsung was performing strongly, having survived the GFC and achieved global leadership in many markets. With its 344 000 employees, Samsung achieved US$21 billion in profits on sales revenue of US$220 billion. In 2012, it ranked number 9 on Interbrand’s best 100 Global Brands with a brand value estimated at just on US$33 billion. Samsung has achieved this progress through making quite remarkable investments in research and development and hence innovation, with some 50 000 of its people working in a network of 42 research centres globally. The company registered over 5000 patents in the United States in 2012 and won 27 innovation awards at the world’s largest consumer electronics show in 2013. Samsung has made great strides in consumer electronics, digital components and many related businesses in recent years, having started as a small Korean exporter some

70 years ago. Samsung invests 10 per cent of its revenue into research and development, often in projects that look 10 years ahead. Ten per cent of its research staff hold PhD degrees, and today they are focused on advancing the use and integration of technologies such as biotechnology, information technology and nanotechnology into next generation products that consumers will want. However, it would appear that the pace of innovation has outpaced Samsung’s ability to develop quality control systems that match new product and technology development. The pace of innovation hasn’t just taken Samsung by surprise. In 2016, there were multiple reports of iPhones igniting, and when GoPro’s Karma drones began falling out of the sky, the company had to issue a full factory recall of all Karma drones sold. Sources: Breen, B. (December 2005). The Seoul of Design. Fast Company, 90–9; Lewis, P. (19 September 2005). A Perpetual Crisis Machine. Fortune, 58–76; Hamm, S. and Rowley, I. (27 March 2006). Speed Demons. BusinessWeek, 68–76; Fackler, M. (25 April 2006). Electronics Company Aims to Create Break-Out Products. The New York Times; Samsung Annual Report 2013, http://www.samsung. com/us/aboutsamsung/investor_relations/financial_information/downloads/2013/ SECAR2012_Eng_Final.pdf (accessed 7 January 2014).

DISCUSSION QUESTIONS 1 Times of shared crisis, such as the 11 September 2001 terrorist attacks on the World Trade Center or the Brisbane floods of 2011, can induce many companies that have been bitter rivals to put their competitive spirit aside and focus on cooperation and courtesy. Do you believe this type of change will be a lasting one? Discuss. 2 Relatively new forms of organisational development are the ‘innovation sprint’ and ‘scrum’ approach and bring employees from diverse areas of the business together to produce innovative solutions to issues facing the organisation. Discuss how these new OD approaches can leverage strengths from all three of the OD activities detailed in this chapter. 3 What is meant by the terms internal and external forces for change? Which forces do you think are causes of change in a university? In a pharmaceuticals firm?

4 As a manager, how would you deal with resistance to change when you suspect employee fears of job loss are well founded? 5 How might businesses use the Internet to identify untapped customer needs through open innovation? What do you see as the major advantages and disadvantages of the open innovation approach? 6 Why do you think research has shown that idea champions are so essential to the initiation of change? Could they be equally important for implementation? 7 Analyse the driving and restraining forces of a change you would like to make in your life. Do you believe understanding force-field analysis can help you more effectively implement a significant change in your own behaviour?

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8 If you were a team leader in a graduate role, in charge of significantly older people in your team, how would you appeal to them to engage in significant change that might be required by your organisation? 9 You are a manager, and you believe the expense reimbursement system for salespeople is far too slow, taking weeks instead of days. How would you go about convincing other managers that this problem needs to be addressed?

ETHICAL CHALLENGE

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10 How do large-group interventions differ from OD techniques such as team building and survey feedback? 11 If you were the head of police in an Australian state police force, which technique do you think would be more effective for implementing changes in patrol officers’ daily routines regarding traffic stops: simply issuing an edict, communication and education or proactively engaging them through participation?

CROWDSOURCING

Last year, when Ai-Lan Nguyen told her friend, Greg Barnwell, that Off the Hook Tees was going to experiment with crowdsourcing, he warned her she wouldn’t like the results. Now, as she was about to walk into a meeting called to decide whether to adopt this new business model, she was afraid her friend had been right. Crowdsourcing uses the Internet to invite anyone, professionals and amateurs alike, to perform tasks such as product design that employees usually perform. In exchange, contributors receive recognition – but little or no pay. Ai-Lan, as vice-president of operations for Off the Hook, a company specialising in witty T-shirts aimed at young adults, upheld the values of founder Chris Woodhouse, who like Ai-Lan was a graphic artist. Before he sold the company, the founder always insisted that T-shirts be well-designed by top-notch graphic artists to make sure each screen print was a work of art. Those graphic artists reported to Ai-Lan. During the past 18 months, Off the Hook’s sales had stagnated for the first time in its history. The crowdsourcing experiment was the latest in a series of attempts to jump-start sales growth. Last spring, Off the Hook issued its first open call for T-shirt designs and then posted the entries on the web so people could vote for their favourites. The top five vote-getters were handed over to the in-house designers, who tweaked the submissions until they met the company’s usual quality standards. When CEO Rob Taylor first announced the company’s foray into crowdsourcing, Ai-Lan found herself reassuring the designers that their positions were not in jeopardy. Now Ai-Lan was all but certain she would have to go back on her word. Not only had the crowdsourced tees sold well, but Rob had put a handful of winning designs directly into production, bypassing the design department altogether. Customers didn’t notice the difference.

Ai-Lan concluded that Rob was ready to adopt some form of the web-based crowdsourcing because it made T-shirt design more responsive to consumer desires. Practically speaking, it reduced the uncertainty that surrounded new designs, and it dramatically lowered costs. The people who won the competitions were delighted with the exposure it gave them. However, when Ai-Lan looked at the crowdsourced shirts with her graphic artist’s eye, she felt that the designs were competent, but none achieved the aesthetic standards attained by her in-house designers. Crowdsourcing essentially replaced training and expertise with public opinion. That made the artist in her uncomfortable. More distressing, it was beginning to look as if Greg had been right when he’d told her that his working definition of crowdsourcing was ‘a billion amateurs want your job’. It was easy to see that if Off the Hook adopted crowdsourcing, she would be handing out pink slips to most of her design people, long-time employees whose work she admired. ‘Sure, crowdsourcing costs the company less, but what about the human cost?’ Greg asked. What future course should Ai-Lan argue for at the meeting? And what personal decisions did she face if Off the Hook decided to put the crowd completely in charge when it came to T-shirt design? W H AT D O YO U D O ? 1 Go to the meeting and argue for abandoning crowdsourcing for now, in favour of maintaining the artistic integrity and values that Off the Hook has always stood for. 2 Accept the reality that because Off the Hook’s CEO Rob Taylor strongly favours crowdsourcing, it’s a fait accompli. Be a team

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player and help work out the details of the new design approach. Prepare to lay off graphic designers as needed.

3 Accept the fact that converting Off the Hook to a crowdsourcing business model is inevitable, but because it violates your own personal values, start looking for a new job elsewhere.

SOURCES: Based on Boutin, P. (13 July 2006). Crowdsourcing: Consumers as Creators. BusinessWeek Online, http://www.businessweek.com/innovate/content/jul2006/id20060713_55844.htm?campaign_id= search; Howe, J. (June 2006). The Rise of Crowdsourcing. Wired, http://www.wired.com/wired/archive/14.06/crowds.html; Howe, J. Crowdsourcing Blog. http://www.crowdsourcing.com.

GROUP CHALLENGE

ARE YOU READY TO IMPLEMENT PERSONAL CHANGE?

Step 1. Think about a specific behaviour change – for example, stop smoking, schedule regular exercise, learn a new skill, adopt a healthier diet, drop a bad habit – you have considered making in your life. With that specific behaviour or habit in mind, carefully answer each item below as mostly true or mostly false for you. MOSTLY TRUE

1 To be honest, my problem is not so bad that it needs changing. 2 The behaviour may be a fault, but it is nothing that I really need to change. 3 I am aware of the issue, but I am fine with it. 4 I have been thinking that I would like to change that behaviour. 5 I wish I knew more about how to solve that problem. 6 I would like to understand that behaviour better to start changing it. 7 I am actually doing something about it right now. 8 I am really starting to change, but I am not there yet. 9 I am in the process of changing, but I want to be more consistent. 10 I have already completed the change and I do not plan to backslide.

MOSTLY FALSE

Step 2. Scoring and interpretation: The items above pertain to a person’s stage of readiness to implement a personal change. Each of the four stages is measured by three questions in the scale. Give yourself one point for each item marked mostly true. I. Pre-contemplation: items 1, 2, 3. Score ____________________________ II. Contemplation: items 4, 5, 6. Score _______________________________ III. Action: items 7, 8, 9. Score _________________________________ IV. Maintenance: items 10, 11, 12. Score ____________________________ You will probably find that you have a higher score for one of the stages, which means you are in that stage for your specific change. If you have the same score for two adjacent stages, then you are probably transitioning from one stage to the next. What does your score imply about your likelihood of success in making the change? Step 3. In groups of three to five students, take turns describing your desired change and the meaning of the stage you are in. Compare notes and discuss progress on each person’s change. Step 4. Discuss the answers to the following questions as a group: How likely is it that you will implement your desired change successfully? Why? To implement a personal change, how important is it to feel a strong need for change? Can you identify driving and restraining forces for the personal changes in your group? Which implementation tactics from this chapter would help your group members make the change? Why do you think so?

11 The change has become part of my day, and I notice if I do not stay with it. 12 The new behaviour is now a part of my life and I do not think about it any more. SOURCE: Based on Eileen A. McConnaughy, James O. Prochaska and Wayne F. Velicer. (1983). Stages of Change in Psychotherapy: Measurement and Sample Profiles. Psychotherapy: Theory, Research, and Practice, 20:3, 368–75.

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CASE FOR CRITICAL ANALYSIS

MALARD MANUFACTURING COMPANY

Malard Manufacturing Company produces control valves that regulate flows through natural gas pipelines. Malard has approximately 1400 employees and has successfully produced a standard line of control valves that are price competitive in the industry. However, whenever the production of a new control valve is required, problems arise. Developments in electronics, metallurgy and flow control theory require the introduction of new products every year or two. These new products have been associated with interdepartmental conflict and disagreement. Consider the CV305 which is in process. As usual, the research and development group developed the basic design, and the engineering department converted it into a prototype control valve. Now the materials department must acquire parts for the prototype and make plans for obtaining parts needed for production runs. The production department is to manufacture and assemble the product, and marketing is responsible for sales. Department heads believe that future work on the CV305 should be done simultaneously instead of sequentially. Marketing wants to provide input to research and development so that the design will meet customer needs. Production insists that the design fit machine limitations and be cost-efficient to manufacture – indeed, it wants to speed up development of the final plans so that it can acquire tooling and be ready for standard production. Engineering, on the other hand, wants to slow down development to ensure that specifications are correct and have been thoroughly tested. All of these controversies with the CV305 exist right now. Department managers are frustrated and becoming uncommunicative. The research and development and engineering departments are keeping their developmental plans secret, causing frustration for the

ON THE JOB VIDEO CASE

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other departments. Moreover, several department managers are new and inexperienced in new-product development. Julie Crandell, the executive vice-president, likes to keep tight control over the organisation. Department managers must check with her before making major decisions. However, with the CV305, she has been unable to keep things running smoothly. The span of control is so large that Crandell has no time to personally shepherd the CV305 through the system. On 1 November, Crandell received a memo from the marketing department head. It said, in part: ‘The CV305 must go to market immediately. This is urgent. It is needed now because it provides the precision control our competitors’ products already have. Three of our salespeople reported that loyal customers are about to place orders with competitors. We can keep this business if we have the CV305 ready for production in 30 days.’ QU E S T I O N S 1 What is the balance between vertical and horizontal structure in Malard Manufacturing? Is it appropriate that department managers always turn to the executive vice-president for help rather than to one another? 2 If you were Julie Crandell, how would you resolve this problem? What could you do to facilitate production of the CV305 over the next 30 days? 3 What structural changes would you recommend to prevent these problems in future new-product developments? Would a smaller span of control help? A project manager with responsibility for coordinating the CV305? A task force?

HONEST TEA: MANAGING CHANGE AND INNOVATION

Watch the following video to see how Honest Tea approaches its management functions. QUESTIO NS 1 Part of Honest Tea’s mission is to convince consumers to make healthier choices by offering innovative products. Based on what you saw in the video, describe at least two “disruptive innovations” this company has made to support this goal.

2 When Honest Tea decided to become a division of Coca-Cola, many employees and customers expressed resistance to that change. Based on what you know about the two companies, why do you think people might have resisted this change? 3 Of the implementation tactics described in the text, which tactics did Honest Tea’s leaders most likely use to overcome that resistance?

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ENDNOTES   1 McGregor, J., Arndt, M., Berner, R. Rowley, I., Hall, K., Edmondson, G., Hamm, S., Ihlwan, M. and Reinhardt, A. (24 April 2006). The World’s Most Innovative Companies. BusinessWeek, http://www.businessweek.com; Nussbaum B., Berner, R. and Brady, D. (1 August 2005). Get Creative. BusinessWeek, 60–8.  2 http://statements.qld.gov.au/Statement/2015/10/20/palaszczuk-government-backs-qldsstartup-revolution-with-40-million-business-development-fund  3 Conference Board Review. (September–October 2006). 90 Years in Business, 30–9.   4 Landler, M. (10 December 2007). Nokia Pushes to Regain U.S. Sales in Spite of Apple and Google. The New York Times.   5 Fackler, M. (25 April 2006). Electronics Company Aims to Create Break-Out Products. New York Times; Lewis, P. (19 September 2005). A Perpetual Crisis Machine. Fortune, 58–76.   6 Samsung: OLED company spotlight, http://www.oled-info.com/samsung-oled (accessed 9 March 2017).   7 Tibken, S. (22 June 2016). Samsung’s Gear 360 goes on sale in US on ‘limited basis’ for $350, CNET, http://www.cnet.com/au/news/samsungs-gear-360-vr-virtual-reality-camera-goeson-sale-in-us-for-350/ (accessed 9 March 2017).   8 Daft, R. L. (1982). Bureaucratic vs Nonbureaucratic Structure in the Process of Innovation and Change, in S. B. Bacharach (ed.). Perspectives in Organizational Sociology: Theory and Research. Greenwich, CT: JAI Press, 129–66.   9 Bavas, J. (5 September 2016). Uber goes street legal in Queensland, cab drivers accuse Government of sell-out, ABC News, http://www.abc.net.au/news/2016-09-05/ride-sharinggoes-street-legal-in-queensland-cab-drivers-rally/7814636 (accessed 9 March 2017). 10 Hannan, E. (1 March 2016). Qantas chief executive Alan Joyce backs workplace changes. Australian Financial Review, http://www.afr.com/news/policy/industrial-relations/qantas-chiefexecutive-alan-joyce-backs-workplace-changes-20160301-gn7gjl (accessed 9 March 2017). 11 G. Zaltman and Robert B. Duncan, Strategies for Planned Change (New York: Wiley Interscience, 1977). 12 Katherine Hobson, ‘Getting Docs to Use PCs,’ The New York Times, 15 March 2011. 13 Brian J. Hurn, ‘Management of Change in a Multinational Company,’ Industrial and Commercial Training 44, no. 2 (2012): 41–46. 14 Todd Datz, ‘No Small Change,’ CIO (15 February 2004): 66–72. 15 Dorothy Leonard-Barton and Isabelle Deschamps, ‘Managerial Influence in the Implementation of New Technology,’ Management Science 34 (1988): 1252–1265. 16 McGirt, E. (March 2012) ‘05: Square, For Making Magic Out of the Mercantile’ in The World’s 50 Most Innovative Companies. Fast Company, 83–5, 146. 17 David W. Norton and B. Joseph Pine II. (2009). Unique Experiences: Disruptive Innovations Offer Customers More Time Well Spent. Strategy & Leadership, 37:6, 4; and (17 April 2010). The Power to Disrupt. The Economist, 16. 18 Jeffrey R. Immelt, Vijay Govindarajan and Chris Trimble. (October 2009). How GE Is Disrupting Itself. Harvard Business Review, 3–11; and Navi Radjou. (9 November 2009). Polycentric Innovation: A New Mandate for Multinationals. The Wall Street Journal Online, http://online.wsj.com/article/SB125774328035737917.html (accessed 13 November 2009). 19 O’Reilly, C. A. III and Tushman, M. L. (April 2004). The Ambidextrous Organization. Harvard Business Review, 74–81; Tushman, M. L. and O’Reilly, C. A. III. (March–April 1999). Building an Ambidextrous Organization: Forming Your Own Skunk Works. Health Forum Journal, 42:2, 20–3. 20 Dobni, C. B. (2006). The Innovation Blueprint. Business Horizons, 329–39. 21 Rifkin, G. (Second Quarter 1998). Competing Through Innovation: The Case of Broderbund. Strategy + Business, 11, 48–58; Dougherty, D. and Hardy, C. (1996). Sustained Product Innovation in Large, Mature Organizations: Overcoming Innovation-to-Organization Problems. Academy of Management Journal, 39:5, 1120–53. 22 Reinmoeller, P. and van Baardwijk, N. (Summer 2005). The Link Between Diversity and Resilience. MIT Sloan Management Review, 61–5. 23 Leavy, B. (Autumn 2002). Creativity: The New Imperative. Journal of General Management, 28:1, 70–85; Amabile, T. M. (Fall 1997). Motivating Creativity in Organizations: On Doing What You Love and Loving What You Do. California Management Review, 40:1, 39–58; Matherly, T. A. and Goldsmith, R. E. (September–October 1985). The Two Faces of Creativity. Business Horizons, 8. 24 Vessels, G. (1982). The Creative Process: An Open-Systems Conceptualization. Journal of Creative Behavior, 16, 185–96. 25 Leavy. Creativity: The New Imperative; Amabile. Motivating Creativity in Organizations; Sternberg, R. J., O’Hara, L. A. and Lubart, T. I. (Fall 1997). Creativity as Investment. California Management Review, 40:1, 8–21.

26 James Brian Quinn. (May–June 1985). Managing Innovation: Controlled Chaos. Harvard Business Review, 63, 73–84; Howard H. Stevenson and David E. Gumpert. (March–April 1985). The Heart of Entrepreneurship. Harvard Business Review, 63, 85–94; Marsha Sinetar. (Winter 1985). Entrepreneurs, Chaos, and Creativity – Can Creative People Really Survive Large Company Structure? Sloan Management Review, 6: 57–62; Constantine Andriopoulos. (2003). Six Paradoxes in Managing Creativity: An Embracing Act. Long Range Planning, 36, 375–88; and Michael Laff. (July 2009). Roots of Innovation. T&D, 35–9. 27 The research studies and examples are reported in Sue Shellenbarger. (27 September 2011). Better Ideas Through Failure. The Wall Street Journal, D1. 28 Cynthia Browne. (August 1989). Jest for Success. Moonbeams, 3–5; and Rosabeth Moss Kanter (1983). The Change Masters (New York: Simon and Schuster). 29 J. C. Spender and Bruce Strong. (23 August 2010). Who Has Innovative Ideas? Employees. The Wall Street Journal, R5; and Rachel Emma Silverman. (29 August 2011). How to Be Like Apple. The Wall Street Journal, http://online.wsj.com/article/SB10001424053111904009304576 532842667854706.html (accessed 16 September 2011). 30 Roger L. Martin. (June 2011). The Innovation Catalysts. Harvard Business Review, 82–7. 31 Spender and Strong. Who Has Innovative Ideas? 32 Darren Dahl. (February 2010). Technology: Pipe Up, People! Rounding Up Staff Ideas. Inc., 80–1. 33 Reported in Rachel Emma Silverman, ‘For Bright Ideas, Ask the Staff,’ The Wall Street Journal, 17 October 2011, B7. 34 Dahl, ‘Technology: Pipe Up, People!’ 35 Sherry Eng,‘Hatching Schemes,’ The Industry Standard (27 November–4 December 2000): 174–175. 36 McGregor et al. The World’s Most Innovative Companies. 37 James I. Cash, Jr., Michael J. Earl and Robert Morison. (November 2008). Teaming up to Crack Innovation and Enterprise Integration. Harvard Business Review, 90–100; Barry Jaruzelski, Kevin Dehoff and Rakesh Bordia. (5 December 2005). Money Isn’t Everything. Strategy + Business, 41, 54–67; William L. Shanklin and John K. Ryans, Jr. (November–December 1984). Organizing for High-Tech Marketing. Harvard Business Review 62, 164–71; Arnold O. Putnam. (May–June 1985). A Redesign for Engineering. Harvard Business Review, 63, 139–44; and Joan Schneider and Julie Hall. (April 2011). Why Most Product Launches Fail. Harvard Business Review, 21–3. 38 Hiroko Tabuchi. (15 April 2012). How the Parade Passed Sony By. The New York Times, BU1. 39 Quoted in Janet Rae-DuPree. (7 December 2008). Teamwork, the True Mother of Invention. The New York Times. 40 Based on Gloria Barczak and Kenneth B. Kahn. (2012). Identifying New Product Development Best Practice. Business Horizons, 55, 293–305; Andrew H. Van de Ven. (1986). Central Problems in the Management of Innovation. Management Science, 32, 590–607; Richard L. Daft. (2010). Organization Theory and Design (Mason, OH: SouthWestern), pp. 424–425; and Science Policy Research Unit, University of Sussex. (1972). Success and Failure in Industrial Innovation (London: Centre for the Study of Industrial Innovation). 41 Based on Daft, Organization Theory and Design; and Lee Norris Miller. (November–December 2011). Debugging Dysfunctional Development. Industrial Management, 10–15. 42 Mike Gordon et al. (January 2010). The Path to Successful New Products. McKinsey Quarterly, http://www.mckinseyquarterly.com/The_path_to_successful_new_products_2489 (accessed 10 February 2012). 43 Reported in Schneide and Hall. Why Most Product Launches Fail. 44 Erik Brynjolfsson and Michael Schrage, ‘The New, Faster Face of Innovation,’ The Wall Street Journal Online, 17 August 2009, http://online.wsj.com/article/SB1000142405297020483030457 4130820184260340.html (accessed 21 August 2009). 45 Brian Dumaine, ‘How Managers Can Succeed Through Speed,’ Fortune (13 February 1989): 54–59; and George Stalk, Jr., ‘Time—The Next Source of Competitive Advantage,’ Harvard Business Review (July–August 1988): 41–51. 46 This discussion of open innovation is based on Henry Chesbrough. (Spring 2003). The Era of Open Innovation. MIT Sloan Management Review, 35–41; Ulrich Lichtenthaler. (February 2011). Open Innovation: Past Research, Current Debates, and Future Directions. Academy of Management Perspectives, 75–92; Julian Birkinshaw and Susan A. Hill. (2005). Corporate Venturing Units: Vehicles for Strategic Success in the New Europe. Organizational Dynamics, 34:3, 247–57; Amy Muller and Liisa Välikangas. (2002). Extending the Boundary of Corporate Innovation. Strategy & Leadership, 30:3, 4–9; Navi Radjou. (January–February 2005). Networked Innovation Drives Profits. Industrial Management, 14–21; and Henry Chesbrough. (Spring 2003). The Logic of Open Innovation: Managing Intellectual Property. California Management Review, 45:3, 33–58.

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47 Amy Muller, Nate Hutchins and Miguel Cardoso Pinto. (2012). Applying Open Innovation Where Your Company Needs It Most. Strategy & Leadership, 40:2, 35–42. 48 A. G. Lafley and Ram Charan. (2008). The Game Changer: How You Can Drive Revenue and Profit Growth with Innovation (New York: Crown Business); Larry Huston and Nabil Sakkab. (March 2006). Connect and Develop; Inside Procter & Gamble’s New Model for Innovation. Harvard Business Review, 58–66; and G. Gil Cloyd. (December 2004). P&G’s Secret: Innovating Innovation. Industry Week, 26–34. 49 Farhad Manjoo. (July–August 2010). Apple Nation. Fortune, 68–112; and Jorge Rufat-Latre, Amy Muller and Dave Jones. (2010). Delivering on the Promise of Open Innovation. Strategy & Leadership, 38:6, 23–8; Chuck Jones. (6 January 2017). Apple’s App Store generating meaningful revenue, Forbes, https://www.forbes.com/sites/chuckjones/2017/01/06/applesapp-store-generating-meaningful-revenue/#4a913c741eb6 50 Reported in Muller, Hutchins and Cardoso Pinto. Applying Open Innovation. 51 Elizabeth Holmes. (14 February 2012). Before the Dresses, the Ideas; Oscar de la Renta Invites Fans to Submit Visual Inspiration for Next Collection. The Wall Street Journal, http:// online.wsj.com/article/SB10001424052970204883304577221461560720548.html (accessed 17 February 2012); and Sang M. Lee, David L. Olson and Silvana Trimi. (2012). Innovative Collaboration for Value Creation. Organizational Dynamics, 41, 7–12. 52 Steve Lohr. (28 March 2011). Online Mapping Shows Potential to Transform Relief Efforts. The New York Times, http://www.nytimes.com/2011/03/28/business/28map.html?_r=1 (accessed 22 August 2012); and Tina Rosenberg. (28 March 2011). Crowdsourcing a Better World. The New York Times, http://opinionator.blogs.nytimes.com/2011/03/28/crowdsourcinga-better-world/ (accessed 29 March 2011). 53 Daniel T. Holt, Matthew W. Rutherford and Gretchen R. Clohessy. (2007). Corporate Entrepreneurship: An Empirical Look at Individual Characteristics, Context, and Process. Journal of Leadership and Organizational Studies, 13:4, 40–54. 54 Curtis R. Carlson and William W. Wilmot. (2006). Innovation: The Five Disciplines for Creating What Customers Want (New York: Crown Business). 55 Robert I. Sutton. (September 2001). The Weird Rules of Creativity. Harvard Business Review, 94–103; and Julian Birkinshaw and Michael Mol. (Summer 2006). How Management Innovation Happens. MIT Sloan Management Review, 81–8. 56 Jane M. Howell. (2005). The Right Stuff: Identifying and Developing Effective Champions of Innovation. Academy of Management Executive, 19:2, 108–19. 57 Harold L. Angle and Andrew H. Van de Ven. (1989). Suggestions for Managing the Innovation Journey. In Researching the Management of Innovation: The Minnesota Studies, ed. A. H. Van de Ven, H. L. Angle and Marshall Scott Poole (Cambridge, MA: Ballinger/Harper & Row). 58 C. K. Bart. (Summer 1988). New Venture Units: Use Them Wisely to Manage Innovation. Sloan Management Review, 35–43; Michael Tushman and David Nadler. (Spring 1986). Organizing for Innovation. California Management Review, 28, 74–92; Peter F. Drucker. (1985). Innovation and Entrepreneurship (New York: Harper & Row); and Henry W. Chesbrough. (March 2002). Making Sense of Corporate Venture Capital. Harvard Business Review, 80:3, 90–9. 59 Sebastian Raisch. (2008). Balanced Structures: Designing Organizations for Profitable Growth. Long Range Planning, 41, 483–508. 60 Bruce B. Brown and Scott D. Anthony. (June 2011). How P&G Tripled Its Innovation Success Rate. Harvard Business Review, 64–72. 61 Christopher Hoenig. (1 July 2000). Skunk Works Secrets. CIO, 74–6; and Tom Peters and Nancy Austin. (1985). A Passion for Excellence: The Leadership Difference (New York: Random House). 62 Hoenig. Skunk Works Secrets. 63 Claire Cain Miller and Nick Bilton. (13 November 2011). Google’s Lab of Wildest Dreams. The New York Times, http://www.nytimes.com/2011/11/14/technology/at-google-x-a-topsecret-lab-dreaming-up-the-future.html?pagewanted=all (accessed 14 November 2011). 64 Alex Taylor III. (5 September 2011). The New GM: A Report Card. Fortune, 38–46. 65 David Dobson. (26 October 2009). Integrated Innovation at Pitney Bowes. Strategy + Business Online, http://www.strategy-business.com/article/09404b?gko=f9661 (accessed 30 December 2009); and Cash et al. Teaming up to Crack Innovation and Enterprise Integration. 66 Robert C. Wolcott and Michael J. Lippitz. (Fall 2007). The Four Models of Corporate Entrepreneurship. MIT Sloan Management Review, 75–82. 67 Schein, E. H. (February 1990). Organizational Culture. American Psychologist, 45, 109–19; Eliza Newlin Carney. (October 2003). Calm in the Storm. Government Executive, 57–63. 68 Alan Murray. (7 May 2012). Women in a Man’s World: Dan Akerson of General Motors on Changing a Male-Dominated Culture. The Wall Street Journal, B11; and Alex Taylor III. The New GM: A Report Card. 69 (10 December 2013). Mary Barra Named GM CEO. Automaker’s First Female Chief. Forbes, http://www.forbes.com/sites/maggiemcgrath/2013/12/10/mary-barra-named-as-new-gm-

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CHAPTER 9 M A N AGING HU M A N R E S OU RC E S

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 explain the strategic role of human resource management (HRM)

2 explain what the changing social contract between organisations and employees means for workers and human resource managers, emphasising trends that influence HRM

3 show how organisations determine their future staffing needs through human resource planning

4 describe the tools managers use to recruit and select employees

5 describe how organisations develop an effective workforce through training and performance appraisal

6 explain how organisations maintain a workforce through the administration of wages and salaries, benefits and terminations.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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HRM AS A VEHICLE FOR UNDERSTANDING CULTURAL DIFFERENCES The Toyota Way, by Jeffrey Liker, highlights the four pillars that underpin the organisation’s approach to achieving excellence; focusing on a mix of philosophy, people, process, and problem solving (4P). Toyota sees its people (human resources) as central to the organisation meeting its goals for minimising wasted resources, building quality into work processes and systems, tailoring products to the needs of individual customers and ensuring that every product produced is free of defects and meets the organisation’s standards of quality control. It is easy to see the link between human resources and the other management functions: concurrent controls for monitoring quality typically rely on employees’ willingness to report work tasks or outcomes that are out of the ordinary; changes in an organisation’s strategic plans often rely on a workforce being capable of adapting to new routines; and leading requires managers to understand what their employees respect and require to motivate them to higher performance levels. Transferring ideas and concepts from one organisation to the next is not simple, and requires careful thinking about the fit of new plans and routines with the people of the organisation. For example, research on Toyota’s implementation of the Toyota Way into one of its affiliate companies in India, Toyota Kirloskar Motors, has highlighted the need to adjust management best practice approaches to fit with the unique

sociocultural and environmental factors. Transplanting an approach from one organisation to another, even from one division to another, typically won’t work (or at least won’t be effective) if the approach is forced onto workers. Human resource management serves a vital function for organisations helping to translate and adapt strategies into tailored programs of implementation: helping to identify talent within the organisation to capture opportunities for all parties; create training programs to develop staff capabilities to meet new strategic challenges; identify gaps in knowledge, capability and capacity to inform strategic planning and resourcing decisions. QU E S T I O N Given the rapid improvements in robotics, it is easy to assume that greater levels of automation will be seen in manufacturing companies, including Toyota. How would strategic plans for increasing the level of manufacturing automation impact on work roles for manufacturing staff within Toyota? What types of new jobs would be created from the increased use of robots in manufacturing lines? What types of existing jobs would become obsolete? What types of job roles do you think will always need to be filled by humans? How could you keep current employees motivated, knowing that some roles will not exist in a few years? Your challenge is to find a way to keep current employees motivated in their work, even though they know their role may be replaced by a robot in the near future. Sources: Liker, J. K. (2004). The Toyota Way: 14 management principles from the world’s greatest manufacturer. McGraw-Hill, Madison, WI; James, R., & Jones, R. (2014). Transferring the Toyota lean cultural paradigm into India: implications for human resource management. The International Journal of Human Resource Management 25 (15), 2174-2191, http://www.tandfonline.com/doi/abs/10.1080/ 09585192.2013.862290

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NEW MANAGER SELF-ASSESSMENT GETTING THE RIGHT PEOPLE ON THE BUS As a new manager, how much emphasis will you give to getting the right people on your team? How much emphasis on people is needed? Find out by answering the following questions based on your expectations and beliefs for handling the people part of your management job. Please answer whether each item is mostly true or mostly false for you. MOSTLY TRUE MOSTLY FALSE

1 I will readily fire someone who isn’t working out for the interests of the organisation. 2 Selecting the right people for a business team is as important as it is to a winning sports team. 3 I expect to spend 40 per cent to 60 per cent of my management time on issues such as recruiting, developing and placing people. 4 I will articulate a realistic picture of all aspects of the job which will scare off the wrong people for the job. 5 My priority as a manager is to: hire the right people, put people in the right positions and then decide the vision and strategies. 6 With the right people on my team, problems of motivation and supervision will largely go away. 7 Hiring the right people is a lengthy and arduous process. 8 I view firing someone as helping them find the place where they belong to find fulfilment. Scoring and Interpretation: Most new managers are shocked at the large amount of time, effort and skill required to recruit, place and retain the right people. In recent years, the importance of ‘getting the right people on the bus’ has been described in popular business books such as Good to Great and Execution. The right people can make an organisation great; the wrong people can be catastrophic. Give yourself one point for each item you marked as mostly true. If you scored four or less you may be in for a shock as a new manager. People issues will take up most of your time, and if you don’t manage the issues, your effectiveness will suffer. You should learn how to get the right people on the team, and how to get the wrong people off the team. The faster you learn these lessons, the better manager you will be. A score of five or more suggests you have the right understanding and expectations for becoming a manager and dealing with people. Source: Based on ideas presented in Jim Collins, Good to Great: Why Some Companies Make the Leap and Others Don’t (New York: Harper Business, 2001).

The hypothetical situation at Toyota provides a dramatic example of the challenges managers face every day. Hiring and retaining quality employees is one of the most urgent concerns of today’s managers.1 The impact of technology on work processes produces another challenge of keeping current staff skilled and efficient in using the tools that keep their organisations competitive. The people who make up an

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organisation give the company its primary source of competitive advantage, so talent management is a top priority for smart managers. As business becomes increasingly international, talent pools are now global, as is the demand from other businesses for talented employees. It is getting easier to find good new staff, but it’s also increasingly difficult to keep great staff. This chapter explores the topic of human resource management in detail. The term human resource management (HRM) refers to the design and application of formal systems in an organisation to ensure the effective and efficient use of human talent to accomplish organisational goals.2 This includes activities undertaken to attract, develop and maintain an effective workforce. Managers have to find the right people, place them in positions where they can be most effective and develop them so they contribute to company success. The role of managers at Electronic Arts, one of the world’s largest makers of video games, includes a commitment to human resources as one of the company’s four worldwide goals. Because the company’s strategic success is determined by the creativity and mind power of artists, designers, model makers, mathematicians and filmmakers, the competition for talent is intense and commitment to human resources is essential.3 Over the couple of decades, HRM has shed its old ‘personnel’ image and gained recognition as a vital cog in corporate strategy.4 Increasingly, large corporations are outsourcing routine HR administrative activities, enabling HRM staff to take on more strategic responsibilities. Recruitment and selection plus training are the two most commonly outsourced activities in Australia.5 Many specialist companies conduct efficient payroll and human resource administration services, which allows their clients to specialise in the client’s core businesses. ‘Many organisations are looking for their HR leader to be able to understand in great detail the business and the challenges of the business,’ says Fran Luisi of Charleston Partners which specialises in recruiting HR managers. The growing importance of the HRM function is reflected in trends showing current and former HR managers are increasingly being sought to sit on company boards. Important topics of executive compensation and changing government regulations, and the frequency of mergers and acquisitions, makes HRM a critical skill for both business and not-for-profit organisations.6 All managers need to be skilled in the basics of HRM.

human resource management (HRM) Activities undertaken to attract, develop and maintain an effective workforce within an organisation.

THE STRATEGIC ROLE OF HRM IS TO DRIVE ORGANISATIONAL PERFORMANCE 9.1

A survey of more than 1700 chief executive officers around the world found that human capital was cited as the top factor in maintaining competitive success, which reflects the critical role of managing talent. Smart managers know that employees are the company – if they don’t perform well, the company doesn’t stand a chance of succeeding. Human capital refers to the economic value of the combined knowledge, experience, skills and capabilities of employees.7 EXHIBIT 9.1 shows the top three factors cited by chief executive officers in the survey. Human capital ranked far higher than assets such as technology, physical resources and access to raw materials.8

human capital The economic value of the knowledge, experience, skills and capabilities of employees.

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EXHIBIT 9.1 Top three factors for maintaining competitive success

Percentage of CEOs reporting these factors as important for competitive success: Human capital

71%

Customer relationships

66%

Product and service innovation

52%

Source: ‘Leading through Connections: The IBM 2012 Chief Executive Officer Study’, reported in Eric Lesser and Carl Hoffman. Workforce Analytics: Making the Most of a Critical Asset. (July–August 2012). Ivey Business Journal, http://www.iveybusinessjournal. com/topics/strategy/workforce-analytics-making-the-most-of-a-critical-asset (accessed 27 August 2012).

T H E ST R AT E G I C A P P ROA C H The best HR departments not only support strategic objectives, but also actively pursue an ongoing, integrated plan for furthering the organisation’s performance.9 Research has found that effective human resource management and the alignment of HR strategies with the organisation’s strategic direction, has a positive impact on performance, including higher employee productivity and stronger financial results.10 When Anglo American PLC (a large mining company with operations in Australia, South America, North America and Africa) adopted a strategy to begin digging for iron ore in a remote area of Brazil, the HR department worked to create a pool of well-trained local employees to work the mines. About 650 local employees were trained and hired by Anglo and its affiliated contractors between 2013 and 2017 – giving local communities an important source of employment for an extended period of time. Hiring and keeping high-quality employees with the right set of skills is one of the most urgent concerns for today’s organisations.11 By training young people who otherwise would have few options for employment, Anglo is ensuring that it will have a stable, well-trained workforce for years to come.

INNOVATIVE WAY ANGLO AMERICAN PLC ‘There are lots of people in this area who were simply unemployable,’ said Pedro Borrego, director of HR at the Anglo American operation in Brazil. He was talking about the company’s Minas Gerais iron ore mine, located in a town where cows outnumber people almost two to one. Anglo American (Anglo) is one of the world’s largest diversified mining companies, with copper, diamond, iron ore and other mines all over the world. The company was first drawn to Minas Gerais in 2007 by the region’s rich reserves of iron ore. The problem was finding people to work the mines. Managers knew that hiring locally was the key to getting a loyal, stable workforce. In some areas, companies can partner with local colleges to fund a training program, but that wasn’t an option here. So, Anglo renovated a crumbling grade school

and set up its own classes to teach local people everything from welding parts to repairing diesel engines and operating conveyor belts. More than 20 per cent of the workers being trained are women, compared to fewer than 10 per cent at mining firms globally, thanks in part to incentives that Anglo is offering to mothers. The first class of 151 trainees graduated in January 2013, with some hired by Anglo and others hired by contractors. The company plans to train 500 more local people over the next three years. ‘My parents are farmers, and I wanted to be a teacher,’ said 22-year-old Vanessa Carvalho Reis. Now she is training to be an operator at a plant where Anglo American will pump iron ore through a series of mixers and crushers to enrich the metal.

Source: John W. Miller, ‘Wanted: Miners in Brazil for Anglo American,’ The Wall Street Journal, 19 May 2013, http://online.wsj.com/news/articles/ SB10001424127887324582004578461171873348926 (accessed 9 October 2013).

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The strategic approach to HRM recognises three key elements. First, all managers are involved in managing human resources. Second, employees are viewed as assets. No strategy can be implemented effectively without the right people to action it. Employees, not buildings and machinery, give a company its competitive edge. Third, HRM is a matching process, integrating the organisation’s strategy and goals with the correct approach to managing human capital.12 Some current strategic issues of particular concern to managers include the following:

◗◗ ◗◗ ◗◗ ◗◗

Hiring the right people to become more competitive on a global basis. Hiring the right people for improving quality, innovation and customer service. Knowing the right people to retain after mergers, acquisitions or downsizing.

Hiring the right people to apply new information technology (IT) for e-business. All of these strategic decisions determine a company’s need for skills and employees. This chapter examines the three primary goals of HRM, as illustrated in EXHIBIT 9.2. HRM activities and goals do not take place inside a vacuum, but within the context of issues and factors affecting the entire organisation. Such factors include: globalisation, changing technology, the need for rapid innovation, quick shifts in markets and the external environment, societal trends, government regulations and changes in the organisation’s culture, structure, strategy and goals. The three broad HRM activities outlined in EXHIBIT 9.2 are to find the right people, manage talent so that people achieve their potential and maintain the workforce over the long term.13

EXHIBIT 9.2 Strategic human resource management

Find the right people HRM planning Job analysis Forecasting Recruiting Selecting

Company strategy Maintain an effective workforce Wages and salary Benefits Labour relations Terminations

Manage talent Training Development Appraisal

BUILDING HUMAN CAPITAL TO DRIVE PERFORMANCE Today, more than ever, strategic decisions are related to human resource considerations. In many companies, especially those that rely more on employee information, creativity, knowledge and service rather than on production machinery, success depends on the ability to manage human capital.14 To build

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human capital, HRM develops strategies for finding the best people, enhancing their skills and knowledge with training programs and opportunities for personal and professional development, and providing compensation and benefits that support the sharing of knowledge and appropriately reward people for their contributions to the organisation.15 The importance of human capital for business results is illustrated in EXHIBIT 9.3, which shows a portion of a framework developed by Accenture PLC and used by software and services company SAP SE. SAP needed a way to evaluate and revise its human capital processes to shift to a new strategy that called for stronger customer focus and greater individual employee accountability. The idea is to show how investments in human capital contribute to stronger organisational performance and better financial results. The framework begins at the bottom (level 3) by assessing internal processes such as workforce planning, career development, performance appraisal and so forth. Managers use these activities to increase human capital capabilities that drive higher performance in key areas such as innovation or customer service (level 2). Improvements in key performance areas, in turn, lead to improved business results (level 1).16

EXHIBIT 9.3 The role and value of human capital investments

Level 1

Revenue growth

ROIC or ROE

Total return to shareholders

Business results Level 2

Productivity

Quality

Innovation

Customer service

Key performance drivers Level 3

Career development

Human capital strategy

Rewards and recognition

Recruiting

Performance appraisal

Workforce planning

Human capital processes Source: Adapted from Susan Cantrell et al. (2006). Measuring the Value of Human Capital Investments: The SAP Case. Strategy & Leadership, 34:2, 43–52. Copyright 2006 by Emerald Group Publishing Limited. Reproduced with permission.

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TAKE A MOMENT As a new manager, recognise that human capital is the organisation’s most valuable asset. If you are involved in hiring decisions, look for the best people you can find, and then treat them like gold, providing opportunities to learn, grow and develop new skills and earn appropriate compensation and benefits. Strive to build a high level of social capital for your team or department so that people work together smoothly and relationships are based on trust, respect and cooperation.

R EMEMBE R THIS ◗◗

Human resource management (HRM) refers to the design and application of formal systems to ensure the effective and efficient use of human talent to accomplish organisational goals.

◗◗ ◗◗

HRM includes activities undertaken to attract, select, develop and maintain an effective workforce.

◗◗

Human capital refers to the economic value of the combined knowledge, experience, skills and capabilities of employees.

◗◗

Mining giant Anglo American PLC created its own training facility to develop a pool of skilled, dedicated employees for its iron ore mining operations in Brazil.

HR managers are vital players in corporate strategy because no strategy can be effective without the right people to action it.

9.2

THE CHANGING NATURE OF CAREERS

Another current issue is the changing nature of careers and a shift in the relationship between employers and employees.

T H E C H A NG I NG S O C I A L CO N T R A CT In the old social contract between organisation and employee, the employee could contribute ability, education, loyalty and commitment and expect in return that the company would provide wages and benefits, work, advancement and training throughout the employee’s working life. Then along came globalisation, outsourcing, hyper-competition, and other volatile changes in the environment. Consider the following list found on a bulletin board at a company undergoing major restructuring.

◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗

We can’t promise you how long we’ll be in business. We can’t promise you that we won’t be acquired. We can’t promise that there’ll be room for promotion. We can’t promise that your job will exist until you reach retirement age. We can’t promise that the money will be available for your pension.

We can’t expect your undying loyalty, and we aren’t even sure we want it.17 The global financial crisis (GFC) and ongoing sluggish economic performance of major economies around the world has accelerated the erosion of the old social contract.18 The above list reflects a primarily

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negative view of the new employer–employee relationship, but there are positive aspects as well. In a sense, companies and employees become allies helping one another grow stronger. Employees help the company become more adaptable, while the company helps the employee become more employable.19 Many young people don’t have any desire to stay with one company throughout their careers. They like the expectation of responsibility and mobility embedded in the new social contract. Chief executive officer Reed Hastings of Netflix says that at his company ‘We’re a team; not a family’.20 Everyone is expected to be a self-motivated worker who is continuously acquiring new skills and demonstrating value to the organisation. Workplace expert Lynda Gratton says building trust is more important than loyalty today, when ‘serial career monogamy’ is the order for many young employees, who are continually evaluating whether their work is meaningful and challenging and fits with their lives.21 EXHIBIT 9.4 lists some elements of the new social contract. The new contract is based on the concept of employability rather than lifetime employment. Individuals are responsible for developing their own skills and abilities, understanding their employer’s business needs and demonstrating their value to the organisation. The employer, in turn, invests in creative training and development opportunities so that people will be more employable when the company no longer needs their services. This means offering challenging work assignments, opportunities to participate in decision making, and access to information and resources. In addition, an important challenge for HRM is revising performance evaluation, compensation and other practices to be compatible with the new social contract. For example, with the tough economy in recent years, companies have had to lay off thousands of experienced employees. Many organisations, including KPMG, IBM, Microsoft and Lockheed Martin, have set up ‘alumni social networks’ so that people who have had to be let go, can keep in touch with colleagues and the industry. Alumni social networks benefit the company by keeping managers in touch with qualified workers who might be recruited back when needed, and they benefit former employees by giving them access to information, contacts and job leads that they might otherwise not have.22

EXHIBIT 9.4 The changing social contract

Employee

Employer

NEW CONTRACT

OLD CONTRACT

Employability; personal responsibility

Job security

Partner in business improvement

A cog in the machine

Learning; skill development

Knowing

Creative development opportunities

Standard training programs

Lateral career moves; incentive compensation

Traditional compensation package

Challenging assignments

Routine jobs

Information and resources; decision-making authority

Limited information

Sources: Based on Louisa Wah. (January 1998). The New Workplace Paradox. Management Review, 7; and Douglas T. Hall and Jonathan E. Moss. (Winter 1998). The New Protean Career Contract: Helping Organizations and Employees Adapt. Organizational Dynamics, 22–37.

I N NOVAT I O N S I N H R M The field of HRM is constantly changing. Some important HRM issues today are branding the company as an employer of choice, addressing the needs of temporary employees and part-time workers, and acknowledging growing employee demands for a work–life balance.

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BRAN D ING THE C OM PA NY AS A N E MP L O Y E R O F C HO I C E

Australian online retailer CatchOfTheDay, employs over 600 people and wanted to ‘win the war’ on talent. Their employees are predominantly Gen Y, so the company decided to improve their employer value proposition by offering a range of appealing work conditions, such as chill-out zones with hammocks, encouraging casual dress or, if employees need to get active to get their ‘creative juices’ flowing, they can opt to play basketball, tennis or exercise in the company gym.25 Many large, well-known companies, including PepsiCo, General Electric (GE), and Credit Suisse Group, are also using employer branding as companies fight for talent.26

Source: iStock.com/vm

You might think that the slow economic growth following the GFC would mean employers don’t have to look hard for talent. But managers are finding that the skilled and knowledgeable employees are in short supply and high demand.23 Both small and large companies in a variety of industries are using employer branding to attract desirable job candidates. An employer brand is similar to a product brand except that employer brand Aims to make the rather than promoting a specific product, its aim is to make the organisation seem like a highly desirable organisation seem like a place to work. highly desirable place to work. Employer-branding campaigns are like marketing campaigns to ‘sell’ the company and attract the best job candidates. At Risk Management Solutions (RMS), HR executive Amelia Merrill used employer branding after she discovered that few people in Silicon Valley, where the firm is based, knew who RMS was. To attract the kind of high-quality technology professionals It is technology – such as laptops, smartphones, tablets that RMS needed, Merrill’s team began selling the company and broadband – that makes telecommuting possible. But in the same way that its salespeople sold its services. it is social and cultural trends Merrill says that branding is having a slow but sure effect that make its continuing growth probable. For example, on recruiting efforts, as people in the IT industry become many employees believe 24 telecommuting makes it more familiar with the company name. In a similar way,

easier to achieve work-life balance, whereas employers find the new arrangement expands their labour pool and cuts overhead expenses. The federal government has encouraged the practice as well because fewer commuters means improved air quality and reduced energy consumption. So, managers will continue to find themselves dealing with the issues telecommuting raises: just how do you select, train, monitor and reward employees you very rarely see?

TAKE A MOMENT As a new manager, appreciate the opportunities that are offered by the new social contract. Allow people to make genuine contributions of their talents to the organisation, and provide them with challenging work and opportunities to learn new skills they can transfer to other jobs in the future.

USIN G TEMPORA RY A ND PA RT- T I ME E MP L O Y E E S Contingent workers are becoming a larger part of the workforce in most countries. Contingent workers are people who work for an organisation, but not on a permanent or full-time basis.27 In a 2012 survey by Workforce Management, nearly 44 per cent of respondents said that they are using more or significantly more contingent workers, including temporary employees, contractors and independent consultants, than they were a decade ago.28 Although many of these people are ‘involuntary’ temporary or part-time

contingent workers People who work for an organisation, but not on a permanent or full-time basis, including temporary placements and contracted employees.

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workers who lost jobs during the GFC, other people like the option of working for different companies for short periods of time. For organisations, the primary goal is to access specialised skills for specific projects, enabling the company to maintain flexibility and keep costs low. In the past, most temporary workers were in clerical and manufacturing positions. In recent years, demand has grown for contingent professionals such as accountants and financial analysts, interim managers, information technology specialists, product managers and lawyers. Sometimes called supertemps, these are people who are highly skilled and who choose to pursue independent careers. Supertemps often do mission-critical work. Ed Trevasani, who loves the freedom and flexibility of contingent work, has served as interim chief executive officer for an international firm, developed a mergers and acquisitions strategy for a global manufacturer, and led the IT selection process for a major insurance company.29 The emergence of online portals, such as Freelancer, for accessing and offering short-term employment for those with desirable skill sets, is making it far easier for smaller organisations to expand their operating capabilities on a project-by-project basis. This is particularly useful for start-ups, as they struggle to afford hiring staff on an ongoing basis in their early phases of development.

P ROM O T ING WO RK–LI F E B A L A NC E

telecommuting Using computers and telecommunications equipment to perform work from home or another remote location.

Initiatives that enable people to lead a balanced life are a critical part of many organisations’ retention strategies. Particularly today, when some companies can’t afford pay raises for valued employees, managers are offering people more flexible scheduling or more control over their assignments as rewards. About 24 per cent of companies surveyed by the Society for Human Resource Management reported having a formal work-life balance policy, and 52 per cent reported having an informal policy.30 One approach is to let employees work part of the time from home or other location. Telecommuting means using computers and telecommunications equipment to do work without going to an office. More than 90 per cent of employees surveyed by Cisco Systems say they work from home at least one day a week. Cisco was the lead sponsor of the 2012 National Telework Week, organised by Telework Exchange, a public-private partnership devoted to promoting telecommuting.31 Other forms of flexible scheduling are also important in today’s workplace, and 53 per cent of companies surveyed offer some form of flexitime, including telecommuting, compressed workweeks, job sharing, schedule adjustment and so forth.32 Many companies have implemented broad work–life balance initiatives in response to the shift in expectations among young employees.33 Generation Y (Gen Y) workers, or millennials, are a fast-growing segment of the workforce. Typically, Gen Y employees work smart and work hard on the job, but refuse to let work be their whole life. Unlike their parents, who placed a higher priority on career, Gen Y workers expect their jobs to accommodate their personal lives.34

A C Q UIRING STA RT-UP S T O GE T T HE TA L E NT Andrea Vaccari created a mobile app called Glancee to help people find others with similar interests. But just as the company was taking off, he and his co-founders faced a tough decision—accept an acquisition bid from Facebook or go broke? The problem was, that Vaccari was already almost broke, living in a closet at a friend’s apartment. The co-founders decided to accept Facebook’s offer, even though they knew that it was made primarily to recruit them to work at the larger company.35 ‘Acqui-hiring’ has become common in the tech world. Established companies such as Facebook, Google, Yahoo!, LinkedIn, and Salesforce.com buy early-stage start-ups, often shutting them down, simply to acquire their engineering talent. These

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deals, ranging between US$3 million and US$6 million, have increased amid soaring demand for talented software engineers. The strategy makes sense for the larger companies because they get teams of engineers who are accustomed to working together. For entrepreneurs, it’s a trade-off. Thinkfuse Inc. co-founder Aydin Ghajar says that being acquired by Salesforce.com was a good outcome for his team. At the time, Ghajar and his four engineers were making below-market salaries and working in a business incubator with about 30 other start-ups. Now they work in a high-rise building with a gym. The Glancee engineers working for Facebook are also doing all right, but Vaccari says that it was agonising to have to decide whether the company could be ’the next big thing’ by going it alone. ‘You will never know if it will be better to continue,’ he says.

R EMEMBE R THIS ◗◗

The new social contract between employers and employees is based on the notion of employability and personal responsibility rather than lifelong employment by an organisation.

◗◗

An employer brand is similar to a product brand except that it promotes the organisation as a great place to work, rather than promoting a specific product or service.

◗◗

Contingent workers are people who work for an organisation, but not on a permanent or fulltime basis, including temporary placements, independent contractors, freelancers and part-time employees.

◗◗

Work-life balance is an important consideration for organisations trying to attract and retain talent and aligns with the new social contract of the employment relationship.

◗◗

Acqui-hiring means buying an early-stage start-up (and usually shutting it down) in order to obtain the creative talent.

9.3

FINDING THE RIGHT PEOPLE

Now let’s turn to the three broad goals of HRM: finding, developing and maintaining an effective workforce. The first step in finding the right people is human resource planning – described in more detail below – in which managers or HRM professionals predict the need for new employees based on the types of vacancies that exist, as illustrated in EXHIBIT 9.5. The second step is to use recruiting procedures to communicate with potential applicants. The third step is to select from the applicants those individuals believed to be the best potential contributors to the organisation. Finally, the new employee is welcomed into the organisation. Underlying the organisation’s effort to attract employees is a matching model. With the matching model, the organisation and the individual attempt to match the needs, interests and values that they offer each other.36 For example, a small software developer might require long hours from creative, technically skilled employees. In return, it can offer freedom from bureaucracy, tolerance of idiosyncrasies and potentially high pay. A large manufacturer can offer employment security and stability, but it might have more rules and regulations and bureaucracy. The individual who would thrive working for the software developer might feel stymied and unhappy working for a large manufacturer. Both the company and the employee are interested in finding a good match.

matching model An employee selection approach in which the organisation and the applicant attempt to match each other’s needs, interests and values.

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EXHIBIT 9.5 Attracting an effective workforce

HR planning Retirements Growth Resignations

Choose recruiting sources

Select the candidate

Want ads Headhunters Internet

Application Interview Tests

Company’s needs Strategic goals Current and future competencies Market changes Employee turnover Corporate culture

Matching model

Match with

Welcome the new employee

Employee contributions Ability Education and experience Creativity Commitment Expertise and knowledge

Company inducements

Employee’s needs

Pay and benefits Meaningful work Advancement Training Challenge

Stage of career Personal values Promotion aspirations Outside interests Family concerns

Match with

H U M A N R E S OU R C E P L A N N I NG human resource planning The forecasting of human resource needs and the projected matching of individuals with expected job vacancies.

Human resource planning is the forecasting of human resource needs and the projected matching of

individuals with expected vacancies. Human resource planning begins with several questions such as these below.

◗◗ What new technologies are emerging, and how will these affect the work system? ◗◗ What is the volume of the business likely to be in the next five to 10 years? ◗◗ What is the turnover rate, and how much, if any, is avoidable? The responses to these questions are used to formulate specific questions pertaining to HR activities, such as these below.

◗◗ How many senior managers will we need during this time period? ◗◗ How many administrative personnel – technicians, IT specialists – will we need to support the additional managers and engineers?

◗◗ Can we use temporary, contingent or virtual workers to handle some tasks?37 Answers to these questions help define the direction for the organisation’s HRM strategy. For example, if forecasting suggests a strong upcoming need for more technically trained individuals, the organisation can: (1) define the jobs and skills needed in some detail; (2) hire and train recruiters to look for the specified skills; and (3) provide new training for existing employees. By anticipating future human resource needs, the organisation can prepare itself to meet competitive challenges more effectively than organisations that react to problems only as they arise.

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TAKE A MOMENT Consider the information above and think about the speed at which technology is changing the way we work. Trying to anticipate the future human resource needs of an organisation requires accepting a level of uncertainty in making decisions about the types of skills and capabilities of employees. That is, how confident can you be that the skills and capabilities you attract to your organisation will still be relevant in 2–5 years? If your answer is ‘not confident’ then you need to think beyond talent acquisition to talent management; training your employees in the skills they need tomorrow to ensure your workforce is prepared for change. So, rather than focusing on the skills job applicants have now, many organisations are more interested in how applicants fit with the organisational culture, as well as their ability to learn and adapt to change.

RECRU ITING Recruiting is defined as ‘activities or practices that define the desired characteristics of applicants to whom

selection procedures are ultimately applied’.38 Today, recruiting is sometimes referred to as talent acquisition to reflect the importance of the human factor in the organisation’s success.39 Although we frequently think of university campus recruiting as a typical recruiting activity, many organisations use internal recruiting, or promote-from-within policies, to fill their high-level positions.40 Internal recruiting has two major advantages: it is less costly than an external search, and it generates higher employee commitment, development and satisfaction because it offers opportunities for career advancement to employees rather than outsiders. Frequently, however, external recruiting – recruiting newcomers from outside the organisation – is advantageous. Applicants come through a variety of sources, including advertising, online recruiting services, private employment agencies (headhunters), job fairs and employee referrals.

recruiting The activities or practices that define the desired characteristics of applicants for specific jobs.

ASSESSING JOBS Basic building blocks of HRM include job analysis, job descriptions and job specifications. Job analysis is a systematic process of gathering and interpreting information about the essential duties, tasks and responsibilities of a job, as well as about the context within which the job is performed.41 To perform job analysis, managers or specialists ask about work activities and work flow, the degree of supervision given and received in the job, knowledge and skills needed, performance standards, working conditions and so forth. The manager then prepares a written job description, which is a clear and concise summary of the specific tasks, duties and responsibilities, and a job specification, which outlines the knowledge, skills, education, physical abilities and other characteristics needed to perform the job adequately. Job analysis helps organisations recruit the right kind of people and match them to appropriate jobs. For example, to enhance internal recruiting, Sara Lee Corporation identified six functional areas and 24 significant skills that it wants its finance executives to develop, as illustrated in EXHIBIT 9.6. Managers are tracked on their development and moved into other positions to help them acquire the needed skills.42

REALISTIC JOB P REV IEWS Job analysis also enhances recruiting effectiveness by enabling the creation of realistic job previews (RJPs), which give applicants all pertinent and realistic information – positive and negative – about the job and the organisation.43 RJPs contribute to greater employee satisfaction and lower turnover because they facilitate matching individuals, jobs and organisations. Individuals have a better basis on which to determine their suitability to the organisation and ‘self-select’ into or out of positions based on full information.

job analysis The systematic process of gathering and interpreting information about the essential duties, tasks and responsibilities of a job. job description A concise summary of the specific tasks and responsibilities of a particular job. job specification An outline of the knowledge, skills, education and physical abilities needed to adequately perform a job. realistic job previews (RJPs) A recruiting approach that gives applicants all pertinent and realistic information about the job and the organisation.

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g ntin cou t ac

In

Ge ac nera co un l tin g Fin anc ial rep orti ng

ABC

Cos

EXHIBIT 9.6 Sara Lee’s required skills for finance executive

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uen

434

Source: Reprinted with permission from CFO, 1 October 1998. Visit our website at http://www.cfo.com. © CFO Publishing LLC. All Rights Reserved. Foster Printing Service: 866-879-9144, http://www.marketingreprints.com. License #13921.

SO C IA L MEDIA Today, much recruiting is done via the Internet and social media sites such as LinkedIn, Facebook and Twitter.44 Spherion, a staffing services firm, found that high-achieving young professionals deem a company’s social media reputation as important as the job offer when considering for which company they want to work.45 Companies in China have become particularly adept at using this approach because traditional online recruiting boards attract too many unqualified candidates to make them valuable. So, managers turn to social media such as Sina Weibo, a Twitter-like messaging service, to build a community of potential candidates. Deloitte’s China division has a Weibo career page that has more than 48 500 followers; some keep in close touch with the company, developing relationships that can be beneficial to both parties. China’s Lenovo Group reports finding 70 good candidates during a three-month recruiting surge using social media, including LinkedIn, Weibo and Tianji, a Chinese professional social networking site.46 LinkedIn’s 2013 Global Recruiting Trends report surveyed 3300 talent acquisition managers around the globe and found that HR recruiters are becoming more social, mobile, and data-driven. Recruiters have historically had little data on external candidates, but professional social media can provide them with a lot of data, such as work experience, skills, certifications, achievements, connections and education. For companies that pay for its profile-searching system, LinkedIn has created algorithms that search through its massive amounts of data and identify candidates with the exact combination of skills, background, expertise and passion a company might be looking for. LinkedIn’s reports indicate that 39 per cent of recruiters list social and professional networks as their number-one long-lasting recruiting tool.

9: MANAGING HUMAN RESOURCES

IN TERNSHIP S Another popular use of social media is to find people to serve as interns (either paid or unpaid) at the organisation. An internship is an arrangement where an intern exchanges free or low-cost labour for the opportunity to explore whether a particular career is appealing or to gain valuable work experience in a particular field.47 Companies are increasingly viewing internships as a valuable recruiting tool because they provide a way to evaluate a potential employee, as well as allow the intern the opportunity to ascertain whether the job and the company are a good fit. The old image of the intern as the ‘gopher’ who makes coffee and photocopies has given way to the budding professional who performs meaningful tasks and learns valuable skills. Interns aren’t always offered a job with the company, but one career development expert says that internships are more closely tied to permanent hiring today than previously.48

LEGAL C ONSIDERAT IONS Organisations must ensure that their recruiting practices conform to the law. Equal employment opportunity (EEO) laws stipulate that recruiting and hiring decisions cannot discriminate on the basis of personal characteristics such as age, ethnicity, religion, sexual orientation or gender. Affirmative action refers to the use of goals, timetables or other methods in recruiting to promote the hiring, development and retention of protected groups – persons historically under-represented in the workplace. For example, a company might establish an affirmative action goal of recruiting more female staff until the proportions of females and males are commensurate with the population in the community.

CASE STUDY CONTAINER STORE Kip Tindell and Garrett Boone opened the first Container Store in 1978, and the company has quietly expanded into a 33-store nationwide chain in the United States. Annual sales growth has topped 20 per cent in all of the company’s 23 years of business. Part of that success is due to the popular storage items and knick-knacks the Container Store sells for neat freaks and people with more stuff than they know what to do with. But another, perhaps even greater, element is the Container Store’s approach to recruiting, which turns the company’s best customers into loyal, top-performing employees. With retail industry turnover averaging more than 70 per cent, the Container Store enjoys a low 10 per cent turnover for fulltime employees and around 30 to 35 per cent for part-timers. The company has made the Fortune 100 Best Companies To Work For list an extraordinary 14 years in a row. Whether you’re a store manager or a shelf-stacker, at the Container Store recruiting is an important part of

your job. All employees carry recruiting cards, and can earn awards of US$500 for every full-time and US$200 for every part-time hire. Employees get to know their customers on a personal level and they learn which ones have the right attitude and personality to fit the store. As they chat to customers in the aisles, workers offer recruiting cards to people they think would make good employees. The in-store headhunting approach has been so successful that approximately a third of the company’s 2500 workers come from employee referrals. In an industry where most companies are running classified ads every week or two for new staff, the Container Store often goes six to eight months without placing a single help-wanted ad. The company has a set of foundation principles that guide its business activity and it firmly maintains that employees are their most important stakeholders, which they support through their employee-first culture.

Source: Powers, V. (November 2004). Finding Workers Who Fit. Business 2.0, 74; Putting Our Employees First, http://standfor.containerstore.com/puttingour-employees-first/ (accessed 5 November 2013).

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S E L E C T I NG selection The process of determining the skills, abilities and other attributes a person needs to perform a particular job. assessment centre Used to select individuals with high managerial potential based on their performance on a series of simulated managerial tasks. application form A device for collecting information about an applicant’s education, previous job experience and other background characteristics.

In the selection process, employers assess applicants’ characteristics in an attempt to determine the ‘fit’ between the job and applicant characteristics. The most frequently used selection devices are the application form, interview, employment test and assessment centre. In general, the greater the skill requirements and work demands of an open position, the greater the number and variety of selection tools the organisation will use.49

A P P LIC AT ION FORM The application form is used to collect information about the applicant’s education, previous job experience and other background characteristics. Research shows that biographical information inventories can validly predict future job success.50 One pitfall to be avoided is the inclusion of questions that are irrelevant to job success. Generally, the application form should not ask questions that will create an adverse impact on protected groups unless the questions are clearly related to the job.51 For example, employers should not ask whether the applicant rents or owns his or her own home because (1) an applicant’s response might adversely affect his or her chances at the job, (2) minorities and women may be less likely to own a home and (3) home ownership is probably unrelated to job performance. By contrast, passing the CPA exam is relevant to job performance in an accounting firm; therefore, it is appropriate to ask whether an applicant for employment has passed the CPA exam, even if only one-half of all female or minority applicants have done so, versus nine-tenths of white male applicants.

TAKE A MOMENT The self-assessment at the beginning of this chapter will test your own preparation for recruiting and selecting the right people for your team. If you haven’t taken the test already, do it now before reading on.

In line with equal employment opportunity legislation, the application form should not include any irrelevant or invasive personal questions.

INT ERV IEW Some type of interview is used as a selection technique in almost every job category in nearly every organisation. It is another area where the organisation can get into legal trouble if the interviewer asks questions that violate acceptable guidelines. EXHIBIT 9.7 lists some examples of appropriate and inappropriate interview questions. There is some evidence that the typical interview is not generally a good predictor of job performance. One estimate is that conventional interviews have a 0.2 correlation with predicting a successful hire.52 Many companies are bringing in coaches or using training programs to boost managers’ interviewing skills because bad hires are costly to organisations. Researchers at Harvard Business School found that interviewers who let their own insecurities or biases subconsciously drive the interviewing process, can have a worse effect on hiring decisions than if a candidate were simply chosen at random.53 Managers can improve their interviewing skills, and candidates can improve their chances of having a successful interview, by understanding some dos and do nots related to the interview, as outlined in this chapter’s Management in practice box (see page 439).

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CATEGORY

OK TO ASK

INAPPROPRIATE OR ILLEGAL TO ASK

National origin

The applicant’s name

The origin of applicant’s name

If applicant has ever worked under a different name

Applicant’s ancestry/ethnicity

Race

Nothing

Race or colour of skin

Disabilities

Whether applicant has any disabilities that might inhibit performance of job

If applicant has any physical or mental defects

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EXHIBIT 9.7 Employment applications and interviews: what can you ask?

If applicant has ever filed workers’ compensation claim Age

If applicant is over 18

Applicant’s age When applicant graduated from high school

Religion

Nothing

Applicant’s religious affiliation What religious holidays applicant observes

Criminal record

If applicant has ever been convicted of a crime

If applicant has ever been arrested

Marital/family status

Nothing

Marital status, number of children or planned children Childcare arrangements

Education and experience

Where applicant went to school

When applicant graduated

Prior work experience

Hobbies

Citizenship

If applicant has a legal right to work in Australia

If applicant is a citizen of another country

Sources: Based on ‘Appropriate and Inappropriate Interview Questions’ in Bohlander, G., Snell, S. and Sherman, A. (2001), Managing Human Resources, 12th edn, Cincinnati, OH: South-Western, 207; and ‘Guidelines to Lawful and Unlawful Preemployment Inquiries’, Appendix E, in Mathis, R. L. and Jackson, J. H. (2002), Human Resource Management, 2nd edn, Cincinnati, OH: South-Western, 189–190.

Managers use a variety of interview approaches to get a more reliable picture of a candidate’s suitability for the job. Structured interviews use a set of standardised questions that are asked of every applicant so comparisons can easily be made. These may include: biographical interviews, which ask about the person’s previous life and work experiences; behavioural interviews, which ask people to describe how they have performed a certain task or handled a particular problem; and situational interviews, which require people to describe how they might handle a hypothetical situation. With a non-directive interview, the interviewer asks broad, open-ended questions and permits the applicant to talk freely, with minimal interruption. Non-directive interviews may bring to light information, attitudes and behavioural characteristics that might be concealed when answering structured questions. Some organisations put candidates through a series of interviews, each one conducted by a different person and each one probing a different aspect of the candidate. Others use panel interviews, in which the candidate meets with several interviewers who take turns asking questions.54 In addition, some firms are using offbeat approaches, sometimes referred to

structured interview Uses a set of standardised questions that are asked of every applicant so comparisons can be made easily. non-directive interview Interviewer asks broad, open-ended questions and permits the applicant to talk freely with minimal interruption, in an attempt to bring to light information, attitudes and behavioural characteristics. panel interview Where the candidate meets with several interviewers who take turns asking questions.

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as extreme interviewing, to test job candidates’ ability to handle problems, cope with change, think on their feet and work well with others. Danielle Bemoras found herself in a joint interview with a rival candidate when she applied for a job with SceneTap, a digital nightlife guide. Rather than trying to upstage her competitor, Bemoras was respectful and helpful, an approach that won her an internship, followed by a full-time job offer.55

EMPLO YM ENT T EST employment tests Assess candidates on various factors considered important for the job to be performed and include cognitive ability tests, physical ability tests and personality tests.

Employment tests may include cognitive ability tests, physical ability tests, personality inventories and other assessments. Cognitive ability tests measure an applicant’s thinking, reasoning, verbal and mathematical abilities. For example, IQ tests have been found to be the most consistent predictor of good performance across a variety of jobs because a high IQ shows a candidate’s abilities to learn.56

Physical ability tests that measure qualities such as strength, energy and endurance may be used for jobs such as delivery drivers who must lift heavy packages, electric line workers who must climb ladders and carry equipment, and other positions that involve physical tasks. It is essential that these tests only assess cognitive and physical skills that are job related to avoid violating laws against discrimination.

TAKE A MOMENT As a new manager, get the right people in the right jobs by assessing your team’s or department’s needs, offering realistic job previews, using a variety of recruiting methods, and striving to match the needs and interests of the individual to those of the organisation. It is typically wise to use a variety of selection tools. For lower-skilled jobs, an application and brief interview might be enough, but higher-skilled jobs call for a combination of interviews, aptitude and skills tests, and assessment exercises.

Many companies also use various types of personality tests to assess such characteristics as openness to learning, agreeableness, conscientiousness, creativity and emotional stability. In addition, companies look for personality characteristics that match the needs of the particular job so there is a good fit. One company found that people who score high in traits such as assertiveness and extroversion typically make good salespeople, so they looked for those traits in testing candidates for new positions.57 By one estimate, 80 per cent of mid-sized and large companies use personality and ability tests for either pre-employment screening or new-employee orientation.58 Interestingly, numerous studies show that personality tests are better predictors of future career success than job interviews, letters of recommendation, and educational credentials.59 Companies can use big data analytics to select the right candidates based on their responses to personality tests and other criteria – Xerox tried using big data software to select call centre workers for a half-year trial; staff attrition reduced by 20 per cent, demonstrating the effectiveness of the trial. Another unusual type of test, called a brain teaser, is being used by companies that put a premium on innovativeness and problem solving. The answers aren’t as important as how the applicant goes about solving the problem. See how you do answering the brain teasers in EXHIBIT 9.8.

9: MANAGING HUMAN RESOURCES

HOW WOULD YOU ANSWER THE FOLLOWING QUESTIONS IN A JOB INTERVIEW?

1. How would you weigh an aeroplane without using scales?

EXHIBIT 9.8 Try your hand at some interview brain teasers

2. Why are manhole covers round? 3. How many golf balls can fit inside a standard school bus? 4. How much should you charge to wash all the windows in Sydney? 5. You’re shrunk and trapped in a blender that will turn on in 60 seconds. What do you do? THERE MIGHT BE MANY SOLUTIONS TO THESE QUESTIONS. HERE ARE SOME THAT INTERVIEWERS CONSIDER GOOD ANSWERS:

1. F ly it onto an aircraft carrier or other ship big enough to hold it. Paint a mark on the hull of the ship showing the water level. Then remove the plane. The ship will rise in the water. Now load the ship with items of known weight (200 kg bales of wool, for instance) until it sinks to exactly the line you painted on the hull. The total weight of the items will equal the weight of the jet. 2. A  square cover might fall into its hole. If you hold a square manhole cover vertically and turn it a little, it will fall easily into the hole. In contrast, a round cover with a slight recess in the centre can never fall in, no matter how it is held. 3. About 500 000, assuming the bus is 50 balls high, 50 balls wide, and 200 balls long. 4. A  ssuming 10 000 city blocks, 600 windows per block, five minutes per window, and a rate of $20 per hour, about $10 million. 5. Use the notched measurement marks on the side of the container to climb out. Sources: These questions are used at companies such as Microsoft, Google and eBay. (Adapted) Reported in Michael Kaplan. (September 2007). Job Interview Brainteasers. Business 2.0, 35–7; and William Poundstone. (September–October 2003). Impossible Questions. Across the Board, 44–8.

MANAGEMENT IN PRACTICE THE RIGHT WAY TO INTERVIEW A JOB APPLICANT A so-so interview usually nets a so-so employee. Many hiring mistakes can be prevented during the interview. The following techniques will ensure a successful interview:

✚✚ Know what you want. Before the interview, prepare questions based on your knowledge of the job to be filled.

✚✚ Prepare a road map. Develop questions that will reveal whether the candidate has the correct background and qualifications. The questions should focus on previous experiences that are relevant to the current job.

✚✚ Use open-ended questions in which the right answer is not obvious. Ask the applicant to give specific examples of previous work experiences. For example, don’t ask, ‘Are you a hard worker?’ or ‘Tell me about yourself’. Instead ask, ‘Can you give me examples from your previous work history that reflect your level of motivation?’ or ‘How did you go about getting your current job?’

✚✚ Do not ask questions that are irrelevant to the job. This caution is particularly important when the questions might relate to age, religion, ethnicity or any other irrelevant personal characteristic that could fall under equal employment opportunity legislation.

✚✚ Listen; don’t talk. You should spend most of the interview listening. If you talk too much, the focus will shift to you, and you might miss important cues. One expert actually recommends stating all your questions right at the beginning of the interview. This approach forces you to sit back and listen and also gives you a chance to watch a candidate’s behaviour and body language.

✚✚ Allow enough time so that the interview will not be rushed. Leave time for the candidate to ask questions about the job. The types of questions the candidate asks can be an important clue to his or her interest in the job.

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✚✚ Avoid reliance on your memory. Request the applicant’s permission to take notes; then do so unobtrusively during the interview or immediately after. Even a well-planned interview may be disrupted by the unexpected. Here are some of the unusual things that have happened during job interviews, based on surveys of vicepresidents and human resource directors at major United States corporations:

✚✚ The applicant announced she hadn’t had lunch and proceeded to eat a hamburger and French fries in the interviewer’s office.

✚✚ When asked if he had any questions about the job, the candidate answered, ‘Can I get an advance on my pay cheque?’

✚✚ The applicant chewed bubble gum and constantly blew bubbles.

✚✚ The job candidate said the main thing he was looking for in a job was a quiet place where no one would bother him.

✚✚ The job applicant challenged the interviewer to arm wrestle. ✚✚ The applicant dozed off and started snoring during the interview.

✚✚ When asked how she would handle a difficult situation, the candidate replied, ‘I’d let you do it.’

SOURCES: Jenks, J. J. and Zevnik, B. L. P. (July–August 1989). ABCs of Job Interviewing. Harvard Business Review, 38–42; Mornell, Dr P. (March 1998). Zero Defect Hiring. Inc., 75–83; Peak, M. M. (October 1989). What Color Is Your Bumbershoot? Management Review, 63; and Levinson, M. (1 March 2004). How to Hire So You Don’t Have to Fire. CIO, 72–80.

O NLINE C HEC KS The Internet gives recruiters and hiring managers a new way to search for a candidate’s criminal record, credit history, and other indications of honesty, integrity, and stability. Moreover, many companies want to see what a candidate has to say about him or herself on blogs and social networking sites to gauge whether the person would be a good fit with the organisation. A survey by Microsoft in 2011 found that 75 per cent of United States recruiters and HR professionals said that their bosses required them to research job candidates online, and another survey found that 37 per cent specifically investigated candidates’ social media profiles.60 In a survey by Adecco Staffing, inappropriate content on their social media sites was the number-two reason hiring managers gave for why applicants ages 18 to 32 didn’t get jobs (wearing inappropriate attire to job interviews was the top reason).61 Miranda Shaw, a manager at a leading consulting firm, rejected a candidate whom she had previously been impressed with, after she discovered photographs of him drinking and potential drug use on the Facebook page of one of his ‘friends’ who hadn’t enabled privacy settings.62 Other recent college graduates looking for jobs have found doors closed to them because of risqué or teasing photos or vivid comments about drinking, drug use or sexual exploits. These examples highlight the need for individuals to manage their ‘digital dirt’ proactively, as the Internet provides a window into your personal life that is increasingly transparent. Online checks are an increasingly murky area for companies. ‘Social media background checks are a hot item,’ says attorney Kevin McCormick, ‘but I’m not a fan’.63 Using social networking as a background check without disclosing the investigation to the candidate, can also open organisations to lawsuits. In addition, because an online search often reveals information such as race, gender, sexual orientation, and so forth, HR managers have to be sure that this information isn’t used in a way that could be construed as discriminatory. In a 2013 survey by the Society of Human Resource Management, 69 per cent of companies said that they do not use social media for screening because of increasing regulation and scrutiny by the courts. However, experts say that while HR departments might not be doing it, their hiring managers more than likely still are.64

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R EMEMBE R THIS ◗◗

Selection is the process of assessing the skills, abilities and other attributes of applicants in an attempt to determine the fit between the job and each applicant’s characteristics.

◗◗

The application form is a selection device that collects information about the applicant’s education, previous work experience and other background characteristics.

◗◗

A structured interview uses a set of standardised questions that are asked of every applicant so comparisons can be made easily.

◗◗

In a non-directive interview, the interviewer asks broad, open-ended questions and permits the applicant to talk freely with minimal interruption, in an attempt to bring to light information, attitudes and behavioural characteristics that might be concealed when answering structured questions.

◗◗

A panel interview is an interview in which the candidate meets with several interviewers who take turns asking questions.

◗◗

Some companies are using offbeat approaches, called extreme interviewing, to test job candidates’ ability to handle problems, cope with change and work well with others.

◗◗

Employment tests assess candidates on various factors considered important for the job to be performed and include cognitive ability tests, physical ability tests and personality tests.

9.4

DEVELOPING TALENT

Following selection, the next goal of HRM is to develop employees into an effective workforce. Development includes training and performance appraisal.

T R A I N I NG A N D D E V E L O P M E N T Training and development programs represent a planned effort by an organisation to facilitate employees’ learning of job-related skills and behaviours.65 Training magazine’s most recent industry report shows that organisations spent some US$55 billion on formal training programs in 2012, with spending on training increasing and spending on outside products and services descreasing.66 EXHIBIT 9.9 shows some frequently used types and methods of training. While time spent by employees completing online training methods have increased a little in recent years, in-person training has increased significantly – in 2012, 45.2 per cent of training hours were for in-person methods of training, which is up from 41.2 per cent reported in 2011. To understand the importance of training, consider the extreme example in the innovative way discussion for the Taj Mahal Palace hotel. When the Taj Mahal Palace in Mumbai was attacked by terrorists, employees risked their lives to protect their guests. The Taj Hotels Resorts and Palaces group expect managers to lead by example, and every manager goes through 18 months of training similar to lower-level employees. In addition, managers must develop three sets of leadership competencies, and the company hires an external coach to support each manager’s development. Development is sometimes distinguished from the general term ‘training’. Training is typically used to refer to teaching people how to perform tasks related to their present jobs, while development means

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INNOVATIVE WAY TAJ MAHAL PALACE, MUMBAI Imagine enjoying yourself at a corporate dinner to welcome the new chief executive officer, when terrorists storm the hotel. That’s what happened at the Taj Mahal Palace hotel in Mumbai (Taj Mumbai, for short) at the end of a dinner hosted by Hindustan Unilever. The Taj Mumbai banquet staff, led by 24-year-old Mallika Jagad, quickly recognised that something was wrong and swung into action, locking the doors and turning off the lights. As the group huddled in the banquet room overnight, staff constantly went around offering water and calming the guests. The next morning, a fire broke out, forcing the group to climb out the windows. Again, the staff calmly evacuated all the guests first. ‘It was my responsibility,’ said Jagad. ‘I may have been the youngest person in the room, but I was still doing my job.’ Elsewhere in the hotel, similar acts of heroism were going on. At least 11 Taj Mumbai employees died while helping guests escape. The Taj Mumbai staff gave the term customer

service a whole new meaning that night. There were no policy manuals or procedures specifying how employees should behave in such a crisis situation. The actions of the staff were a result of unique hiring, training and incentive systems that create a culture in which employees always put guests first, even if it means risking their own lives. At the Taj Mumbai, all employees go through 18 months of training, which includes both classroom and on-the-job training. Classes are taught by incumbent managers, not consultants. Training is designed to impart three kinds of skills: technical skills, so that people can do their specific jobs; grooming, personality, and language skills; and customer-service skills, so that employees learn to listen, empathise, and improvise. People are taught to think and be creative rather than rely on strict rules and procedures, and they learn to be customer ambassadors who place guests’ interests ahead of the company’s interests.

Sources: Rohit Deshpandé and Anjali Raina,/The Ordinary Heroes of the Taj/Harvard Business Review (December 2011): 119–123; and/Building an Institution Through Human Values/Shanmugam’s Blog, 22 January 2012, http://cgshanmugam.wordpress.com/2012/01/22/building-an-institution-through-humanvalues/ (accessed 10 October 2013).

teaching people broader skills that are not only useful in their present jobs but also prepare them for greater responsibilities in future jobs. For example, at farming equipment manufacturer John Deere (DE), rising managers get coaching from influential board members to develop their leadership skills.67 GE has adopted a new approach to developing managers due to changes in the global competitive environment. Instead of moving its executives around to different divisions every few years so that they gain a broad understanding of the company and develop general management skills, GE is leaving them where they are so that they can gain a deeper understanding of the products and customers of a specific unit. ‘The world is so complex,’ says Susan Peters, leader of executive development at GE. ‘We need people who are pretty deep.’68

O N-T HE-JO B TRA ININ G on-the-job training (OJT) A type of training in which an experienced employee ‘adopts’ a new employee to teach him or her how to perform job duties.

Another of the most common methods of training is on-the-job training. In on-the-job training (OJT), an experienced employee is asked to guide a new employee and show them how to perform job duties. OJT has many advantages, such as lower costs for training facilities, materials or instructor fees and easy transfer of learning back to the job. When implemented well, OJT is considered the fastest and most effective means of facilitating learning in the workplace.69 One type of on-the-job training involves moving people to various types of jobs within the organisation, where they work with experienced employees to learn different tasks. This cross-training may place an employee in a new position for as short a time as a few hours or for as long as a year, enabling the employee to develop new skills and giving the organisation greater flexibility.

9: MANAGING HUMAN RESOURCES

Type of product or service

Percentage intending to purchase in the next 12 months

Online learning tools and systems

EXHIBIT 9.9 Methods of training and intended training expenditures

38

Classroom tools and systems

32

Authoring tools and systems

32

Learning management systems

30

Content development

30

Consulting services

25

Presentation software and tools

25

Audio and web conferencing products

24

Certification

24

Assessment and analysis testing

23

Games and simulations

22

Courseware design

21

Mobile learning

20 0

5

10

15

20

25

30

35

40

45

50

Current mix of instructional methods and media Type of delivery

Percent of training hours

Classroom with instructor

41.6

Blended (combination of live instructor, virtual classroom, social networking, etc.)

24.0

Online and computer-based

21.9

Social networking and mobile

1.3

Source: (November–December 2011). 2011 Training Industry Report. Training, 22–35.

SOCIAL LEA RNING As shown in EXHIBIT 9.9, many companies report plans to purchase products and services for online and mobile learning in the following year. The products and services in the chart list an array of options available to organisations, many focused on harnessing digital technologies to advance the skills and capabilities of their existing workforce. This helps organisations to develop a culture of building capabilities from within, rather than purchasing skills in the form of new talent or outsourcing tasks to service providers. This reflects an awareness of the importance of social learning, particularly for younger employees. Social learning means learning informally from others by using social media tools, including mobile technologies, social networking, wikis and blogs, virtual games and so forth.70 An example might be an employee who seeks advice from colleagues on a blog or in a tweet, about a process or task. Companies like Brisbane-based Adopt and Embrace provide consulting services to help organisations understand how

social learning Learning informally from others by using social media tools.

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digital technologies can support existing organisational processes and improve employee learning. This includes the use of Yammer, a social media platform that connects employees within an organisation, to improve internal communication and foster a culture of sharing and support amongst employees. The majority of organisational learning occurs through informal rather than formal channels, so managers are supporting the use of social media technology for learning in day-to-day work. These tools allow people to share information, access knowledge, find resources and collaborate in a natural way. An IBM survey found that high-performing organisations are 57 per cent more likely than other companies to provide employees with collaborative and social media tools.71

M ENT O RING A ND C O A C HI NG mentoring When an experienced employee guides and supports a less experienced employee. coaching A method of directing, instructing and training a person with the goal to develop specific management skills.

For many management and professional jobs, traditional on-the-job training is supplemented or replaced by mentoring and coaching. With mentoring, an experienced employee guides and supports a newcomer or less experienced employee. Mentors typically offer counsel regarding how to network and advance in the company in addition to guiding the employee in developing their skills and abilities. Coaching is a method of directing, instructing and training a person with the goal to develop specific management skills. Coaching usually applies to higher-level managers who want to develop their personal competencies. For instance, a coach might observe a senior executive in action and provide feedback about how the executive can improve their interaction skills. Managers can also discuss difficult situations with the coach, helping them work through various alternative scenarios for dealing with the situation.72 Other frequently used training methods include the following:

◗◗ Orientation training where newcomers are introduced to the organisation’s culture, standards and goals. ◗◗ Classroom training which includes lectures, films, audiovisual techniques and simulations. This makes up approximately 70 per cent of all formal corporate training.73

◗◗ Self-directed learning, also called programmed instruction, involves the use of books, manuals or computers to provide subject matter material in highly organised and logical sequences that require employees to answer a series of questions.

◗◗ Computer-based training, sometimes called e-training, includes computer-assisted instruction, webbased training and teletraining. As with self-directed learning, the employee works at their own pace and instruction is individualised, but the training program is interactive and can communicate more complex, non-structured information. E-training has soared in recent years because it offers cost savings to organisations and allows people to learn at their own pace.74

C O RPORATE UNIV ERSI T I E S corporate university An in-house training and education facility that offers broad-based learning opportunities for employees.

Another popular approach to training and development is the corporate university. A corporate university is an in-house training and education facility that offers broad-based learning opportunities

for employees – and frequently for customers, suppliers and strategic partners as well – throughout their careers.75 One well-known corporate university is Hamburger University, McDonald’s worldwide training centre, which has been in existence for more than 50 years and has a training program that can earn credits towards university courses. Numerous other companies, including IBM, FedEx, General Electric, Intel, Harley-Davidson and PETRONAS in Malaysia, pump millions of dollars into corporate universities to continually build human capital.76 Employees at Caterpillar Inc. attend courses at Caterpillar University, which combines e-training, classroom sessions and hands-on training activities.

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PROMOT ION FRO M WITHIN Another way to further employee development is through promotion from within, which helps companies retain valuable people. Promotions provide more challenging assignments, prescribe new responsibilities, and help employees grow by expanding and developing their abilities. The Peebles Hydro Hotel in Scotland is passionate about promoting from within as a way to retain good people and give them opportunities for growth. A maid has been promoted to head housekeeper, a wine waitress to restaurant head and a student worker to deputy manager. The hotel also provides constant training in all areas. These techniques, combined with a commitment to job flexibility, have helped the hotel retain high-quality workers at a time when others in the tourism and hospitality industry are suffering from a shortage of skilled labour. Staff members with 10, 15 or even 20 years of service are not uncommon at Hydro.77

PE R FOR M A NCE A PPR A ISA L assessment, and providing feedback to the employee. During performance appraisal, skilful managers give feedback and praise concerning the acceptable elements of the employee’s performance. They also describe performance areas that need improvement. One of the biggest corporate talent management mistakes, according to management expert Ram Charan, is the failure to provide candid performance assessments that focus on development needs.78 When employees get this feedback, they can use it to improve their job performance. Unfortunately, only three in ten employees surveyed believe that their companies’ performance review system actually helps to improve performance, indicating a need for improved methods of appraisal and feedback.79 Alan Heyward, an executive manager at Qantas Loyalty business, Accumulate, identifies the increasing sophistication of business analytics. In the past, data on consumer preferences and engagement with products has been the focus of their business intelligence systems. This provided insight to the underutilised opportunities of using similar data-gathering techniques internally to better understand employees. Using business analytics to interrogate the preferences, performance and engagement of employees, allows for organisations to understand the effectiveness of their management systems, training and change programs, and what is happening with respect to organisational culture. In short, performance appraisal doesn’t have to focus just on an employee’s outputs or productivity, it can capture a far broader picture of an employee’s performance within the context of their work.80 The performance appraisal process is widely disliked in organisations, but good performance appraisals are an important part of an overall performance management system that helps retain valued employees by helping them develop their skills, obtain rewards, and advance

performance appraisal The process of observing and evaluating an employee’s performance, recording the assessment and providing feedback to the employee.

Source: Getty Images/Kelvin Murray

Performance appraisal refers to observing and assessing employee performance, recording the

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in the organisation.81 Generally, HRM professionals concentrate on two things to make performance appraisal a positive force in their organisations:

1 the accurate evaluation of performance through the development and application of assessment systems such as rating scales

2 training managers to use the performance appraisal interview effectively so that managers can provide feedback that will reinforce good performance and motivate employee development. Current thinking is that performance appraisal should be ongoing, not something that is done once a year as part of a consideration of raises. Performance appraisal can also reward high performers with merit pay, recognition and other rewards – as Dan Pink highlights in his best seller, Drive, money isn’t always the most appropriate incentive to increase performance.

A SSESSING P ERFORMANC E A C C UR AT E LY 360-degree feedback A process that uses multiple raters, including self-rating, to appraise employee performance and guide development.

Jobs are multidimensional, and therefore performance may be multidimensional as well. A rising trend in performance appraisal is called 360-degree feedback, a process that uses multiple raters, including selfrating, as a way to increase awareness of strengths and weaknesses and guide employee development. Members of the appraisal group may include supervisors, co-workers and customers, as well as the individual, and thus provide a holistic view of the employee’s performance.82 Some companies use social networking style systems to make 360-degree performance feedback a dynamic, ongoing process. One software program from Rypple, for example, lets people post short Twitter-style questions about their performance of a particular task and get feedback from managers, peers or anyone else the user selects. Another system from Accenture has employees post photos, status updates and two or three weekly goals that can be viewed, followed and assessed by colleagues.83 Another alternative performance-evaluation method is the performance review ranking system.84 This method is increasingly controversial because it essentially evaluates employees by pitting them against one another. As most commonly used, these systems rank employees according to their relative performance: 20 per cent would be placed in the top group of performers; 70 per cent have to be ranked in the middle; and 10 per cent are ranked at the bottom. The bottom tier are given a set period of time to improve their performance, and if they don’t improve, they are fired. The idea behind the forced ranking of employees is that everyone will be motivated to improve performance – but at what cost to the social and cultural fabrics of the organisation? The advantages of a performance ranking system are that it:

1 forces reluctant managers to make difficult decisions and identify the best and worst performers; and 2 creates and sustains a high-performance culture in which people continuously improve. The disadvantages are that the system:

1 may increase cut-throat competition among employees 2 discourages collaboration and teamwork 3 potentially harms morale.85 Many companies have dropped the ranking system or modified it so that it does not insist on quotas for underperformers; shifting away from the more Theory X application of transparent ranking to force employees to perform, and instead seeking to attend to the needs of employee engagement in a more Theory Y application of gamification.86

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PERFORM A NC E EVA LUATIO N E R R O R S Although we would like to believe that every manager assesses employees’ performance in a careful and bias-free manner, researchers have identified several rating problems.87 One of the most dangerous is stereotyping, which occurs when a rater places an employee into a class or category based on one or a few traits or characteristics – for example, stereotyping an older worker as slower and more difficult to train. Another rating error is the halo effect, in which a manager gives an employee the same rating on all dimensions even if their performance is good on some dimensions and poor on others. The halo effect can be quite common – for example, imagine that your tutor has exceptionally high standards for grammar and syntax when grading assignments in your management class. A few grammatical errors in your introduction might trigger a negative halo effect in the tutor, where they see the rest of your assignment as being worse than would be objectively true, no matter how well the remainder of your assignment is written. Alternatively, you might have referenced your tutor’s favourite author in your assignment, leaving your tutor with a positive halo where they see the rest of your assignment as being better than would be objectively true. One approach to overcome performance evaluation errors is to use a behaviour-based rating technique, such as the behaviourally anchored rating scale. The behaviourally anchored rating scale (BARS) is developed from critical dimensions pertaining to job performance. Each job performance

scale is anchored with specific behavioural statements that describe varying degrees of performance. By relating employee performance to specific incidents, raters can more accurately evaluate an employee’s performance.88

halo effect A type of rating error that occurs when an employee receives the same rating on all dimensions regardless of his or her performance on individual ones.

behaviourally anchored rating scale (BARS) A rating technique that relates an employee’s performance to specific job-related dimensions.

Job: production line supervisor Work dimension: work scheduling Have no plan or schedule of work and no concept of realistic due dates.

1

Develop a comprehensive schedule, observe target dates, and update the status of operations relative to plans, making schedule modifications as quickly as necessary.

Make a list of due dates and revise them but get frequently surprised by unforeseen events.

2 Have a sound plan but neglect to keep track of target dates or to report schedule slippages or other problems as they occur.

3

4 Usually satisfy time constraints, with time and cost overruns coming up infrequently.

illustrates the BARS method for evaluating a production line supervisor. The production supervisor’s job can be broken down into several dimensions, such as equipment maintenance, employee training or work scheduling. A behaviourally anchored rating scale should be developed for each EXHIBIT 9.10

5

EXHIBIT 9.10 Example of a behaviourally anchored rating scale

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dimension. The dimension in EXHIBIT 9.10 is work scheduling. Good performance is represented by a 4 or 5 on the scale and unacceptable performance as a 1 or 2. If a production supervisor’s job has eight dimensions, the total performance evaluation will be the sum of the scores for each of eight scales.

TAKE A MOMENT As a new manager evaluating subordinates, beware of the halo effect, which is a tendency to give a person the same rating on all dimensions of the job. Remember that jobs are multidimensional and people need to be evaluated separately on each relevant dimension so they can be rewarded appropriately and improve their performance where needed. Be aware of your own prejudices so you can avoid stereotyping people during evaluations.

CASE STUDY

Source: Newspix/Michael Perini

VIVO CAFE: ALL IN THE FAMILY … THE BUSINESS IS PEOPLE

Angela Vithoulkas

The challenges and the rewards that come with owning a family business can be significant. The challenges include managing personal relationships and not overly muddling them with the personal relationships with spouses, siblings, parents, children, and other family members. An MGI/ RMIT study showed that many people who go into family businesses underestimate these challenges. There is often a lack of communication between directors of family businesses, related to the lack of regular meetings and pre-agreement of roles and expectations. A core idea that often leads to success is to clearly delineate where the business ends and the family starts, in terms of time, place and activities. Problems usually occur when business decisions, relationships and activities get muddled with personal decisions, relationships and activities. An example of a long-term successful family business is Angela and Con Vithoulkas, who as brother and sister, have bought, revitalised and sold some 20 businesses in some 28 years, including Sydney’s VIVO Cafe. They support each other during tough personal times, such as when Con was

in a very serious car accident, and also when business conditions are tough. They have defined and separate roles and responsibilities Despite this, they do admit to often arguing, even out loud in front of their 22 employees. However, they have benefited a lot from the factor that has helped many small or family businesses, which is obtaining independent advice as and when needed, to help sort out differences of opinion. On the upside, family businesses can be extremely rewarding, both from a financial perspective, but also personally, as there is great joy that can come from working with people that you have a close personal relationship and literally can ‘love’ working with, whether it is a brother, sister, son, daughter, parent, husband or wife! So perhaps a family business should be approached with caution: it is seemingly not true to say ‘never do or go into business with relatives’, as proven by Angela and Con, but it is true to say, plan and expect the difficulties, and employ strategies and protocols for dealing with disagreements before they happen.

Source: J. Lindhe. (11–17 November 2010). The Business End: Relationships. BRW, 42–3.

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R EMEMBE R THIS ◗◗

Training typically refers to teaching people skills needed in their current job, whereas development refers to teaching people broader career skills.

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The most common method of training is on-the-job-training (OJT), in which an experienced employee is asked to teach a new employee how to perform job duties.

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Social learning refers to using social media tools to network and learn informally.

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A corporate university is an in-house training and development facility that offers broad-based learning opportunities for employees.

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Performance appraisal is the process of observing and evaluating an employee’s performance, recording the assessment and providing feedback.

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A rising trend is 360-degree feedback, which uses multiple raters, including self-rating, to appraise employee performance and guide development.

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Performance review ranking systems are increasingly being criticised because they tend to pit employees against one another rather than promote cooperation and teamwork.

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Stereotyping is a performance evaluation error that occurs when a manager places an employee into a class or category based on one or a few traits or characteristics.

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The halo effect occurs when a manager gives an employee the same rating on all dimensions of the job, even though performance may be good on some dimensions and poor on others.

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One way to overcome evaluation errors is to use a behaviourally anchored rating scale (BARS), which is a performance evaluation technique that relates an employee’s performance to specific job-related dimensions.

Mentoring involves an experienced employee guiding and supporting a less experienced employee. Coaching is a method of directing, instructing and training a person with the goal to develop specific management skills

9.5

MAINTAINING AN EFFECTIVE WORKFORCE

Now we turn to the topic of how managers and HRM professionals maintain a workforce that has been recruited and developed. Maintenance of the current workforce involves compensation, wage and salary systems, benefits, and (occasionally) terminations.

CO M P E N S AT I O N The term compensation refers to (1) all monetary payments and (2) all goods or commodities used instead of money to reward employees.89 An organisation’s compensation structure includes wages and/or salaries and benefits such as (but not limited to) health insurance, paid vacations or employee fitness centres. Developing an effective compensation system is an important part of human resource management because it helps to attract and retain talented workers. In addition, a company’s compensation system has an impact on strategic performance.90 Human resource managers design the wages and/or salaries and benefits systems to fit company strategy and to provide compensation equity.

compensation Monetary payments (wages, salaries) and non-monetary goods and commodities (benefits, vacations) used to reward employees.

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WA GE A ND SA LA RY SY S T E MS Ideally, management’s strategy for the organisation should be a critical determinant of the features and operations of the pay system.91 For example, managers may have the goal of maintaining or improving profitability or market share by stimulating employee performance. Thus, they should design and use a merit pay system rather than a system based on other criteria such as seniority. The most common approach to employee compensation is job-based pay, which means linking compensation to the specific tasks an employee performs. However, these systems present several problems. For one thing, job-based pay may fail to reward the type of learning behaviour needed for the organisation to adapt and survive in a turbulent environment. In addition, these systems reinforce an emphasis on organisational hierarchy and centralised decision making and control, which are inconsistent with the growing emphasis on employee participation and increased responsibility.92 Skill-based pay systems are becoming increasingly popular in both large and small companies. Employees with higher skill levels receive a higher pay than those with lower skill levels. Also called competency-based pay, skill-based pay systems encourage employees to develop their skills and competencies, thus making them more valuable to the organisation, as well as more employable if they leave their current jobs. As with other aspects of management, big data analytics programs are now being used to make compensation decisions in large organisations. A company wondering how to cut staff turnover can gather data on turnover, promotions, job changes, benefits, work–life balance, and other factors for hundreds of thousands of workers and use predictive analytics to see what factors truly make a difference. Does increasing pay keep people from leaving, or do other factors play a larger role? For example, a major regional bank found that increasing pay shaved only half a point off the turnover rate for customer service representatives. People felt dissatisfied, not underpaid.93

C O MPENSATIO N EQ UIT Y job evaluation The process of determining the value of jobs within an organisation through an examination of job content.

wage and salary surveys Surveys that show what other organisations pay incumbents in jobs that match a sample of ‘key’ jobs selected by the organisation.

pay-for-performance Incentive pay that ties at least part of compensation to employee effort and performance.

Whether the organisation uses job-based pay or skill-based pay, good managers strive to maintain a sense of fairness and equity within the pay structure and thereby fortify employee morale. Job evaluation refers to the process of determining the value or worth of jobs within an organisation through an examination of job content. Job evaluation techniques enable managers to compare similar and dissimilar jobs and to determine internally equitable pay rates – that is, pay rates that employees believe are fair compared with those for other jobs in the organisation. Organisations also want to make sure their pay rates are fair compared to other companies. HR managers may obtain wage and salary surveys that show what other organisations pay incumbents in jobs that match a sample of ‘key’ jobs selected by the organisation. These surveys are available from a number of sources, including (in the United States) the Bureau of Labor Statistics National Compensation Survey. In Australia, these surveys are often available from commercial consulting firms or from industry associations who survey their members. For example, the professional association Engineers Australia conducts surveys of salary and benefits, as do the equivalent professional bodies for lawyers, pharmacists, architects and other groups.

PAY-FOR-PERFO RM A NC E Many of today’s organisations develop compensation plans based on a pay-for-performance standard to raise productivity and cut labour costs in a competitive global environment. Pay-for-performance, also

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called incentive pay, means tying at least part of compensation to employee effort and performance, whether it be through merit-based pay, bonuses, team incentives, or various gain-sharing or profitsharing plans. With pay-for-performance, incentives are aligned with the behaviours needed to help the organisation achieve its strategic goals. Employees have an incentive to make the company more efficient and profitable because if goals are not met, no bonuses are paid. For example, small organisations seeking to get the most out of their employees often use a profit-sharing agreement that shares a percentage of the company’s profits with its frontline staff, but only if annual profit targets have been met – if the company performs above what was expected, the staff benefit from their collective efforts. However, recent years have shown the potential dangers of misdirected pay-for-performance plans. Alan Blinder, Princeton professor of economics and public affairs, points out that a fundamental but unintended cause of the GFC was the incentives that rewarded people for taking high risks with other people’s money.94 During the financial meltdown, it became clear that people at every level of the financial system were getting rewarded for short-term performance – if things went wrong at a later date, it would be someone else’s problem. Managers can take care to create pay-for-performance plans that align with the long-term interests of the organisation, shareholders and the broader society.

BE NEFITS An effective compensation package requires more than money. Although wage/salary is an important component, benefits are equally important. Some benefits are required by law, such as superannuation contributions, holiday pay and workers’ compensation. Other types of benefits, such as salary packaging or on-site day care or fitness centres, are not required by law but are provided by organisations to maintain an effective workforce. The benefits packages provided by large companies often attempt to meet the needs of all employees. Some companies, particularly in the technology industry where skilled employees are hard to find, offer extremely generous benefit packages. For example, SAS Institute in the United States provides (among other benefits) 90 per cent coverage of health insurance premiums, free health care at an on-site medical clinic, an on-site fitness centre, unlimited sick days, on-site child care and a work/life centre offering services ranging from parenting classes to assistance with elder care. Other tech firms, such as Google, Yahoo!, and Facebook, are also using innovative benefits to recruit and retain top talent.95

R I G H T S I Z I NG T H E O RGA N I S AT I O N In some cases, organisations have more people than they need and have to let some employees go. Rightsizing refers to reducing the company’s workforce intentionally to the point where the number of employees is deemed to be right for the company’s current situation. Also called downsizing, planned reductions in the size of the workforce are a reality for many of today’s companies. As the term rightsizing implies, the goal is to make the company stronger and more competitive by aligning the size of the workforce with the company’s current needs. However, some researchers have found that massive cuts often fail to achieve the intended benefits and in some cases, significantly harm the organisation.96 Unless HRM departments effectively and humanely manage the rightsizing process, retrenchments can lead to decreased morale and performance. Managers can smooth the process by

rightsizing Reducing the company’s workforce intentionally so that the number of employees is deemed to be right for the company’s situation.

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regularly communicating information to employees, providing assistance to workers who will lose their jobs, and using training and development to help address the emotional needs of remaining employees and enable them to cope with new or additional responsibilities.97

TAKE A MOMENT Even as a new manager, play a role in how people are compensated. Consider skill-based pay systems and incentive pay to encourage high performers. Don’t be dismayed if some people have to be let go. If people have to be rerenched or fired, do it humanely.

T E R M I NAT I O N

exit interview An interview conducted with departing employees to determine reasons for their departure and learn about potential problems in the organisation.

Despite the best efforts of line managers and HRM professionals, the organisation will lose employees. Some will retire, others will depart voluntarily for other jobs and others will be forced out through mergers and cutbacks or for poor performance. Terminations maintain an effective workforce because employees who are poor performers can be dismissed. Productive employees often resent disruptive, low-performing employees who are allowed to stay with the company and receive pay and benefits comparable to theirs. Employers can use exit interviews as a valuable HR tool, regardless of whether the employee leaves voluntarily or is forced out. An exit interview is an interview conducted with departing employees to determine why they are leaving the company. The value of the exit interview is to provide an inexpensive way to learn about pockets of dissatisfaction within the organisation and hence find ways to reduce future employee turnover.98 As John Donahoe, president and chief executive officer of eBay, put it, ‘when people are leaving, they’re often in a very reflective state and … they’re also just stunningly direct, because it’s like they have nothing to lose’. For example, Donahoe learned from conducting exit interviews at eBay, that mid-level executives were unclear about their responsibility and authority, so he reorganised to clarify lines of decision-making responsibility and authority.99 The oil services giant Schlumberger includes an exit interview as part of a full-scale investigation of every departure, with the results posted online so managers all around the company can get insight into problems.100 However, in some cases, employees who leave voluntarily are reluctant to air uncomfortable complaints or discuss their real reasons for leaving. Companies such as T-Mobile, Campbell Soup and Conair found that having people complete an online exit questionnaire yields more open and honest information. When people have negative things to say about managers or the company, the online format is a chance to speak their mind without having to do it in a face-to-face meeting.101 For companies experiencing downsizing through mergers or because of global competition or a shifting economy, often a large number of managers and workers are terminated at the same time. In these cases, enlightened companies try to find a smooth transition for departing employees. By showing genuine concern in helping retrenched employees, a company communicates the value of human resources and helps maintain a positive corporate culture.

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CASE STUDY BIOTECHNOLOGY COMPANIES IN TURBULENT ENVIRONMENTS AND CHALLENGING TIMES Australia, New Zealand, Singapore, Japan, the United States and many other countries have grown significant biotechnology sectors in recent years. Large pharmaceutical companies and a new breed of smaller start-up companies, have invested billions of dollars in looking for products that will find a market in improving the health and wellbeing of people. Imagine the size of the commercial prize for the first company to achieve a real breakthrough in preventing or curing a major disease such as heart disease, cancer or HIV/AIDS. The search for these solutions to global health issues is hypercompetitive and involves intensive research and development processes, fierce protection of intellectual property (knowledge), and collaborations with other companies and university research institutes. Two companies in this sector are Applied Biosystems, of Australia and New Zealand, and Starpharma, also Australian. In these companies, fast decision making, risk taking and turbulence are part of daily life, unlike long-established stable companies such as banks, insurance companies or retailers. Applied Biosystems (http://www.appliedbiosystems. com.au) is involved in the sciences of genomics, informatics and proteomics, developing drugs and instruments for

sophisticated medical tests. Its iTRAQ Reagent Kit provides reagents that label peptides, claimed to be more effective than prior technologies. Starpharma (http://www.starpharma.com/) uses nanotechnology to produce pharmaceuticals. Nano-drugs are being developed to fight major diseases, such as HIV, herpes and chlamydia. These biotechnology companies and many like them are at various stages of proving their technology, in terms of their functionality, manufacturability, market development and financial viability. They pour large amounts of money into research and development, which is at substantial risk, particularly if the technology doesn’t come to fruition. The management challenges within these companies are immense, and include keeping key scientists and researchers motivated and effective, while making resource allocation decisions (often with scarce resources available), including using judgement to stop projects that aren’t progressing well. The processes of innovation and commercialisation involve their managers, staff and organisations in constant, substantial change. These companies must win the ‘war for talent’ to keep competitive.

R EMEMBE R THIS ◗◗

Compensation refers to all monetary payments and all non-monetary goods or benefits used to reward employees.

◗◗ ◗◗

Managers strive to maintain fairness and equity in the pay system.

◗◗

Wage and salary surveys show what other organisations pay incumbents in jobs that match a sample of key jobs selected by the organisation.

◗◗

Pay-for-performance, also called incentive pay, means tying at least a portion of compensation to employee effort and performance.

◗◗

Rightsizing, also called downsizing, refers to reducing the company’s workforce intentionally to the point where the number of employees is deemed right for the company’s current situation.

◗◗ ◗◗

If not managed effectively and humanely, rightsizing can lead to decreased morale and performance.

Job evaluation is the process of determining the value of jobs within an organisation through an examination of job content.

An exit interview is an interview conducted with departing employees to determine reasons for their departure and to learn about potential problems in the organisation.

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SUSTAINABLE DEVELOPMENT SUSTAINABILITY AND PEOPLE

Sustainable development has a clear and strong connection to the strategic role of human resource management, because in both aspects of management, the aim is to improve the outcomes and effectiveness of the organisation. Organisations are increasingly understanding the value of sustainable development, and the conversation in industry appears to be at a tipping point. Sustainable development was originally seen as a new approach and potential cost to organisations as they shifted to a new way of thinking. Now, we see organisations with mature approaches to sustainable development that require little in the way of advocacy to maintain. That is, working and managing in ways that are sustainable is increasingly the norm within organisations. The managerial conversation is shifting from having to justify why an organisation should be sustainable, to one of criticising an organisation if it is not. The human resource cycle of attracting, developing and maintaining an effective workforce (see EXHIBIT 9.2) demonstrates how an organisation can strongly pursue sustainability in its strategies. The shift towards sustainable development in organisations has changed the mindset of recruiting and training so as to ensure that strong elements of sustainability are appreciated in how employees support the strategy and value system created. Performance will be appraised against a broader set of measures in a sustainable organisation, with explicit focus on attitudes and behaviours with respect to stakeholders such as customers, suppliers and investors. Sustainable development requires organisations and their employees to be more inclusive and balance short-term interests with building long-term win-win relationships. Staff who are not familiar with this will need some convincing, and their management-by-objectives cycle (see Chapter 4) will also be based on broader objectives and activities. Most stakeholders typically approve and like the ideas of sustainable development because all stakeholders are people and we all share the planet and its environmental aspects and we all live in communities and want them to be good places to live. The idea of ‘doing well by doing good’ can be generally expected to appeal to the humanity in all of us, and can be highly motivating, leading to richer, deeper engagement between the firm and its managers, and all other stakeholders, especially employees. Sustainable development represents an opportunity to improve staff satisfaction through improved engagement and the idea that the company is doing good (hence doing well). For example, Google gives its staff a US$5000 subsidy towards buying fuel-efficient vehicles, which is good for staff morale and for the environment. Employees generally like to know that their employer is actively aiming to minimise its carbon footprint and this increases their commitment to the company’s goals in a more general manner. Staff at Google really like what the company stands for and high levels of employee satisfaction lead to high levels of commitment, productivity and staff-driven innovation.

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RESPONSE TO THE MANAGEMENT CHALLENGE

HRM AS A VEHICLE FOR UNDERSTANDING CULTURAL DIFFERENCES Automation and robotics have the potential to create sweeping changes to the ways in which many organisations approach staffing and training. In the Management Challenge, you are asked to think about the impact of automation on the roles of manufacturing staff; the jobs created and lost from increased use of robotics in manufacturing; identifying jobs that will always be for humans and how to keep current employees motivated prior to automation.

For the first point of interest, employees are likely to feel that their jobs may be threatened by the adoption of automation. However it is more common for organisations to retain their existing staff and find new areas of value creation within the business, or expand the value offering of the business to make best use of the talent the organisation has acquired over time. This means that the impact on job roles is likely to be horizontal – employees would likely be re-tasked and trained into new roles. The types of jobs that are often created from automation are technical maintenance jobs. That is, the robots need to be serviced and repaired, and often those who were on the manufacturing line find themselves shifting into these sorts of roles. Quality control is also an area that often requires greater attention, as there are fewer sets of eyes physically monitoring the progression

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of a vehicle through the manufacturing line to pick up defects throughout production. Jobs that typically become obsolete are confined to the roles given to the robots. Physical labouring jobs, such as shifting materials, picking parts, sorting components, and putting the pieces of the vehicle together may become largely obsolete for humans, but this isn’t necessarily a bad thing – if employees are given greater opportunity to use their brains than their muscles, employees will likely find the work more stimulating and interesting. With respect to the jobs that will always be filled by humans, decision making for issues that are beyond the day-to-day or trivial still require a brain to make sense of the broad array of social, environmental, political, economic and legal influences that shape organisational decision making. So, management will probably still be a human role for a long time to come. With respect to manufacturing lines, quality control is increasingly a mix of human and digital judgements, but there are some things that humans understand that machines haven’t yet been programmed to. For example, the look and feel of the material in vehicle seats

and trims requires a human touch, and robotic vision is not yet advanced enough to quickly pick out blemishes and defects in vehicle paint jobs. It seems, for now, people will retain many of the roles they are familiar with in vehicle manufacturing, and some will transition into new roles created by the adoption of automation. When thinking about the central questions posed in the Management Challenge, the textbook approach is to find the new roles that emerge from the adoption of the new technology, and transition employees from obsolete roles into these newly created roles that support the automated processes. This minimises the loss of employees and thus organisational knowledge from the company, while also providing employees with a sense of security and certainty for their employment – which helps to keep them motivated in the short term prior to automation. This requires transparency and well thought out goals that help employees understand the steps required to shift between roles; however a large part of the challenge is understanding the types of incentives or recognition required by employees to make their efforts worthwhile.

DISCUSSION QUESTIONS 1 It is the year 2025. In your company, central planning has given way to front-line decision making, and bureaucracy has given way to teamwork. Shopfloor workers use handheld computers and robots. A labour shortage currently affects many job openings, and the few applicants you do attract lack skills to work in teams, make their own production decisions or use sophisticated technology. As vice-president of human resource management since 2013, what should you have done to prepare for this situation?

5 How valuable do you consider the information obtained from: 1) a personal interview; 2) an employment test; and 3) an assessment centre would be for predicting effective job performance for a university lecturer? For an assembly-line worker in a manufacturing plant? Discuss.

2 What does it mean to say that HRM plays a strategic role in driving organisational performance? Consider recruiting, training, performance appraisal and compensation strategies as part of your answer.

6 How do you think the use of telecommuters, contingent workers and virtual teams affect human resource management? How can managers improve recruiting and retention of these new kinds of employees?

3 If you were asked to advise a private company about its equal employment opportunity responsibilities, which two points would you emphasise as most important?

7 If you are in charge of training and development, which training option or options – such as on-the-job training, cross-training, classroom, self-directed or computer-based – would you be likely to choose for your company’s production line manager? A customer service representative? An entry-level accountant?

4 Think about your dream job today and the industry in which it resides. Given the rise of automation and data analytics in

organisations, how might your dream job change between now and the time you’re in a position to fill it? What types of skills or experience will you need to acquire?

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8 Telecommuting is often seen as an opportunity for employees to gain greater levels of work-life balance, yet there are arguments that personal tasks and emails creep into work time, and work tasks and emails creep into personal time. How do these practical considerations for creep of work and personal domains impact on things like a telecommuting employee’s job description, compensation and benefits, performance measures, training and grounds for dismissal? 9 How would you go about deciding whether to use a job-based, skills-based or pay-for-performance compensation plan for

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employees in a textile manufacturing plant? For waiters in a restaurant? For salespeople in an insurance company? 10 What purpose do exit interviews serve for human resource management? 11 Is it wise for managers to evaluate a candidate’s postings on social networking sites such as Facebook as grounds for rejection before even interviewing a promising candidate? What might be some ethical and legal issues managers should consider? Discuss.

ROLES AND RESPONSIBILITIES

Lisa’s summer internship is with the Association for Bicycle Transportation (ABT), a domestic non-profit organisation. Since its inception two decades ago, the ABT has worked to promote bicycle use and improve cycling conditions locally and in neighbouring regions. While being introduced to the staff members and full-time volunteers of the ABT on her first day, Lisa notices that there is no receptionist on the staff roster. She learns that the receptionist recently resigned. The ABT is still looking to fill the position. Two days after the start of Lisa’s internship, her supervisor leaves on business for a week. It is during this time that Lisa is asked by other staff members to take over the cubicle located nearest to and facing the main entrance, the cubicle that had been used by the departed receptionist. Lisa has nagging doubts about this, as she senses the staff would like her to assume the role of receptionist. However, when asked if she has any problems with this change, Lisa does not voice her concerns. As a new intern with only two days on the job, Lisa feels that she can only do what is asked of her. At her new physical location, Lisa is still engaged in duties that she had anticipated would be part of her internship, which include conducting research for the ABT and attending meetings. However, she is also now the de facto receptionist, and faces considerable difficulties when it comes to directing visitors, as she is still very unfamiliar with the work of the organisation. Lisa’s situation deteriorates with the appointment of a new executive director two weeks into her internship. This adds more to staff changes and creates further organisational disarray at ABT. At the same

time, the new executive director approaches Lisa as an actual receptionist. He is unfamiliar with the internship program and with who she is, and asks her to do time-consuming tasks such as handling the large amount of mail that goes through the ABT. While Lisa feels that she is not supposed to assume the tasks of a receptionist during her internship, and that she is also not qualified for these tasks, she also understands that the non-profit is under-staffed and she wishes to help as much as possible. Over the course of her internship, these conflicting desires have led Lisa to feel frustrated on more than one occasion. W H AT D O YO U D O ? 1 Identify the greatest good as complying with the arrangements made by her co-workers at the ABT. It seems more important that the needs of the larger organisation are served, particularly if it contributes to the long-term operation of the non-profit. On the other hand, if Lisa could utilise all of her internship hours devoted to the projects for which she had planned, this might contribute even more to the long-term success of ABT. 2 Lisa should stick with her current position, as this respects the duty and obligations Lisa holds to her host organisation. 3 Focus on the relationship that has been built between the ABT and Lisa. If it is a particularly strong relationship, Lisa might feel compelled to care for the organisation’s immediate needs thus reducing her discomfort with the receptionist role.

Source: Adapted from Li, M. J. (2015). Roles and Responsibilities. The Kenan Institute for Ethics, at Duke University. Retrieved from http://kenan.ethics.duke.edu/wp-content/uploads/2012/08/ RolesResponsibilitiesTN20151.pdf and http://kenan.ethics.duke.edu/wp-content/uploads/2012/08/RolesResponsibilities20151.pdf.

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GROUP CHALLENGE

MANAGEMENT COMPETENCIES

Step 1. An important responsibility of the HR department at many companies is to develop a list of managerial competencies and then to provide training to help managers improve on those competencies. The list below includes desired manager competencies from IBM. Make notes to the right of each competency describing the management behaviours you think would be covered. • Collaborative influence • Developing IBM people and communities • Earning trust • Embracing challenge • Enabling growth • Passion for IBM’s future • Strategic risk taking • Thinking horizontal

Step 2. In groups of three to five students, compare, discuss and agree upon the expected behaviours for each competency. One student should be the recorder and be prepared to report the behaviours to the class. Step 3. After agreeing upon competency behaviours, each student should take a turn stating the competencies they believe will be easiest and hardest for them to master. Step 4. Why do you think IBM arrived at this set of competencies? How do you think it might differ from management or leadership competencies for other companies? Step 5. Outside of class, go online and look up information on IBM’s competencies. (Search for ‘IBM Leadership Competencies’.) Are the competencies defined as you expected? Look up competencies for another company as well. Why do you think HR departments in these companies put so much energy into developing a list of desired manager competencies?

Source: Based on Linda Tischler. (1 November 2004). IBM’s Management Makeover. Fast Company, http://www.fastcompany.com/51673/ibms-managementmakeover (accessed 26 November 2012); and http://www.zurich.ibm.com/employment/environment.html (accessed 13 September 2010).

CASE FOR CRITICAL ANALYSIS

THE RIGHT WAY WITH EMPLOYEES?

As a senior manager for a global player in car manufacturing and sales, Kirby Ellis had – like thousands of fellow employees – joined in the excitement surrounding production of the company’s new hybrid vehicles. But barely two years into production, embarrassing component shortages, delivery delays, and a recall of the first models had a ripple effect, presenting the company with mounting concerns. In the confusion, many customers cancelled orders and turned to competitors for purchase of eco-friendly vehicles. Ellis’s company was facing a financial downturn. With three decades of service to the company, Kirby led a contingent of managers intent upon keeping together as much of the company and as many employees as possible. ‘We know there will be some necessary cuts,’ Kirby admitted. ‘But this company has a long history of sticking by its people. Our first priority should be internal streamlining of how we do things and making sure we have the right people on board.’ Many managers liked what they heard from Kirby. He was well respected and had an unequalled reputation for his leadership and

collaborative skills and his ability to work with managers, as well as line workers on the factory floors. People marvelled at the number of individuals he knew on a personal level throughout the company. Drew Cunningham influenced a second contingent within the management group. A brash go-getter with a reputation for fixing companies in crisis, Cunningham proposed across-the-board cuts in employees in order to implement a solution as quickly as possible. He proposed the immediate creation of a forced ranking system in order to identify and get rid of lower-ranking employees. Kirby raised his hand and rose to his feet in objection. ‘So we’re going to create a system to fire … ’ ‘I didn’t say fire … ’ ‘OK, cut our own hard-working people? It sounds like some lame government commission,’ Kirby said. ‘We’ve got bright people. This thing simply got worse faster than we thought. We can work with the people we have in setting up more efficient workflow, establishing reasonable deadlines to increase output and . . .’ ‘Kirby, these are not the days of knowing everyone in the plant,’ Drew said. ‘You’re not throwing out your wife’s uncle Harry. We are

9: MANAGING HUMAN RESOURCES

taking a serious look at what we do, how we do it and streamlining everything by keeping the right people in the organisation and cutting the rest.’ QUESTIO NS 1 What kind of employee social contract is assumed by Kirby and Cunningham? Explain.

ON THE JOB VIDEO CASE

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2 If you were an HR manager at the company, which view would you support? Why? 3 HR departments hire and develop human capital to serve the organisation’s strategy and drive performance. Which approach – Kirby’s or Cunningham’s – is more likely to have a greater positive impact on performance? Discuss.

BARCELONA RESTAURANT GROUP: MANAGING HUMAN RESOURCES

For a real-world application of the management theories described in this chapter, log on to CourseMate to watch the On the Job video and answer the following questions. QUESTIO NS 1 List the three main activities of HRM and identify which activity is examined at length in the video.

 2 Of the various steps in Barcelona’s employee selection process, the job interview is the briefest. Do you agree with the company’s approach to interviewing? Why or why not? 3 Identify Barcelona’s three-stage process for matching job applicants with its organisational objectives, and explain how each stage reveals the fit between job applicants and the needs of the restaurant.

ENDNOTES 1 Branham, L. (Summer 2005). Planning to Become an Employer of Choice. Journal of Organizational Excellence, 57–68. 2 Mathis, R. L. and Jackson, J. H. (2002). Human Resource Management: Essential Perspectives, 2nd edn (Cincinnati, OH: South-Western Publishing), p. 1. 3 Persaud, J. (25 September 2003). Game On. People Management, 40–1. 4 Wimbush, J. C. (2005). Spotlight on Human Resource Management. Business Horizons, 48, 463–7; Tompkins, J. (Spring 2002). Strategic Human Resources Management in Government: Unresolved Issues. Public Personnel Management, 95–110; Lengnick-Hall, C. A. and Lengnick-Hall, M. L. (July 1988). Strategic Human Resources Management: A Review of the Literature and a Proposed Typology. Academy of Management Review, 13, 454–70; Tichy, N. M., Fombrun, C. J. and Devanna, M. A. (Winter 1982). Strategic Human Resource Management. Sloan Management Review, 23, 47–61. 5 Lawler, 2004; Susomrith, P. and Brown, A. (2013). Motivations for HR outsourcing in Australia. International Journal of Human Resource Management, 24:4, 704–30 DOI; http:// www.tandfonline.com.ezp.lib.unimelb.edu.au/doi/pdf/10.1080/09585192.2012.697479 6 Joann S. Lublin, HR Executives Suddenly Get Hot (Theory & Practice column), The Wall Street Journal, 14 December 2009. 7 This definition is based on George Bohlander, Scott Snell and Arthur Sherman, Managing Human Resources, 12th edn (Cincinnati, OH: South-Western, 2001), pp. 13–15. 8 Leading through Connections: The IBM 2012 Chief Executive Officer Study. Reported in Eric Lesser and Carl Hoffman. (July–August 2012). Workforce Analytics: Making the Most of a Critical Asset. Ivey Business Journal, http://www.iveybusinessjournal.com/topics/strategy/ workforce-analytics-making-the-most-of-a-critical-asset (accessed 27 August 2012). 9 P. Wright, G. McMahan and A. McWilliams. (1994). Human Resources and Sustained Competitive Advantage: A Resource-Based Perspective. International Journal of Human Resource Management, 5, 301–26; Tompkins. Strategic Human Resource Management in Government.

10 Liza Castro Christiansen and Malcolm Higgs. (Summer 2008). How the Alignment of Business Strategy and HR Strategy Can Impact Performance. Journal of General Management, 33:4, 13–33; Seema Sanghi. (May–June 2009). Building Competencies. Industrial Management, 14–17; B. Becker and M. Huselid. (1998). High Performance Work Systems and Firm Performance: A Synthesis of Research and Managerial Implications. Research in Personnel and Human Resources Management, 16, 53–101; S. Ramlall. (2003). Measuring Human Resource Management’s Effectiveness in Improving Performance. Human Resource Planning, 26, 51; Mark A. Huselid, Susan E. Jackson and Randall S. Schuler. (1997). Technical and Strategic Human Resource Management Effectiveness as Determinants of Firm Performance. Academy of Management Journal, 40:1, 171–88; and John T. Delaney and Mark A. Huselid. (1996). The Impact of Human Resource Management Practices on Perceptions of Organizational Performance. Academy of Management Journal, 39:4, 949–69. 11 Results of a McKinsey Consulting survey, reported in Leigh Branham, ‘Planning to Become an Employer of Choice,’ Journal of Organizational Excellence (Summer 2005): 57–68. 12 James N. Baron and David M. Kreps. (Spring 1999). Consistent Human Resource Practices. California Management Review, 41:3, 29–53. 13 Cynthia D. Fisher. (1989). Current and Recurrent Challenges in HRM. Journal of Management, 15, 157–80. 14 Floyd Kemske. (January 1998). HR 2008: A Forecast Based on Our Exclusive Study. Workforce, 46–60. 15 This discussion is based in part on George Bohlander, Scott Snell and Arthur Sherman, Managing Human Resources, 12th edn (Cincinnati, OH: South-Western, 2001), pp. 13–15; and Harry Scarbrough. (23 January 2003). Recipe for Success. People Management, 22–5. 16 Susan Cantrell et al. (2006). Measuring the Value of Human Capital Investments: The SAP Case. Strategy & Leadership, 34:2, 43–52.

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17 Hall, D. T. and Mirvis, P. H. (1995). The New Protean Career: Psychological Success and the Path with a Heart. In D. T. Hall & Associates. (1995). The Career is Dead–Long Live the Career: A Relational Approach to Careers (San Francisco: Jossey-Bass), pp. 15–45. 18 Phred Dvorak and Scott Thurm. (20 October 2009). Slump Prods Firms to Seek New Compact with Workers. The Wall Street Journal. 19 Reid Hoffman, Ben Casnocha, and Chris Yeh, ‘Tours of Duty: The New Employer-Employee Compact,’ Harvard Business Review (June 2013): 49–58. 20 Lynda Gratton, as reported in Phyllis Korkki, ‘The Shifting Definition of Worker Loyalty,’ The New York Times, 23 April 2011, www.nytimes.com/2011/04/24/jobs/24search.html (accessed 27 August 2012). 21 Lynda Gratton, as reported in Phyllis Korkki. (23 April 2011). The Shifting Definition of Worker Loyalty. The New York Times, http://www.nytimes.com/2011/04/24/jobs/24search. html (accessed 27 August 2012). 22 Stephen Baker. (4 May 2009). You’re Fired – But Stay in Touch. BusinessWeek, 54–5. 23 This discussion is based on Joe Light. (16 May 2011). In Hiring, Firms Shine Images. The Wall Street Journal, B9; and Lauren Weber. (11 April 2012). On the Hunt for Tech Hires. The Wall Street Journal, B6. 24 Weber, ‘On the Hunt for Tech Hires.’ 25 Hendy, Nina (18 February 2013). Firms launch new offensives to win war for talent: my small business. Sydney Morning Herald, 7, http://search.proquest.com.ezp.lib.unimelb.edu. au/docview/1288165440?accountid=12372 (accessed 5 November 2013). 26 Weber. On the Hunt; and Light. In Hiring, Firms Shine Images. 27 This discussion is based on Jody Greenstone Miller and Matt Miller. The Best Executive and Professional Jobs May No Longer Be Full-Time Gigs. Harvard Business Review (May 2012): 51–62; Peter Coy, Michelle Conlin and Moira Herbst. The Disposable Worker. Bloomberg BusinessWeek (18 January 2010): 33–9; Lauren Weber. (12 December 2011). Adeco Expects Temps Are Here to Stay as Hiring Revives. The Wall Street Journal, http://online.wsj.com/ article/SB10001424052970204319004577086871681893212.html (accessed 29 August 2012); Motoko Rich. (19 December 2010). Weighing Costs, Companies Favor Temporary Help. The New York Times, http://www.nytimes.com/2010/12/20/business/economy/20temp. html?pagewanted=all (accessed 20 December 2010); and Thomas Frank. (25 February 2008). TSA Struggles to Reduce Persistent Turnover. USA Today. 28 Workforce Survey: In the Company of Contingents. Workforce Management, 6 August 2012, http://www.workforce.com/article/20120806/NEWS02/120809957 (accessed 27 August 2012). 29 Jody Greenstone Miller and Matt Miller. The Best Executive and Professional Jobs May No Longer Be Full-Time Gigs. 30 SHRM Survey Findings: Work-Life Balance Policies. Society for Human Resource Management, 12 July 2012, http://www.shrm.org/Research/SurveyFindings/Articles/Pages/ WorkLifeBalance.aspx (accessed 29 August 2012). 31 Meg McSherry Breslin. (4 March 2012). Teleworking Has Come a Long Way for Workers. Workforce Management, http://www.workforce.com/article/20120304/NEWS02/120309988/ teleworking-has-come-a-longway-for-workers (accessed 27 August 2012). 32 Reported in 2012 Employee Benefits: The Employee Benefits Landscape in a Recovering Economy, A Research Report by the Society for Human Resource Management, Society for Human Resource Management and Colonial Life, 22 June 2012, http://www.shrm.org/Research/ SurveyFindings/Articles/Documents/2012_EmpBenefits_Report.pdf (accessed 29 August 2012). 33 John Challenger. (February 1999). There Is No Future for the Workplace. Public Management, 20–3; Susan Caminiti. Work-Life. Fortune (19 September 2005): S1–S17. 34 Stephanie Armour. (6 November 2005). Generation Y: They’ve Arrived at Work with a New Attitude. USA Today, http://www.usatoday.com/money/workplace/2005-11-06-gen-y _x.htm (accessed 6 November 2005); Ellyn Spragins. (October 2005). The Talent Pool. FSB, 92–101; and Caminiti. Work-Life. 35 This example and the discussion are based on Sarah E. Needleman, ‘Start-Ups Get Snapped Up for Their Talent,’ The Wall Street Journal, 13 September 2012, B6. 36 James G. March and Herbert A. Simon. (1958). Organizations (New York: Wiley). 37 Kravetz, D. J. (1989). The Human Resources Revolution (San Francisco: Jossey-Bass). 38 J. W. Boudreau and S. L. Rynes. (1985). Role of Recruitment in Staffing Utility Analysis. Journal of Applied Psychology, 70, 354–66. 39 Megan Santosus. (Fall 2005). The Human Capital Factor. CFO-IT, 26–7. 40 Ibid. 41 This discussion is based on Mathis and Jackson, Human Resource Management, chapter 4, pp. 49–60.

42 Victoria Griffith. (October 1998). When Only Internal Expertise Will Do. CFO, 95–6, 102. 43 J. P. Wanous. (1980). Organizational Entry (Reading, MA: Addison-Wesley). 44 Juro Osawa and Paul Mozur. (1 August 2012). In China, Recruiting Gets Social. The Wall Street Journal, B4; Joe Light. (18 January 2011). Recruiters Rethink Online Playbook. The Wall Street Journal, http://online.wsj.com/article/SB100014240527487043074045760804926138588 46.html (accessed 19 January 2011); and Joe Walker. (4 October 2010). PwC Pays for Priority: New Recruiting Tool for College Students Gives Accounting Firm Top Billing. The Wall Street Journal, http://online.wsj.com/article/SB10001424052748704029304575526641294699972. html (accessed 9 October 2010). 45 Paul Shread, ‘Your Social Media Reputation Can Attract Employees,’ Time, March 1, 2013, http://business.time.com/2013/03/01/your-social-media-reputation-can-attract-employees/ (accessed 10 October 2013). 46 Osawa and Mozur. In China, Recruiting Gets Social. 47 Based on ‘United Nations New York Headquarters Internship Programme,’ www.un.org/ depts/OHRM/sds/internsh/index.htm (accessed 29 August 2012); and Phyllis Korkki, ‘The Internship as Inside Track,’ The New York Times, 25 March 2011, www.nytimes. com/2011/03/27/jobs/27searches.html (accessed 27 March 2011). 48 Trudy Steinfeld, as reported in Korrki, ‘The Internship as Inside Track.’ 49 Wimbush. Spotlight on Human Resource Management. 50 Paul W. Thayer. (Winter 1977). Somethings Old, Somethings New. Personnel Psychology 30:4, 513–24. 51 J. Ledvinka. (1982). Federal Regulation of Personnel and Human Resource Management (Boston: Kent); and Civil Rights Act, Title VII, Section 2000e et seq., US Code 42 (1964). 52 Reported in Stephanie Clifford. (August 2006). The New Science of Hiring. Inc., 90–8. 53 Research reported in Lauren Weber, ‘Tips on Acing Job Interviews—For Managers,’ The Wall Street Journal, 5 December 2012, B8. 54 Bohlander, Snell and Sherman, Managing Human Resources, p. 202. 55 Tiffany Hsu. (19 February 2012). Job Interviewing, To the Extreme. The Los Angeles Times, http://articles.latimes.com/2012/feb/19/business/la-fi-extremeinterviewing-20120219 (accessed 19 February 2012). 56 Reported in Tomas Chamorro-Premuzic and Christopher Steinmetz, ‘The Perfect Hire,’ Scientific American Mind (July–August 2013): 43–47. 57 Susan Greco. (March 2009). Sales & Marketing: He Can Close, but How Is His Interpersonal Sensitivity: Testing Sales Recruits. Inc., 96–8. 58 Reported in Toddi Gutner. (26 August 2008). Applicants’ Personalities Put to the Test. The Wall Street Journal. 59 Reported in Chamorro-Premuzic and Steinmetz, ‘The Perfect Hire.’ 60 Reported in ‘Should You Check Facebook Before Hiring?’ Washington Post, 22 January 2011, www.washingtonpost.com/wpdyn/content/article/2011/01/22/AR2011012203193.html (accessed 23 January 2011); and CareerBuilder survey results reported in ‘Survey: 37% Use Social Media to Check Candidates,’ Workforce Management, 18 April 2012, www.workforce. com/article/20120418/NEWS01/120419964 (accessed 19 June 2012). 61 Adecco survey, reported in Jenna Goudreau, ‘Top 5 Mistakes Millennials Make,’ Forbes, 26 September 2012, http://www.forbes.com/sites/jennagoudreau/2012/09/26/top-5interview-mistakes-millennials-make/ (accessed 10 October 2013). 62 Reported in ‘Should You Check Facebook Before Hiring?’ 63 Quote and information reported in Stephen Bruce, ‘Social Media Background Checks? ‘I’m Not a Fan,’ ’ HR Policies and Procedures, 11 March 2013, http:// hrdailyadvisor.blr. com/2013/03/11/social-media-background-checks-i-m-not-a-fan/# (accessed 10 October 2013). 64 China Gorman, ‘Recruiting and Social Networking: SHRM Research Shows a Few Surprises,’TLNT.com , 1 May 2013, http://www.tlnt.com/2013/05/01/recruiting-and-socialnetworking-shrm-research-shows-a-few-surprises/ (accessed 10 October 2013). 65 Bernard Keys and Joseph Wolfe. (1988). Management Education and Development: Current Issues and Emerging Trends. Journal of Management, 14, 205–29. 66 Freifeld, L. 2012 Training Industry Report. Training, http://www.trainingmag.com/ content/2012-training-industry-report (accessed 8 January 2014). 67 (21 November 2011). How Do Great Companies Groom Talent? Fortune, 166. 68 Kate Linebaugh, ‘The New GE Way: Go Deep, Not Wide,’ The Wall Street Journal, 7 March 2012, B1. 69 Rothwell, W. J. and Kazanas, H. C. (1994). Improving On-the-Job Training: How to Establish and Operate a Comprehensive OJT Program (San Francisco: Jossey-Bass). 70 Matt Allen and Jennifer Naughton. (August 2011). Social Learning: A Call to Action for Learning Professionals. T+D, 50–5.

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71 Reported in Margaret Schweer et al. (Winter 2012). Building a Well-Networked Organization. MIT Sloan Management Review, 35–42. 72 Deutsch, C. H. (7 May 1999). A New Kind of Whistle-Blower: Company Refines Principles of Coaching and Teamwork. The New York Times; Filipczak, B. (March 1998). The Executive Coach: Helper or Healer? Training, 30–6. 73 Training (December 2005). 2005 Industry Report, 14–28. 74 Bartholomew, D. (June 2005). Taking the E-Train. Industry Week, 34–7. 75 Meister, J. C. (9 February 2001). The Brave New World of Corporate Education. The Chronicle of Higher Education, B10; Landau, M. D. (May–June 2000). Corporate Universities Crack Open Their Doors. Journal of Business Strategy, 18–23. 76 Gordon, E. E. (September 2003). Bridging the Gap. Training, 30; Meister, J. C. (9 February 2001). The Brave New World of Corporate Education; Byrne, J. (4 October 1999). The Search for the Young and Gifted. BusinessWeek, 108–16. 77 Dow, J. (29 May 2003). Spa Attraction. People Management, 34–5. 78 ‘Talent Tutor: Ram Charan’s List of Biggest Corporate Talent-Management Mistakes,’ sidebar in Joann S. Lublin, ‘Managing & Careers—Boss Talk; Ram Charan: Message to CEOs: Do More to Keep Your Key Employees,’ The Wall Street Journal, 27 December 2010, B5. 79 Survey by HR consulting firm Watson Wyatt, reported in Kelley Holland, ‘Performance Reviews: Many Need Improvement,’ The New York Times, 10 September 2006. 80 People analytics: The key trend in employee engagement (5 December 2016). HC Online, http://www.hcamag.com/features/people-analytics-the-key-trend-in-employeeengagement-228113.aspx (accessed 3 March 2017). 81 Jesse W. Brogan, ‘Problem Appraisal Systems,’ Industrial Management (September–October 2012): 24–27; Herman Aquinis, Ryan K. Gottfredson, and Harry Joo, ‘Using Performance Management to Win the Talent War,’ Business Horizons 55 (2012): 609–616. 82 Kyle Couch. (February 2012). Talent Management: Build on Four Key Components. Leadership Excellence, 18; Walter W. Tornow. (Summer–Fall 1993). Editor’s Note: Introduction to Special Issue on 360-Degree Feedback. Human Resource Management, 32:2–3, 211–19; and Brian O’Reilly. (17 October 1994). 360 Feedback Can Change Your Life. Fortune, 93–100. 83 Jena McGregor. (23 & 30 March 2009). Job Review in 140 Keystrokes. BusinessWeek, 58. 84 This discussion is based on Dick Grote. (November–December 2002). Forced Ranking: Behind the Scenes. Across the Board, 40–5; Matthew Boyle. (28 May 2001). Performance Reviews: Perilous Curves Ahead. Fortune, 187–8; Carol Hymowitz. (15 May 2001). Ranking Systems Gain Popularity but Have Many Staffers Riled. The Wall Street Journal; and Kris Frieswick. (June 2001). Truth and Consequences. CFO, 56–63. 85 Forced Ranking (Forced Distribution). HR Management website, http://www. humanresources.hrvinet.com/forced-ranking-forced-distribution/ (accessed 21 January 2012). 86 Ferrell, J. Z., Carpenter, J. E., Vaughn, E. D., Dudley, N. M., & Goodman, S. A. (2016). Gamification of Human Resource Processes. In H. Gangadharbatla, & D. Davis (Eds.) Emerging Research and Trends in Gamification (pp. 108–139). Hershey, PA: Information Science Reference. doi:10.4018/978-1-4666-8651-9.ch006

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87 Buzzotta, V. R. (August 1988). Improve Your Performance Appraisals. Management Review, 40–3; Bernardin, H. J. and Beatty, R. W. (1984). Performance Appraisal: Assessing Human Behavior at Work (Boston: Kent). 88 Buzzotta. Improve Your Performance Appraisals. Bernardin and Beatty. Performance Appraisal: Assessing Human Behavior at Work. 89 Henderson, R. I. (1985). Compensation Management: Rewarding Performance, 4th edn (Reston, VA: Reston). 90 Montemayor, E. (1996). Congruence Between Pay Policy and Competitive Strategy in High-Performing Firms. Journal of Management, 22:6, 889–908; Gomez-Mejia, L. R. (1992). Structure and Process Diversification, Compensation Strategy, and Firm Performance. Strategic Management Journal, 13, 381–97. 91 Broderick, R. F. and Milkovich, G. T. (August 1985). Pay Planning, Organization Strategy, Structure and ‘Fit’: A Prescriptive Model of Pay. Paper presented at the 45th Annual Meeting of the Academy of Management, San Diego. 92 Greene, R. J. (1993). Person-Focused Pay: Should It Replace Job-Based Pay? Compensation and Benefits Management, 9:4, 46–55; Lawler, E. F. III (1990). Strategic Pay: Aligning Organizational Strategies and Pay Systems (San Francisco: Jossey-Bass). 93 Reported in Rachel Emma Silverman, ‘Big Data Upends the Way Workers Are Paid,’ The Wall Street Journal, 19 September 2012, http://online.wsj.com/news/articles/SB1000087239639044 443350457765174190 0453730 (accessed 20 September 2012). 94 Alan S. Blinder. (28 May 2009). Crazy Compensation and the Crisis. The Wall Street Journal. 95 Janet Wiscombe, ‘SAS,’ Workforce Management (October 2010): 36–38; Martha Mendoza, ‘Tech Firms Bumping Up Perks to Recruit, Retain,’ USA Today, 7 April 2013. 96 James R. Morris, Wayne F. Cascio and Clifford Young. (Winter 1999). Downsizing After All These Years: Questions and Answers About Who Did It, How Many Did It, and Who Benefited from It. Organizational Dynamics, 78–86; William McKinley, Carol M. Sanchez and Allen G. Schick. (1995). Organizational Downsizing: Constraining, Cloning, Learning. Academy of Management Executive, 9:3, 32–42; and Brett C. Luthans and Steven M. Sommer. (1999). The Impact of Downsizing on Workplace Attitudes. Group and Organization Management, 2:1, 46–70. 97 Effective downsizing techniques are discussed in detail in Bob Nelson. (April 1997). The Care of the Un-Downsized. Training and Development, 40–3; Shari Caudron. (January 1996). Teaching Downsizing Survivors How to Thrive. Personnel Journal, 38; Joel Brockner. (Winter 1992). Managing the Effects of Layoffs on Survivors. California Management Review, 9–28; and Kim S. Cameron. (Summer 1994). Strategies for Successful Organizational Downsizing. Human Resource Management, 33:2, 189–211. 98 Scott Westcott. (April 2006). Goodbye and Good Luck. Inc., 40–2. 99 Adam Bryant. (5 April 2009). There’s No Need to Bat .900. (Corner Office column, an interview with John Donahoe), The New York Times. 100 Nanette Byrnes. (10 October 2005). Star Search. BusinessWeek, 68–78. 101 Mike Brewster. (April 2005). No Exit. Fast Company, 93.

PART FIVE L E A DING

Chapter 10 Leadership Chapter 11 Motivating employees Chapter 12 Communication in organisations Chapter 13 Leading teams

Some would say the most important factor in achieving success is good leadership, and in this regard, sporting teams and business organisations are remarkably similar. A sporting team has a captain who calls the shots and dictates tactics in real time, and behind the scenes there is a coach, or perhaps a whole group of coaches and advisers. An organisation in the business world has a managing director, usually known as the CEO (chief executive officer), who makes decisions, dictates tactics and allocates resources just as the captain of a cricket, netball or football team does. The CEO calls the shots in real time, just as a sporting team captain does. And just as a group of advisers helps the sports captain, a group of advisers known as the board of directors, led by the company chairperson, advises or directs the CEO on actions and decisions. Great sporting leaders such as Sir Donald Bradman, Dawn Fraser, Liz Ellis and Richard Hadlee inspire through ‘leading from the front’, with their own personal achievements being at a very high level. So do great business executives. Without good leadership, motivation is low within the team and outcomes are relatively poor, whether it is a sporting team or a work team. Dawn Fraser provided inspirational leadership to elite

sportsmen and women for decades, even in sports that had no relation to swimming. Muhammad Ali became an inspirational global sporting legend. Australian (and indeed all) top tennis players still look up to Rod Laver and his achievements, even though it is decades since they occurred. Managers can also be more than administrators – like their sporting counterparts, they can be inspirational leaders. They bring out the best in themselves and others, and lead everyone to superior performance. In the world’s best companies, all employees display leadership behaviours. Although a manager’s job includes issuing directives, leadership is not simply ordering people – go here, do that. A leader must also guide the culture and spirit of a company or business. A manager must lead with ideas and be an embodiment of those ideas: a cultural leader. In Part five, you will learn about the ways leadership, motivation and communications can be powerful influences on performance, and the importance of teamwork in today’s competitive world. Doing these things well makes a large difference to competitiveness and effective outcomes achievement.

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L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define leadership and explain its importance for organisations

2 describe how contemporary leadership is changing in today’s organisations, including Level 5 leadership, servant leadership and authentic leadership

3 identify personal characteristics associated with effective leaders and discuss how women’s style of leading is typically different from men’s

4 define task-oriented behaviour and people-oriented behaviour and explain how these categories are used to evaluate and adapt leadership style

5 describe the situational model of leadership, application to subordinate participation and discuss how organisational characteristics can substitute for leadership behaviours

6 describe transformational leadership and when it should be used

7 explain how followership is related to effective leadership

8 identify sources of leader power and the tactics that leaders use to influence others.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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LEADING A REVITALISATION When Jess Moore took over the role of general site manager at the ICI Australia (now Ixom) site at Botany in Sydney, he knew he was in for a major challenge. The site was infamous in Australia as an ‘industrial relations nightmare’. In essence, the interests of the company managers and the plant employees (the operators and the tradesmen) had totally diverged. Employee relations at the site had been poor for decades, with many employees doing little work during regular work hours, leading to the creation of lots of overtime. This was a prevalent approach in Australian industrial organisations during the twentieth century, especially in the oil and gas, brewing and many other manufacturing sectors. The Botany site had a poor safety record, with numerous severe injuries and deaths on the site. When Jess first came to the site, he wanted to do what had made him a successful leader elsewhere within ICI: spend a few weeks walking the site, simply talking to everybody about the problems the site faced and discussing the way forward. From a business perspective, the whole Botany site was threatened with closure due to lack of competitiveness. Things were so bad that when Jess wanted to go into a

control room to talk to the plant operators, the shop stewards who represented the unionised workforce barred him from entering and communicating with shop floor operators, saying that all communications had to be done with the union, who would then pass the messages on to operators and tradesmen. Jess knew that he could not lead the site away from the precipice it was about to topple over while the interests of management and workers seemed so far apart. Time was of the essence, so Jess had to move quickly to turn things around and revitalise the site. Customers were dissatisfied with service levels and costs were too high, while employees were taking home very large pay packets based on the overtime they generated for themselves. Further, the site had major safety and environmental problems, having previously had a poor record of ‘health safety and environment’ stemming from poor management–worker relationships. Jess’s many challenges included turning around the whole psychology of the workplace. QU E S T I O N How does a leader such as Jess Moore inspire employees to give their best to the organisation? What leadership style would you recommend Jess Moore use to turn complacent workers into a team of productive employees pulling together to serve the customer?

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NEW MANAGER SELF-ASSESSMENT TASK VERSUS PEOPLE ORIENTATION Instructions: Responding to the statements below can help you diagnose your approach to dealing with others when you are in a leadership role. If you have been a leader at work with people reporting to you, think back to that experience. Or you can think about how you usually behave as a formal or informal leader in a group to get an assignment completed. Please answer honestly about how frequently you display each behaviour. MOSTLY TRUE

MOSTLY FALSE

1 I intentionally try to make people’s work on the job more pleasant. 2 I focus more on execution than on being pleasant with people. 3 I go out of my way to help others. 4 I personally hold people accountable for their performance. 5 I work hard to maintain a friendly atmosphere on the team. 6 I clearly tell people what I expect of them. 7 I think a lot about people’s personal welfare. 8 I check up on people to know how they are doing. 9 I am concerned more with relationships than with results. 10 I assign people to specific roles and tasks. 11 I focus more on being pleasant with people than on execution of tasks. 12 I am concerned more with results than with people’s feelings. Scoring and Interpretation: Give yourself 2 points for each Mostly true and 1 point for each Mostly false. People orientation: Add your points for the odd-numbered questions: _________. Task orientation: Add your points for the even-numbered questions: _________. Your People orientation score reveals your orientation towards people and relationships, which will be described in the chapter. A score of 10 or higher suggests that you may be ‘high’ on people behaviour. A score of 9 or below suggests that you may be ‘low’ on people orientation. Your Task orientation score reveals your orientation towards tasks and outcomes. A score of 10 or higher suggests that you may be ‘high’ on task-oriented behaviour. A score of 9 or below suggests that you may be ‘low’ on task orientation. What is your primary leadership orientation? Which of the following best represents your leadership style (tick one)? Look at EXHIBIT 10.7 on page 481 to see the quadrant in which you fit. ______Low Task, Low People 5 Delegating style ______Low Task, High People 5 Participating style ______High Task, Low People 5 Telling style ______High Task, High People 5 Selling style Does your quadrant seem correct based on your experience? Compare your scores to the scores of other students.

In the previous chapter, we explored differences in personality, perception and emotions that affect behaviour. Some of the most important personality differences for the organisation’s success are those of its leaders because leader behaviours play a critical role in shaping employee performance. Some leaders take a heavily task-oriented approach, whereas others use a more people-oriented style. Yet many leaders can also change their style. In this chapter, we define leadership and explore how managers develop leadership qualities. We look at some important leadership approaches for contemporary organisations, as well as examine trait, behavioural and contingency theories of leadership effectiveness, discuss charismatic and transformational leadership, explore the role of followership, and consider how leaders use power and influence to get things done. Chapters 11 to 13 will look in detail at many of the functions of leadership, including employee motivation, David Pocock communication and encouraging teamwork. David Pocock, an Australian rugby union player, is an unlikely leader both on and off the field. Born in Zimbabwe in 1988, Pocock and his family fled to Australia in 2002 after the family farm was acquired in the Zimbabwe government’s ‘land reform program’. He played for seven seasons with Perth’s Western Force (2006–12), moved to Canberra’s ACT Brumbies, and made his debut with the Wallabies in late 2008. In 2010, Pocock was awarded the John Eales medal, the highest honour in Australia Rugby. Off the field he also demonstrates his exceptional leadership abilities. Pocock is heavily involved in a number of things he holds close to his heart. He is an environmental activist, a gay rights supporter, a humanitarian and also a veggie gardener. Pocock and his friend Luke O’Keefe created a not-for-profit organisation, EightTwenty Vision, which aims to help the less fortunate people in Zimbabwe. He is also heavily involved in rhinoceros conservation in Zimbabwe, where he visits once a year; and in 2014 he was charged over a protest at the Maules Creek coal mine in Northern New South Wales when he chained himself to a digger for 10 hours as part of a blockade. He is a supporter of gay marriage and condemned the use of homophobic slurs saying, ‘You can be the toughest man in the world, but it’s got nothing to do with that sort of language’. Pocock, who is currently undertaking a Bachelor of Ecological Agricultural Systems at Charles Sturt University, took a year off rugby in 2017 to pursue his academic goals. His father, Andy Pocock, best describes his son David Pocock by saying, ‘He’s worked hard not to be defined as a rugby player’.1

10.1

Source: Fairfax Syndication/Jamila Toderas

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THE NATURE OF LEADERSHIP

In most situations, a team, department, or volunteer group is only as good as its leader. Yet there are as many variations among leaders as there are among other individuals, and many different styles of leadership can be effective. So, what does it mean to be a leader? Among all the ideas and writings about leadership, three aspects stand out – people, influence, and goals. Leadership occurs among people, involves the use

leadership The ability to influence people towards the attainment of organisational goals.

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of influence, and is used to attain goals.2 Influence means that the relationship among people is not passive. Moreover, influence is designed to achieve some end or goal. Thus, leadership, as defined here, is the ability to influence people towards the attainment of goals. This definition captures the idea that leaders are involved with other people in the achievement of goals. Leadership is reciprocal, occurring among people.3 Leadership is a ‘people’ activity, distinct from administrative paperwork or problemsolving activities. Throughout this text, we have looked at various organisations that are experimenting with bosslessness. But every team and organisation needs leadership. As described below, being a ‘leader’ can be more powerful than being a ‘boss’.

BO S S L E S S D O E S NO T M E A N L E A D E R L E S S Conventional management states that when managing a company, it needs to be highly ordered, with well-defined roles, rules and regulations, and led by a strong boss. This has always been the standard in the US military. But what if bosslessness and self-organisation give rise to an effective order far more powerful than what traditional management might carry out? The story of Captain Michael Abrashoff and his command of the USS Benfold is legendary inside and outside the US Navy. Within months, he transformed a crew of demoralised sailors into confident and inspired problem solvers eager to take the initiative. To do this, Captain Abrashoff had to change his traditional management style to a more ‘bossless’ leadership style. Some of Captain Abrashoff’s methods for becoming less of a boss and more of a leader include:

◗◗ Lead by example. Real leadership is done by example. Whenever he could not get the results he wanted, Captain Abrashoff asked himself three questions: Did I clearly articulate the goals? Did I give people enough time and resources to accomplish the task? Did I give them enough training? He discovered that many times, he was as much a part of the problem as his people were.

◗◗ Communicate purpose and meaning. Give employees a compelling vision of their work and a good reason to believe that it is important. Tell people personally what’s in it for them. Abrashoff found that the more people knew what the goals were, the better buy-in he got – and the better results they achieved together.

◗◗ Create a climate of trust. The best way to get a ship – or any organisation – to improve dramatically is to give the troops all the responsibility they can handle and then stand back.

◗◗ Look for results, not salutes. You need to have people in your organisation who can tap you on your shoulder and say, ‘Is this the best way?’ or ‘Slow down’ or ‘Think about this’. When managers announce decisions after little or no consultation, and when they make it clear that their orders aren’t to be questioned, then conditions are ripe for disaster.

◗◗ Take calculated risks. An organisation that aims to stay alive and strong should make sure to praise and promote risk takers, even when they fail once in a while. Show me someone who has never made a mistake, and I will show you someone who is not doing anything to improve your organisation. If all you give are orders, then all you will get are order takers.

◗◗ Generate unity. Abrashoff states that organisations can always hire smart people, but he found what works better are staff members who work together and support one another. Treating people with dignity and respect is not only morally right, but also highly practical and productive.4

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The attitudes and behaviours of leaders shape the conditions that determine how well employees can do their jobs; thus, leaders play a tremendous role in the organisation’s success.

◗◗ ◗◗

Many different styles of leadership can be effective. Leadership is the ability to influence people towards the attainment of organisational goals.

10.2

CONTEMPORARY LEADERSHIP

The concept of leadership evolves as the needs of organisations change. That is, the environmental context in which leadership is practised influences which approach might be most effective, as well as what kinds of leaders are most admired by society. The technology, economic conditions, labour conditions and social and cultural mores of the times all play a role. A significant influence on leadership styles in recent years is the turbulence and uncertainty of the environment. Ethical and economic difficulties, corporate governance concerns, globalisation, changes in technology, new ways of working, shifting employee expectations and significant social transitions have contributed to a shift in how we think about and practise leadership. Four approaches that are in tune with leadership for today’s turbulent times are Level 5 leadership, servant leadership, authentic leadership and interactive leadership, which has been associated with women’s style of leading.

LEVE L 5 LEADE RSH IP A study conducted by Jim Collins and his research associates identified the critical importance of what Collins calls Level 5 leadership in transforming companies from merely good to truly great organisations. As described in his book Good to Great: Why Some Companies Make the Leap … and Others Don’t, Level 5 leadership refers to the highest level in a hierarchy of manager capabilities, as illustrated in EXHIBIT 10.1. As reflected in EXHIBIT 10.1, a key characteristic of Level 5 leaders is an almost complete lack of ego (humility) coupled with a fierce resolve to do what is best for the organisation (will). Humility means being unpretentious and modest rather than arrogant and prideful. In contrast to the view of great leaders as larger-than-life personalities with strong egos and big ambitions, Level 5 leaders often seem shy and selfeffacing. Although they accept full responsibility for mistakes, poor results or failures, Level 5 leaders give credit for successes to other people. Level 5 leaders build organisations based on solid values that go far beyond just making money, with an unwavering resolve to do whatever is needed to make the company successful over the long term.5 One leader who demonstrates Level 5 leadership qualities is Satoru Iwata of Microsoft (see the Innovative way box on the next page).

humility Being unpretentious and modest rather than arrogant and prideful.

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Level 5

EXHIBIT 10.1 Level 5 hierarchy

Builds excellence through dedication and humility

Effective

Competent

Contributes talent, skills, knowledge

Level 2 – Team member

Level I – Individual

Capable

Level 3 – Manager

Contributes individually; works well in group

Level 4 – Leader

Contributing

Manages team members and assets to reach set objectives

Level 5 – Executive

Stimulates high standards; champions dedication to vision

Source: Based on Jim Collins, Good to Great: Why Some Companies Make the Leap . . . and Others Don’t (New York: HarperCollins, 2001), p. 20.

INNOVATIVE WAY LEVEL 5 LEADERSHIP AT WORK Satoru Iwata was born in Sapporo, Japan in 1959 and expressed an early interest in video games. He majored in computer science at the Tokyo Institute of Technology and in 1980 joined the newly formed game developer company, HAL Laboratory, and went on to create and contribute to the Kirby, Mother/EarthBound, and Super Smash Bros. series of games. Iwata became the president of HAL Laboratory in 1993 and the president and CEO of Nintendo in 2002 and was responsible for the Wii (101.18 million global sales) and the Nintendo DS/3DS (215.58 million global sales) consoles as well as the Amiibo line of figures and cards (64 million global units sold). He, alongside others at Nintendo such as Shigeru Miyamoto (creator of the Mario, The Legend of Zelda and Donkey Kong series), are credited with vastly expanding the gaming market and creating a new genre. ‘Video games,’ Iwata claimed, ‘are meant to be just one thing: fun. Fun for everyone.’ Satoru Iwata was seen as the embodiment of Nintendo: playful, quirky and fun. His gentle and humble nature is best summarised by the opening remarks of the keynote speech

he gave at the 2005 Game Developers Conference: ‘On my business card, I am a corporate president. In my mind, I am a game developer. But in my heart, I am a gamer.’ Further, his proficiency in programming led many to refer to him as a ‘genius’ in the subject, with his hands-on approach to business earning him admiration and respect from both

Source: Getty Images/Bob Riha Jr

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developers and gamers. Following Iwata’s death in 2015 at age 55, president and COO of Nintendo of America, Reggie Fils-Aimé remarked, ‘it will be years before his impact on

both Nintendo and the full video game industry will be fully appreciated’.

Sources: Milward, S. (13 July 2015). RIP Nintendo CEO Satoru Iwata. Here are 5 ways he was a great leader. https://www.techinasia.com/leadershiplessons-satoru-iwata-nintendo-ceo (accessed: 15 November 2016); Hiranand, R. (13 July 2015). Nintendo’s CEO Satoru Iwata played by his own rules. http://edition.cnn.com/2015/07/13/tech/nintendo-ceo-satoru-iwata-legacy/ (accessed 15 November 2016); Kamen, M. (13 July 2015). Satoru Iwata: Nintendo’s late legend, in his own words. Wired, http://www.wired.co.uk/article/satoru-iwata-in-his-own-words (accessed 22 November 2016); VGChartz (2016). Platform totals, http://www.vgchartz.com/analysis/platform_totals/ (accessed 22 November 2016); Video Game Sales Wiki (2016). Amiibo, http://vgsales. wikia.com/wiki/Amiibo (accessed 22 November 2016); Robinson, M. (13 July 2015). Satoru Iwata: a gentle revolutionary, http://www.eurogamer.net/ articles/2015-07-13-it-would-have-been-more-frightening-to-take-the-conventional-path-remembering-iwata (accessed 15 November 2016); Rundle, M. (13 July 2015). Nintendo president Satoru Iwata dies at 55, http://www.wired.co.uk/article/nintendo-president-satoru-iwata-dead (accessed 15 November 2016); Inoue, O. (2010). Nintendo magic: Winning the videogame wars, Vertical; Kohler, C. (16 July 2015). Thanks to Nintendo’s Satoru Iwata, we’re all gamers now, https://www.wired.com/2015/07/satoru-iwata-gamer/ (accessed 15 November 2016); Caruso, N. [Gaming Historian] 23 November 2015. The life of Satoru Iwata – Gaming Historian [Video file]. https://www.youtube.com/watch?v=k4cJh2YgrKE (accessed 15 November 2016); Casamassina (10 March 2005). GDC 2005: Iwata keynote transcript, http://au.ign.com/articles/2005/03/11/gdc-2005-iwata-keynote-transcript (accessed 22 November 2016); Molina, B. (13 July 2015). Nintendo CEO Satoru Iwata dies at 55, http://www.usatoday.com/story/tech/gaming/2015/07/12/ nintendo-ceo-satoru-iwata-dies-55/30064255/ (accessed 22 November 2016).

Level 5 leaders such as Satoru Iwata are extremely ambitious for their companies rather than for themselves. As another example, consider Darwin Smith, CEO of Kimberly-Clark from 1971 to 1991. Over those 20 years, Smith transformed Kimberly-Clark from a stodgy paper company with falling stock prices into the leading consumer paper products company in the world. The company generated cumulative shareholder returns that were 4.1 times greater than those of the general market. Yet few people have ever heard of Smith. He shunned the spotlight and was never featured in splashy articles in Fortune magazine or The Wall Street Journal. He was ambitious for the company, not for himself.6 This attitude becomes highly evident in the area of succession planning. Level 5 leaders develop a solid core of leaders throughout the organisation, so that when they leave, the company can continue to thrive and grow even stronger. Egocentric leaders, by contrast, often set their successors up for failure because it will be a testament to their own greatness if the company doesn’t perform well without them. Rather than building an organisation around ‘a genius with a thousand helpers’, Level 5 leaders want everyone to develop to their fullest potential.

S E R VA N T L E A D E R S H I P When Jack Welch, former longtime CEO of General Electric (GE), speaks to MBA students, he reminds them that ‘any time you are managing people, your job is not about you, it’s about them. It starts out about you as … an individual in a company’, Welch says. ‘But once you get a leadership job, it moves very quickly to being about them.’7 Some leaders operate from the assumption that work exists for the development of the worker as much as the worker exists to do the work.8 The concept of servant leadership, first described by Robert Greenleaf in 1970, has gained renewed interest in recent years as companies recover from ethical scandals and compete to attract and retain the best human talent.9 A servant leader transcends self-interest to serve others, the organisation and society.10 Marilyn Nelson, joint owner and former CEO of the Carlson Companies (Radisson Hotels, TGI Fridays), says being a true leader means you ‘have to subordinate your own emotions, your own desires, even make decisions on behalf of the whole that might conflict with what you would do on an individual basis’.11 A stunning example of this occurred in the spring of 2009 when a US-flagged cargo ship, the Maersk Alabama, was seized and raided by Somali pirates. Captain Richard Phillips ordered crew members of the unarmed ship

servant leadership occurs when a leader transcends self-interest to serve others, the organisation and society.

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not to fight and gave himself up as a hostage to free the ship and crew. (A big-budget Hollywood film about this incident, called Captain Phillips, was released in 2013.) Contrast his behaviour with that of Costa Concordia captain Francesco Schettino, who abandoned his ship while passengers were still aboard after the luxury cruise ship hit a rock in 2012 and sank off the coast of Italy, killing 32 people. Schettino was charged and found guilty of multiple manslaughter, causing a shipwreck and abandoning ship.12 In organisations, servant leaders operate on two levels: for the fulfilment of their subordinates’ goals and needs and for the realisation of the larger purpose or mission of their organisation. Servant leaders give things away – power, ideas, information, recognition, credit for accomplishments, even money. Servant leaders often work in the non-profit world because it offers a natural way to apply their leadership drive and skills to serve others. But servant leaders also succeed in business. In 2013, for the second year in a row, Lenovo CEO Yang Yuanqing shared US$3.25 million of his US$4.23 million bonus with hourly manufacturing workers to recognise their role in the company’s success.13 Fred Keller has built a US$250 million plastics manufacturing company, Cascade Engineering, by continuously asking one question: What good can we do? Keller started the business 40 years ago with six employees. Today, it has 1000 employees in 15 business divisions. Keller has made social responsibility a cornerstone of the business. The company offers jobs to welfare recipients. Keller has also donated large amounts to various philanthropic causes, both as an individual and through Cascade.14

AU T H E N T I C L E A D E R S H I P authentic leadership Individuals who know and understand themselves, who espouse and act consistently with higherorder ethical values and who empower and inspire others with their openness and authenticity.

Another popular concept in leadership today is the idea of authentic leadership, which refers to individuals who know and understand themselves, who espouse and act consistently with higher-order ethical values, and who empower and inspire others with their openness and authenticity. To be authentic means to be real, to stay true to one’s values and beliefs, and to act based on one’s true self rather than emulate what others do. Authentic leaders inspire trust and commitment because they respect diverse viewpoints, encourage collaboration and help others to learn, grow and develop as leaders. EXHIBIT 10.2 outlines the key characteristics of authentic leaders, and each is discussed below.15

EXHIBIT 10.2 Components of authentic leadership

Pursues purpose

Practises solid

with passion

values

Leads with the heart as well as

The authentic leader

Connects with others

the head

Demonstrates self-discipline Source: Based on Bill George, Authentic Leadership: Rediscovering the Secrets to Lasting Value (San Francisco: Jossey-Bass, 2003).

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◗◗ Authentic leaders pursue their purpose with passion. Leaders who lead without a purpose can fall prey to greed and the desires of the ego. When leaders demonstrate a high level of passion and commitment to a purpose, they inspire commitment from followers.

◗◗ Authentic leaders practise solid values. Authentic leaders have values that are shaped by their personal beliefs, and they stay true to them even under pressure. People come to know what the leader stands for, which inspires trust.

◗◗ Authentic leaders lead with their hearts as well as their heads. All leaders sometimes have to make tough choices, but authentic leaders maintain a compassion for others as well as the courage to make difficult decisions.

◗◗ Authentic leaders establish connected relationships. Authentic leaders build positive and enduring relationships, which makes followers want to do their best. In addition, authentic leaders surround themselves with good people and work to help others grow and develop.

◗◗ Authentic leaders demonstrate self-discipline. A high degree of self-control and self-discipline keeps leaders from taking excessive or unethical risks that could harm others and the organisation.

GE NDE R DI FFE R E NCE S Some of the general characteristics associated with Level 5 leaders and authentic leaders are also hallmarks of interactive leadership, which has been found to be associated with female leaders. Interactive leadership means that the leader favours a consensual and collaborative process, and influence derives

from relationships rather than position power and formal authority.16 Although both men and women can practise interactive leadership, research indicates that women’s style of leadership is typically different from that of most men, and is particularly suited to today’s organisations.17 Using data from actual performance evaluations, one study found that when rated by peers, subordinates and bosses, female managers scored significantly higher than men on abilities such as motivating others, fostering communication and listening.18 Another study of leaders and their followers in businesses, universities and government agencies found that women were rated higher on social and emotional skills, which are crucial for interactive leadership.19 Indeed, in a study of more than 7000 360-degree performance evaluations, it was discovered that women outshone men in almost every leadership dimension measured, even some considered typically masculine qualities, such as driving for results. The exception was that women were typically rated lower on developing a strategic perspective, which some researchers believe hinders female managers’ career advancement despite their exceptional ratings on other leadership dimensions.20 EXHIBIT 10.3 shows results for six of the 16 dimensions measured by the study. One good example of an interactive leader is Cindy Szadokierski, who started as a reservations agent for United Airlines and became vice president in charge of operations for United’s largest hub at O’Hare International Airport, Chicago. As she oversees 4000 employees and 600 flights a day, her favourite times are the weekly afternoon walkabouts on the O’Hare ramp and the weekly morning strolls through the terminal, where she can connect with employees and customers. Pete McDonald, chief operating officer of United’s parent, UAL Corporation, says there were serious operations problems at O’Hare, so they put ‘the most communicative person’ in the job. Szadokierski’s approach to leadership is more collaborative than autocratic or ‘command and control’.21

interactive leadership The focus on minimising personal ambition and developing others.

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EXHIBIT 10.3 Gender differences in leadership behaviours

LEADERSHIP ABILITY

WHO DOES IT BEST?

Develops Others (Women rated higher) Drives for Results (Women rated higher) Inspires and Motivates Others (Women rated higher) Innovates (Women and men rated about equally) Builds Relationships (Women rated higher) Technical or Professional Expertise (Women and men rated about equally)

Source: Data from Zenger Folkman, Inc., reported in Jack Zenger and Joseph Folkman. (15 March 2012). Are Women Better Leaders than Men? HBR Blog Network, Harvard Business Review, http://blogs.hbr.org/cs/2012/03/a_study_in_leadership_women_do.html (accessed 12 September 2012).

R EMEMBE R THIS ◗◗

A significant influence on leadership styles in recent years is the turbulence and uncertainty of the environment.

◗◗

One effective approach in today’s environment is Level 5 leadership, which is characterised by an almost complete lack of ego (humility), coupled with a fierce resolve to do what is best for the organisation (will).

◗◗ ◗◗

Humility means being unpretentious and modest rather than arrogant and prideful.

◗◗

Authentic leadership refers to leadership by individuals who know and understand themselves, who espouse and act consistently with higher-order ethical values, and who empower and inspire others with their openness and authenticity.

◗◗

Women leaders typically score significantly higher than men on abilities such as motivating others, building relationships and developing others – these skills are based on humility and authenticity and are particularly suited to today’s organisations.

◗◗

Interactive leadership is a leadership style characterised by values such as inclusion, collaboration, relationship building and caring.

A servant leader is a leader who serves others by working to fulfil followers’ needs and goals, as well as to achieve the organisation’s larger mission.

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10.3

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FROM MANAGEMENT TO LEADERSHIP

Hundreds of books and articles have been written in recent years about the differences between management and leadership. As we know, good management is essential in organisations, yet managers have to be leaders, too, because distinctive qualities are associated with management and leadership that provide different strengths for the organisation. A good metaphor for the distinction between management and leadership is to say that management organises the production and supply of fish to people, whereas leadership teaches and motivates people to fish. Organisations need both types of skills.22 As shown in EXHIBIT 10.4, management and leadership reflect Manager Qualities Leader Qualities two different sets of qualities and skills that frequently overlap within a single individual. A person might have more of one set of qualities than the other, but ideally, a manager develops a balance of both manager and leader qualities.23 A primary distinction between management and leadership is that management promotes stability and order within the existing organisational structure and systems. This ensures that suppliers are paid, customers invoiced, products Focus on the Focus on people and services produced on time, and so forth. Leadership, on the other organisation hand, promotes vision and change. Leadership means questioning the Rational Visionary status quo and being willing to take reasonable risks so that outdated, Maintains stability Promotes change Assigns tasks Defines purpose unproductive or socially irresponsible norms can be replaced to meet Organises Nurtures new challenges. Analyses Innovates Consider how Alan Mulally has applied both management and Position power Personal power leadership to revive Ford Motor Company. Ford was losing US$83 million a day in 2008. Three years later, the company had a net profit Sources: Based on ‘What Is the Difference Between Management and Leadership?’, The Wall Street Journal Online, http://guides.wsj.com/ of US$20 billion. Ford was the only one of the ‘Big Three’ automakers management/developing-a-leadership-style/what-is-the-differencethat didn’t accept a bailout from the US government during the between-management-and-leadership (accessed 28 June 2009); and Genevieve Capowski. (March 1994). Anatomy of a Leader: Where Are the global financial crisis (GFC) of 2008–10. Mulally needed excellent Leaders of Tomorrow? Management Review, 12. management skills to root out operating inefficiencies, cut costs, EXHIBIT 10.4 Leader streamline the structure and improve quality. Yet the turnaround of and manager qualities Ford also depended on consummate leadership. Mulally inspired people with a vision of saving a storied American company and transforming it to meet the challenges of the twenty-first century. He shifted the culture from one of ego-driven infighting to one of cooperation, accountability and commitment. And he motivated thousands of employees to embrace change and execute the vision and strategy. Mulally ate in the company cafeteria rather than the executive dining room so that he could talk with people at all levels of the company, occasionally popped into meetings to offer encouragement and support, and personally answered emails from employees.24 When Google’s founders needed more structured management at their growing company, they hired Eric Schmidt as CEO in 2001 to provide operational expertise and oversight. Schmidt was not a heavy take-charge manager, which suited the founders just fine, but coming from a corporate background, Schmidt knew how to plan and organise and keep things focused. More important, it turned out that Schmidt also had leadership qualities that fitted well with Google’s need for innovation

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and change to keep the company thriving. His leadership principles can be summarised in the following five precepts:

1 2 3 4 5

Get to know your employees. Create new ways to reward and promote high performers. Let employees own the problems that you want them to solve. Allow people to function outside the hierarchy.

Have employees’ performance reviewed by someone whom they respect for their objectivity.25 When he was CEO, Schmidt used to make a list of his best employees so that he could interact with them personally, encourage them to implement their innovative ideas and protect them from unwanted interference by other managers. He made employees the owners of their work by allowing them a great deal of latitude in how they accomplished goals. He believed in structure, but he also allowed people to work outside the company hierarchy when necessary to solve problems and be creative.26 Schmidt used a combination of skilful management and good leadership to take Google to the next stage of growth. Leadership cannot replace management; it should be in addition to management. Good management is needed to help the organisation meet current commitments, while good leadership is needed to move the organisation into the future. Leadership’s power comes from being built on the foundation of a wellmanaged organisation.

LEADE RSH IP TR A ITS traits The distinguishing personal characteristics of a leader, such as intelligence, honesty, self-confidence and even appearance.

Early efforts to understand leadership success focused on the leader’s traits. Traits are the distinguishing personal characteristics of a leader, such as intelligence, honesty, self-confidence and even appearance. The early research looked at leaders who had achieved a level of greatness, and hence was referred to as the ‘Great Man’ approach. The idea was relatively simple: find out what made these people great and select future leaders who already exhibited the same traits or could be trained to develop them. Generally, early research found only a weak relationship between personal traits and leader success.27 In recent years, interest in examining leadership traits has re-emerged. In addition to personality traits, physical, social and work-related characteristics of leaders have been studied.28 EXHIBIT 10.5 summarises the physical, social and personal leadership characteristics that have received the greatest research support. However, these characteristics do not stand alone. The appropriateness of a trait or set of traits depends on the leadership situation. For example, sport coaches Sir Alex Ferguson of Manchester United and Kevin Sheedy (former long-time Australian Football League coach of Essendon Football Club) have different personality traits, but both have been successful leaders of their football teams. Effective leaders typically possess varied traits, and no single leader can have a complete set of characteristics that is appropriate for handling any problem, challenge or opportunity that comes along. In addition, traits that are typically considered positive can sometimes have negative consequences, and traits sometimes considered negative can have positive consequences. For example, optimism is a highly desirable trait for a leader. As described in the previous chapter, studies have shown that optimism is the single characteristic most common to top executives.29 Leaders need to be able to see possibilities where others see problems and instil in others a sense of hope for a better future. However, optimism can also lull leaders into laziness and overconfidence, causing them to miss danger signals and underestimate risks. The GFC can

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be blamed partly on leaders who grew overconfident and led their organisations astray. Optimism has to be paired with ‘reality testing’ and conscientiousness, another trait common to successful leaders, as shown in EXHIBIT 10.5.30

PHYSICAL CHARACTERISTICS

PERSONALITY

WORK-RELATED CHARACTERISTICS

Energy

Self-confidence

Physical stamina

Honesty and integrity

Achievement drive, desire to excel

Optimism Desire to lead

EXHIBIT 10.5 Personal characteristics of leaders

Conscientiousness in pursuit of goals

Independence

Persistence against obstacles, tenacity

INTELLIGENCE AND ABILITY

SOCIAL CHARACTERISTICS

SOCIAL BACKGROUND

Intelligence, cognitive ability

Sociability, interpersonal skills

Education

Knowledge

Cooperativeness

Mobility

Judgement, decisiveness

Ability to enlist cooperation Tact, diplomacy

Sources: Based on Bernard M. Bass, Bass & Stogdill’s Handbook of Leadership: Theory, Research, and Managerial Applications, 3rd edn (New York: The Free Press, 1990), pp. 80–1; and S. A. Kirkpatrick and E. A. Locke. (1991). Leadership: Do Traits Matter? Academy of Management Executive, 5:2, 48–60.

Therefore, rather than just understanding their traits, the best leaders recognise and hone their strengths.31 Strengths are natural talents and abilities that have been supported and reinforced with learned knowledge and skills and provide each individual with his or her best tools for accomplishment and satisfaction.32 Every manager has limited capacity; those who become good leaders are the ones who tap into their key strengths that can make a difference. Effective leadership isn’t about having the ‘right’ traits, but rather about finding the strengths that one can best exemplify and apply as a leader.

B E H AV I OU R A L A P P ROA C H E S The inability to define effective leadership based solely on traits led to an interest in looking at the behaviour of leaders and how it might contribute to leadership success or failure. Two basic leadership behaviours identified as important for leadership are attention to tasks and attention to people.

TASK VERSUS P EOPLE Two types of behaviour that have been identified as applicable to effective leadership in a variety of situations and time periods are task-oriented behaviour and people-oriented behaviour.33 Although they are not the only important leadership behaviours, concern for tasks and concern for people must be shown at some reasonable level. Thus, many approaches to understanding leadership use these metacategories, or broadly defined behaviour categories, as a basis for study and comparison. Important early research programs on leadership were conducted at the Ohio State University and the University of Michigan.34 Ohio State researchers identified two major behaviours they called consideration

strengths Natural talents and abilities that have been supported and reinforced with learned knowledge and skills.

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consideration The extent to which the leader is mindful of subordinates, respects their ideas and feelings, and establishes mutual trust. initiating structure The degree of task behaviour; the extent to which the leader is task oriented and directs subordinate work activities towards goal alignment.

and initiating structure. Consideration falls in the category of people-oriented behaviour, and is the extent to which the leader is mindful of subordinates, respects their ideas and feelings, and establishes mutual trust. Initiating structure is the degree of task behaviour; that is, the extent to which the leader is task oriented and directs subordinate work activities towards goal attainment. Studies suggest that effective leaders may be high on consideration and low on initiating structure or low on consideration and high on initiating structure, depending on the situation.35 Research at the University of Michigan at about the same time also considered task- and peopleoriented behaviours by comparing the behaviour of effective and ineffective supervisors.36 The most effective supervisors were those who established high performance goals and displayed supportive behaviour towards subordinates. These were referred to as employee-centred leaders. The less effective leaders were called job-centred leaders; these leaders tended to be less concerned with goal achievement and human needs in favour of meeting schedules, keeping costs low and achieving production efficiency.

THE LEADE RSH IP GR ID

EXHIBIT 10.6 The Leadership Grid figure

Building on the work of the Ohio State and Michigan studies, Blake and Mouton of the University of Texas proposed a two-dimensional theory called the Managerial Grid®, which was later restated by Blake and McCanse as the Leadership Grid®.37 The model and five of its major management styles are depicted in EXHIBIT 10.6. Each axis on the grid is a nine-point scale, with 1 meaning low concern and 9 meaning high concern. High 9

8

7

Concern for people

Leadership Grid A two-dimensional leadership theory that measures the leader’s concern for people and for production.

1,9

Team management

Thoughtful attention to the needs of people for satisfying relationships leads to a comfortable, friendly organisation atmosphere and work tempo.

Work accomplishment is from committed people; interdependence through a common stake in organisation purpose leads to relationships of trust and respect.

6 5,5

5

Middle-of-the-road management Adequate organisation performance is possible through balancing the necessity to get out work with maintaining morale of people at a satisfactory level.

4

Authority-compliance

3

Impoverished management 2

1

9,9

Country club management

Efficiency in operations results from arranging conditions of work in such a way that human elements interfere to a minimum degree. 9,1

Exertion of minimum effort to get required work done is appropriate to sustain organisation membership. 1,1

Low 1 Low

2

3

4

5

6

Concern for production

7

8

®

9 High

Source: The Leadership Grid figure, Paternalism figure and Opportunism figure from Robert R. Blake and Anne Adams McCanse, Leadership Dilemmas–Grid Solutions (formerly the Managerial Grid by Robert R. Blake and Jane S. Mouton) (Houston: Gulf Publishing Company, 1991), Grid figure, p. 29; Paternalism figure, p. 30; Opportunism figure, p. 31. Copyright © 1991 by Blake and Mouton, and Scientific Methods, Inc. Reproduced by permission of the owners.

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Team management (9, 9) often is considered the most effective style and is recommended for leaders because organisation members work together to accomplish tasks. Country club management (1, 9) occurs when primary emphasis is given to people rather than to work outputs. Authority compliance management (9, 1) occurs when efficiency in operations is the dominant orientation. Middle-of-the-road management (5, 5) reflects a moderate amount of concern for both people and production. Impoverished management (1, 1) means the absence of a management philosophy; managers exert little effort towards interpersonal relationships or work accomplishment.

CASE STUDY News Corporation has certainly come a long way since its humble beginnings in Adelaide. Today, its founder, Chairman and CEO Rupert Murdoch makes multibillion-dollar deals in television, media and Internet-based industries all over the world. However, not all of these deals bear fruit immediately. For example, Star TV lost approximately AU$80 million on sales of AU$140 million in Asia. Rupert Murdoch has been a successful leader by any measure, building from an Australian base of newspaper publishing to take News Corporation to become an AU$85 billion corporate giant that includes Fox film studios and TV network, satellite TV in most major regions of the world, and ownership of major sporting teams and newspapers all over the world. Forbes ranked Murdoch the 33rd most powerful person in the world in 2013, and he has a net personal worth of US$13.4 billion. While Murdoch is positioning his children to succeed him in running this business, he is also building in other growth markets. He is without doubt a strong and successful leader. However, in mid-2011, News Corporation and Mr Murdoch had to move into crisis management mode as the UK phone hacking scandal severely challenged their ethics and corporate reputation. In another bold move and an attempt to regain shareholder confidence News Corporation was divided into

two businesses in 2013, one made up of the TV and film empire (21st Century Fox) and the other a smaller, less profitable business consisting of the newspaper and book publishing enterprises (retaining the name News Corp). Murdoch, who is now in his 80s, serves as chairman of both businesses and is CEO of 21st Century Fox. It was hoped that the split would allow both arms of the media and publishing businesses to focus on building value, and also distance the more profitable parts of the company from the UK newspaper hacking scandal. The publishing arm faces greater challenges than the entertainment arm, as the declining profitability of newspapers continues to test leadership decisions and future strategic choices. Since breaking into two, the share price for 21st Century Fox has remained close to its opening price of AU$34; however, Rupert Murdoch and News Corporation News Corp hit a low of AU$14.50 soon after the have created a global high technology split occurred, slowly recovering to around AU$18.00 communications network. but it still faces heavy financial losses. However as of 2017, this generally sound company continues to expand and create wealth for its shareholders, mostly through strategically considered acquisitions.

Sources: Forbes ‘Most Powerful People’. http://www.forbes.com/profile/rupert-murdoch/ (accessed 18 November 2013); Durie, J. and Kitney, D. (29 June 2012). News Corporation Split Will Unlock Value. The Australian, http://www.theaustralian.com.au/media/local-news-assets-to-stay-together-as-directors-approvehistoric-split-of-the-global-media-giant/story-e6frg996-1226411572734 (accessed 18 November 2013); Investor Relations 21st Century Fox, http://www.21cf. com/Investor_Relations/ (accessed 18 November 2013); Investor Relations News Corporation, http://investors.newscorp.com/stockquote.cfm (accessed 18 November 2013) and Rushton, K. (11 November 2013). News Corp Expected to Post $12m Loss. The Telegraph, http://uk.finance.yahoo.com/news/news-corpexpected-post-12m-203151634.html (accessed 18 November 2013).

Source: Getty Images/Pascal Le Segretain

NEWS CORPORATION

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R EMEMBE R THIS ◗◗

Researchers at the University of Michigan used the terms employee-centred leaders and job-centred leaders to describe the same two basic leadership behaviours.

◗◗

The Leadership Grid is a two-dimensional leadership model that measures the leader’s concern for people and concern for production to categorise the leader in one of five different leadership styles.

10.4

contingency approach A model of leadership that describes the relationship between leadership styles and specific organisational situations.

CONTINGENCY APPROACHES

Denise Morrison, CEO of Campbell Soup Company, is a strong proponent of empowerment and employee engagement. She has been referred to as ‘tough on the issues but tender on people’. Morrison is known to be patient and supportive, even though she can make difficult operational decisions. On the other hand, Pamela Forbes Lieberman, former president and CEO of TruServ Corporation (now known as True Value Company), was once called ‘the dragon lady’ by employees at a former job. She embraced the name and even hung a watercolour of a fire-breathing dragon on her office wall to let people know that she didn’t mind being known as a hard-nosed manager. No laid-back approach for Lieberman.38 How can two people with widely different styles both be effective leaders? The answer lies in understanding contingency approaches to leadership, which explore how the organisational situation influences leader effectiveness. Contingency approaches include the situational model based on the work of Hersey and Blanchard, the leadership model developed by Fiedler and his associates, and the substitutes-for-leadership concept.

T H E S I T UAT I O NA L M OD E L O F L E A D E R S H I P situational model A contingency approach to leadership that links the leader’s behavioural style with the task readiness of employees.

The situational model of leadership, which originated with Hersey and Blanchard, is an interesting extension of the behavioural theories summarised in the Leadership Grid (see EXHIBIT 10.6). This approach focuses a great deal of attention on the characteristics of followers in determining appropriate leadership behaviour. The point of the situational model is that subordinates vary in readiness, which is determined by the degree of willingness and ability a subordinate demonstrates while performing a specific task. Willingness refers to a combination of confidence, commitment and motivation, and a follower may be high or low on any of the three variables. Ability refers to the amount of knowledge, experience and demonstrated skill a subordinate brings to the task. Effective leaders adapt their style according to the readiness level of the people they are managing. People low in readiness – because of little ability or training or insecurity – need a different leadership style than those who are high in readiness and have good ability, skills, confidence and willingness to work.39 According to the situational model, a leader can adopt one of four leadership styles, as shown in The directing style is a highly dictating style and involves giving explicit directions about how tasks should be accomplished. The coaching style is one where the leader explains decisions and gives subordinates a chance to ask questions and gain clarity and understanding about work tasks. The supporting style is one where the leader shares ideas with subordinates, gives them a chance to participate and facilitates decision making. The fourth style, the entrusting style, provides little direction and little support because the leader turns over responsibility for decisions and their implementation to subordinates. EXHIBIT 10.7.

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High

Participating style for high readiness followers

S3

FOCUS ON PEOPLE NEEDS

participation, supports, consults with, and develops followers' skills and confidence.

instruction and personal support, clarifies tasks, and explains decisions as needed.

Follower: Use this style when followers

Follower: Use this style when followers have moderate readiness because of confidence to proceed but lack ability.

have high readiness but lack confidence and need personal support.

Delegating style for very high readiness followers

Telling style for low readiness followers

S4

Leader: Delegating leader turns over complete responsibility, with little focus on either task or people needs.

Leader: Telling leader provides detailed goals

Follower: Use this style when followers

Follower: Use this style when followers have low readiness, low ability, and lack confidence.

have very high readiness because of ability and confidence to perform tasks themselves.

Low

S2

Leader: Selling leader provides both task

Leader: Participating leader encourages

Low

Selling style for moderate readiness followers

S1

and instructions, closely monitors operations and performance.

FOCUS ON TASK NEEDS

High

Sources: Based on Gary Yukl, Angela Gordon, and Tom Taber, ‘A Hierarchical Taxonomy of Leadership Behavior: Integrating a Half Century of Behavior Research,’ Journal of Leadership and Organizational Studies 9, no. 1 (2002): 15–32; and Paul Hersey, Kenneth Blanchard, and Dewey Johnson, Management of Organizational Behavior: Utilizing Human Resources, 7th ed. (Upper Saddle River, NJ: Prentice Hall, 1996). EXHIBIT 10.7 summarises the situational relationship between leader style and follower readiness. The directing style has the highest probability of successfully influencing low readiness followers who are unable or unwilling – because of poor ability and skills, little experience or insecurity – to take responsibility for their own task behaviour. The leader is specific, directing people exactly what to do, how to do it and when. The coaching and supporting styles work for followers at moderate readiness levels. For example, followers might lack some education and experience for the job but have high confidence, interest and willingness to learn. As shown in EXHIBIT 10.7, the coaching style is effective in this situation because it involves giving direction but also includes seeking input from others and clarifying tasks rather than simply instructing that they be performed. When followers have the necessary skills and experience but are somewhat insecure in their abilities or lack high willingness, the supporting style enables the leader to guide followers’ development and act as a resource for advice and assistance. When followers demonstrate high readiness, that is, they have high levels of education, experience and readiness to accept responsibility for their own task behaviour, the entrusting style can effectively be used. Because of the high readiness level of followers, the leader can delegate responsibility for decisions and their implementation to subordinates who have the skills, abilities and positive attitudes to follow through. The leader provides a general goal and sufficient authority to do the task as followers see fit. To apply the situational model, the leader diagnoses the readiness level of followers and adopts the appropriate style – directing, coaching, supporting or entrusting. For example, Jo Newton, an impulse import category leadership manager at Mars’ Slough office near London, uses primarily a supporting

EXHIBIT 10.7 Hersey and Blanchard’s situational model of leadership

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style. Most members of Newton’s team are at moderate to high readiness levels, so Newton advises them of the results the company wants and then steps back, providing guidance and support as needed. ‘I like people to come up with their own way of doing things … ’ she says. ‘I like to support people as opposed to directing them to do things.’40 A leader taking over a new team of inexperienced or uncertain members would likely have to provide more direction with either a directing or coaching style. On the other hand, Warren Buffett uses a primarily entrusting style. The octogenarian CEO of Berkshire Hathaway is considered one of the world’s best managers, but he isn’t closely involved in the day-to-day management of all the businesses Berkshire owns. He trusts the managers of the various units, who are highly skilled professionals able and willing to take responsibility for their own task behaviour.41 An entrusting leader style is not always appropriate, but all managers need to be able to delegate some tasks and decisions for the organisation to work smoothly.

F I E D L E R’ S CO N T I NG E N C Y T H E O R Y Whereas the situational model focused on the characteristics of followers, Fiedler and his associates looked at some other elements of the organisational situation to assess when one leadership style is more effective than another.42 The starting point for Fiedler’s theory is the extent to which the leader’s style is task oriented or relationship (people) oriented as referred to above. Fiedler considered a person’s leadership style to be relatively fixed and difficult to change; therefore, the basic idea is to match the leader’s style with the situation most favourable for his or her effectiveness. By diagnosing leadership style and the organisational situation, the correct fit can be arranged.

SIT UAT ION: FAV O URA B L E O R UNFAV O UR A B L E ? The suitability of a person’s leadership style is determined by whether the situation is favourable or unfavourable to the leader. The favourability of a leadership situation can be analysed in terms of three elements: the quality of relationships between leader and followers, the degree of task structure (meaning the extent to which processes can be formally defined or standardised) and the extent to which the leader has formal authority over followers.43 As illustrated in the lower portion of EXHIBIT 10.8, a situation would be considered highly favourable to the leader when leader-member relationships are positive, tasks are highly structured, and the leader has formal authority over followers. In this situation, followers trust, respect, and have confidence in the leader. The group’s tasks are clearly defined, involve specific procedures, and have clear, explicit goals. In addition, the leader has formal authority to direct and evaluate followers, along with the power to reward or punish. In a highly unfavourable situation, followers have little respect for or confidence and trust in the leader. Tasks are vague and ill-defined and lack clear-cut procedures and guidelines. The leader has little formal authority to direct subordinates and does not have the power to issue rewards or punishments.

MAT C HING LEA DER ST Y L E T O T HE S I T UAT I O N When Fiedler examined the relationships among leadership style and situational favourability, he found the pattern shown in EXHIBIT 10.8. Task-oriented leaders are more effective when the situation is either highly favourable or highly unfavourable. Relationship-oriented leaders are more effective in situations of moderate favourability. The task-oriented leader excels in the favourable situation because everyone gets along, the task is clear and the leader has power; all that is needed is for someone to lead the charge and

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provide direction. Similarly, if the situation is highly unfavourable to the leader, a great deal of structure and task direction is needed. A strong leader will define task structure and establish strong authority. Because leader–member relations are poor anyway, a strong task orientation will make no difference in the leader’s popularity.

EXHIBIT 10.8 How leader style fits the situation

High

Performance

Task-oriented leader

Low Situation very favourable to leader Leader-member relations

Good

Task structure Leader position power

Good

Situation very unfavourable to leader

Situation intermediately favourable to leader Good

Structured

Good

Poor

Unstructured

Poor

Structured

Poor

Relationshiporiented leader

Poor

Unstructured

Strong

Weak

Strong

Weak

Strong

Weak

Strong

Weak

I

II

III

IV

V

VI

VII

VIII

Source: Based on Fred E. Fiedler, ‘The Effects of Leadership Training and Experience: A Contingency Model Interpretation,’ Administrative Science Quarterly 17 (1972): 455.

MANAGEMENT IN PRACTICE HOW TO DELEGATE Sometimes, managers cling too tightly to their decision-making and task responsibilities. Failure to delegate occurs for a number of reasons: managers are most comfortable making familiar decisions; they feel they will lose personal status by delegating tasks; they believe they can do a better job themselves; or they have an aversion to risk – they will not take a chance on delegating because performance responsibility ultimately rests with them. Yet delegating tasks and decision making offers an organisation many advantages. Decisions are made at the right level, lower-level employees are motivated, and employees have the opportunity to develop decision-making skills. The following approach can help you to delegate more effectively as a manager:

✚✚ Delegate the whole task. A manager should delegate an entire task to one person rather than dividing it among several people. This type of delegation gives the individual

complete responsibility and increases his or her initiative while giving the manager some control over the results.

✚✚ Select the right person. Not all employees have the same capabilities and degrees of motivation. If delegation is to be effective, managers must match talent to task. They should identify subordinates who have made independent decisions in the past and show a desire for more responsibility.

✚✚ Ensure that authority equals responsibility. Merely assigning a task is not effective delegation. Managers often load subordinates with increased responsibility, but do not extend their decision-making range. In addition to having responsibility for completing a task, the worker must be given the authority to make decisions about how best to do the job.

✚✚ Give thorough instruction. Successful delegation includes information on what, when, why, where, who and how. The subordinate must clearly understand the task and the

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expected results. It is a good idea to write down all provisions discussed, including required resources and when and how the results will be reported.

✚✚ Maintain feedback. Feedback means keeping open lines of communication with the subordinate to answer questions and provide advice, but without exerting too much control. Open lines of communication make it easier to trust subordinates. Feedback keeps the subordinate on the right track.

✚✚ Evaluate and reward performance. Once the task is completed, the manager should evaluate results, not methods. When results do not meet expectations, the manager must assess the consequences. When they do meet expectations, the manager should reward employees for a job well done with praise, financial rewards when appropriate and delegation of future assignments.

ARE YOU A POSITIVE DELEGATOR? Do you help or hinder the decentralisation process? If you answer yes to more than three of the following questions, you may have a problem delegating:

✚✚ I tend to be a perfectionist. ✚✚ My boss expects me to know all the details of my job. ✚✚ I don’t have the time to explain clearly and concisely how a task should be accomplished.

✚✚ I often end up doing tasks myself. ✚✚ My subordinates typically are not as committed as I am. ✚✚ I get upset when other people don’t do the task right. ✚✚ I really enjoy doing the details of my job to the best of my ability.

✚✚ I like to be in control of task outcomes.

SOURCES: Thomas R. Horton. (September 1992). Delegation and Team Building: No Solo Acts Please. Management Review, 58–61; Andrew E. Schwartz. (June 1987). The Why, What, and to Whom of Delegation. Management Solutions, 31–8; Delegation. (June 1986). Small Business Report, 38–43; and Russell Wild. (May 2000). Clone Yourself. Working Woman, 79–80.

An example of matching style to situation is to consider what type of leadership is best suited to organisations which are underperforming. Researchers at the University of Chicago who looked at CEOs in turnaround situations – where companies typically have high debt loads and a need to improve results in a hurry – found that tough-minded, task-focused characteristics such as analytical skills, a focus on efficiency and setting high standards were more valuable leader qualities than relationship skills such as good communication, listening and teamwork.44 The relationship-oriented leader performs better in situations of intermediate favourability because human relations skills are important in achieving high group performance. In these situations, the leader may be moderately well-liked, have some power and supervise jobs that contain some ambiguity. A leader with good interpersonal skills can create a positive group atmosphere that will improve relationships, clarify task structure and establish position power. A leader, then, needs to know two things in order to use Fiedler’s contingency theory. First, the leader should know whether he or she has a relationship- or task-oriented style. Second, the leader should diagnose the situation and determine whether leader–member relations, task structure and position power are favourable or unfavourable. Fiedler believed that fitting leader style to the situation can yield big dividends in profits and efficiency.45 On the other hand, Fiedler’s model has also been criticised.46 Some researchers have challenged the idea that leaders cannot adjust their styles as situational characteristics change. Despite these criticisms, though, Fiedler’s model has continued to influence leadership studies. Fiedler’s research called attention to the importance of finding the correct fit between leadership style and situation.

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Leadership and management reflect two different sets of qualities and skills that provide different benefits for the organisation.

◗◗

Management promotes stability and efficient organising to meet current commitments, whereas leadership often inspires engagement and organisational change to meet new conditions.

◗◗

Both leadership and management are important to organisations, and people can learn to be good leaders as well as good managers.

◗◗

Traits are distinguishing personal characteristics, such as intelligence, self-confidence, energy and independence.

◗◗

Strengths are natural talents and abilities that have been supported and reinforced with learned knowledge and skills.

◗◗

Consideration is the term used by researchers at Ohio State University to describe the extent to which a leader is sensitive to subordinates, respects their ideas and feelings, and establishes mutual trust.

◗◗

Initiating structure is the term that describes the extent to which a leader is task oriented and directs subordinates’ work activities towards goal accomplishment.

10.5

SITUATIONAL SUBSTITUTES FOR LEADERSHIP

The contingency leadership approaches considered so far focus on the leader’s style, the subordinates’ natures and the situation’s characteristics. The final contingency approach suggests that situational variables can be so powerful that they actually substitute for or neutralise the need for leadership.47 This approach outlines those organisational settings in which a leadership style is unimportant or unnecessary. EXHIBIT 10.9 shows the situational variables that tend to substitute for or neutralise leadership characteristics. A substitute for leadership makes the leadership style unnecessary or redundant. For example, highly professional subordinates who know how to do their tasks do not need a leader who initiates structure for them and tells them what to do. A neutraliser counteracts the leadership style and prevents the leader from displaying certain behaviours. For example, if a leader has absolutely no position power or is physically removed from subordinates, the leader’s ability to give directions to subordinates is greatly reduced. Situational variables in EXHIBIT 10.9 include characteristics of the group, the task and the organisation itself. When followers are highly professional and experienced, both leadership styles are less important. People do not need much direction or consideration. With respect to task characteristics, highly structured tasks substitute for a task-oriented style, and a satisfying task substitutes for a people-oriented style. With respect to the organisation itself, group cohesiveness substitutes for both leader styles. Formalised rules and procedures substitute for leader task orientation. Physical separation of leader and subordinate neutralises both leadership styles. The value of the situations described in EXHIBIT 10.9 is that they help leaders to avoid leadership overkill. Leaders should adopt a style that complements the organisational situation. Consider the work situation for bank tellers. A bank teller performs highly structured tasks, follows clearly written rules and procedures, and has little flexibility in terms of how to do the work. The head teller should not adopt a task-oriented style, because the organisation already provides structure and direction. The head teller

substitute for leadership A situational variable that makes a leadership style redundant or unnecessary. neutraliser A situational variable that counteracts a leadership style and prevents the leader from displaying certain behaviours.

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VARIABLE

EXHIBIT 10.9 Substitutes and neutralisers for leadership

Organisational variables

Task characteristics

Group characteristics

TASK-ORIENTED LEADERSHIP

PEOPLE-ORIENTED LEADERSHIP

Group cohesiveness

Substitutes for

Substitutes for

Formalisation

Substitutes for

No effect on

Inflexibility

Neutralises

No effect on

Low position power

Neutralises

Neutralises

Physical separation

Neutralises

Neutralises

Highly structured task

Substitutes for

No effect on

Automatic feedback

Substitutes for

No effect on

Intrinsic satisfaction

No effect on

Substitutes for

Professionalism

Substitutes for

Substitutes for

Training/experience

Substitutes for

No effect on

should concentrate on a people-oriented style to provide a more pleasant work environment for the other tellers. In other organisations, if group cohesiveness or intrinsic satisfaction meet employees’ social needs, the leader is free to concentrate on task-oriented behaviours. The leader can adopt a style complementary to the organisational situation to ensure that both task needs and people needs of the work group will be met.

Source: Courtesy Aston Ladzinski

AUSTRALIAN MANAGER PROFILE

ASTON L A DZINSKI, CONTINUOUS IMPROVEMENT LEA D

There are so many aspects to management, and leading or managing people, that it is hard to pinpoint a single thing. However, in my short time, I have noticed that there are some common traits and behaviours of the best leaders. These leaders communicate effectively, are action-orientated, provide structure and have genuine empathy. I have had a different career path to most; I previously played as a mechanic with my own business, before studying electrical engineering and control systems engineering. Of course, the natural transition was to then work in mining as an electrical engineer. As I started developing in my career as an engineer, it became more and more frustrating to see projects that we were working on seeming to have no business value – counter to my previous business owner experience, where every dollar counts. As I discussed this with a mentor, he suggested that working in business analysis or business improvement may be more aligned with my

expectations, something I had never even heard of! Fortunately, I was able to transition internally, first to a supply chain planning team, and then to a business improvement team that works across a supply chain of ~1300 kilometres of rail, a port and five main mine sites. This is where my career began to take off, because I was able to work in an area that challenges me, and keeps me learning. When I started with these teams it was eye opening for me. I went from an engineer working on small projects, to helping the business to make large-scale decisions, and then supporting site teams to execute. A day in this role is almost never the same; I may be building a business case to help get a project that has bottom line value across the line, then it will be organising and running a meeting because I identified teams who need to work together before they start duplicating efforts, to coaching leaders regarding how they come across to their team and how they can improve

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their team outcomes. This has allowed me to work with a large range of people, including leaders, across the entire business. I believe that is helping me to build an excellent view of what a good leader is, and more importantly, how I can support the frontline people in the future.

SO, WHAT DOES A GOOD LEADE R LOOK LIKE? ✚ Structure – They provide structure and clarity for their teams, through routines, structured thinking and simple processes, so the team can get on with doing their job without distraction.

✚ Communication – They communicate in a structured way, but most importantly, they do it often. In fact they over communicate, in different ways, to ensure everyone understands.

✚ Action orientation – They act, and they act immediately. This is just as important for small things, as it displays to the team what the expectation is, and that the leader also holds themselves to account.

✚ Genuine empathy – This is the most difficult one to improve as a leader has to have a genuine care for others, and wants their team members to be their best as individuals, but also as a collective. This is where I will focus my efforts, because it is what I see as being the differentiators between a manager of people and a great leader of teams. My role is as a Supply Chain Specialist at BHP Billiton. Our team’s responsibility is to support any team at any time across the supply chain to help close the gap, or remove risk, to achieving our throughput budget.

SOURCE: Courtesy of Aston Ladzinski

R EMEMBE R THIS ◗◗

A contingency approach is a model of leadership that describes the relationship between leadership styles and specific situations.

◗◗

One contingency approach is the situational model, which links the leader’s behavioural style with the readiness level of followers.

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In general, a task-oriented leader style fits a low-readiness follower, and a relationship leader style fits a higher-readiness follower.

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In Fiedler’s contingency theory, the suitability of a leader’s style is determined by whether the situation is considered favourable or unfavourable to the leader.

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Task-oriented leaders are considered to perform better in either highly favourable or highly unfavourable situations.

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Relationship-oriented leaders are considered to perform better in situations of intermediate favourability.

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A substitute for leadership is a situational variable that makes a leadership style redundant or unnecessary.

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A neutraliser is a situational variable that counteracts a leadership style and prevents the leader from displaying certain behaviours.

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CHARISMATIC AND TRANSFORMATIONAL LEADERSHIP

10.6

Research has also looked at how leadership can inspire and motivate people beyond their normal levels of performance. Some leadership approaches are more effective than others for bringing about high levels of commitment and enthusiasm. Two types of leadership with a substantial impact are charismatic and transformational.

MANAGEMENT IN PRACTICE ARE YOU A CHARISMATIC LEADER? If you were the head of a major department in a company, how important would each of the following activities be to you? Answer yes or no to indicate whether you would strive to perform each activity. 1 Help employees clarify goals and how to reach them. 2 Give people a sense of mission and overall purpose. 3 Help get jobs out on time. 4 Look for new product or service opportunities. 5 Use policies and procedures as guides for problem solving. 6 Promote unconventional beliefs and values. 7 Give monetary rewards in exchange for high performance from employees. 8 Command respect from everyone in the department. 9 Work alone to accomplish important tasks. 10 Suggest new and unique ways of doing things. 11 Give credit to people who do their jobs well.

12 Inspire loyalty to yourself and to the organisation. 13 Establish procedures to help the department operate smoothly. 14 Use ideas to motivate others. 15 Set reasonable limits on new approaches. 16 Demonstrate social nonconformity. The even-numbered items represent behaviour and activities of charismatic leaders. Charismatic leaders are personally involved in shaping ideas, goals and direction of change. They use an intuitive approach to develop fresh ideas for old problems and seek new directions for the department or organisation. The odd-numbered items are considered more traditional management activities, or what would be called transactional leadership. Managers respond to organisational problems in an impersonal way, make rational decisions, and coordinate and facilitate the work of others. If you answered yes to more evennumbered than odd-numbered items, you may be a potential charismatic leader.

SOURCES: Based on Bass, B. M. (1985). Leadership and Performance Beyond Expectations (Free Press: New York); Burns, L. R. and Becker, S. W. Leadership and Management. In S. Shortell and A. Caluzny (eds) (1986). Health Care Management (Wiley: New York).

charismatic leader A leader who has the ability to motivate employees to transcend their expected performance.

C H A R I S M AT I C L E A D E R S H I P Charisma has been referred to as ‘a fire that ignites followers’ energy and commitment, producing results above and beyond the call of duty’.48 The charismatic leader has the ability to inspire and motivate people to do more than they would normally do, despite obstacles and personal sacrifice. Followers are

willing to put aside their own interests for the sake of the team, department or organisation. The impact of charismatic leaders normally comes from (1) stating a lofty vision of an imagined future that employees identify with; (2) displaying an ability to understand and empathise with followers; and (3) empowering and trusting subordinates to accomplish results.49 Charismatic leaders tend to be less predictable because they create an atmosphere of change, and they may be obsessed by visionary ideas that excite, stimulate and drive other people to work hard. One of the best-known charismatic leaders in the world of recent decades is two-term American President Barack Obama.

Barack Obama

INNOVATIVE WAY CHARISMATIC LEADERSHIP Barack Obama was the 44th president of the United States, having served two four-year terms from 2009 until 2017. He was also the first African American to hold the office, saying at the time of his victory, ‘It’s been a long time coming, but tonight … change has come to America’. Obama is considered to be a charismatic leader based on his time campaigning for election, his inauguration, and his time serving in office. Obama is described as a leader who ‘has his followers totally in tow, as passionately committed as they are deeply convinced’. This was the case from the moment that Obama began his campaign in Iowa. Everything about his victory in the 2008 presidential election points to Obama’s charismatic leadership abilities to inspire Americans in large numbers to vote: While the number of non-Hispanic ‘white’ voters remained roughly the same, 2 million more Africa Americans, 2 million more Latinos and 600 000 more Asians turned out to vote. Compared with 2004, the voting rate for African American, Asian and Hispanic voters increased by about four percentage points. The rate for whites declined by one percentage point.

Obama was the clear winner of the popular vote with 52.9 per cent (with John McCain on 45.6 per cent) and of the Electoral College votes (365 to Obama and 173 to McCain). Americans believed in Obama and wanted change in their country. Obama supporters were dedicated in their mission to get him elected to office. Obama’s charismatic leadership style was authentic and this motivated people to both vote and donate to his electoral campaign. Political pundits noted Obama’s ‘rock-star quality’ and his ability to move supporters to tears during his compelling campaign speeches. Charismatic leaders and their followers are interdependent, as they feed and energise each other. Obama has been compared to other charismatic politicians, including John F. Kennedy and Robert Kennedy. As a charismatic leader, Obama demonstrated strong character and good temperament as well as the transformational capacity to inspire people. This was seen in Shepard Fairey’s 2008 ‘Hope’ (also ‘progress’ or ‘change’) stylised stencil portrait poster of Barack Obama, which came to represent Obama’s 2008 presidential campaign. In addition to these qualities, Obama also showed sound judgement and proven experience.

Source: Alamy Stock Photo/MediaPunch Inc

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The results of the 2016 president campaign, which saw Donald Trump become President of the United States, highlight the difficulties of a leader trying to satisfy his or her supporters. Many Obama supporters were disappointed and frustrated with what Obama did or promised to do

(and subsequently failed to deliver) during his two terms in office. While it is inconceivable that one leader can satisfy everyone, it is clear that Barack Obama was an effective and authentic charismatic leader and will have a long-lasting impact on the people of the United States.

Sources: Kellerman, B. (22 January 2009). The nature of Obama’s charismatic leadership. Harvard Business Review, https://hbr.org/2009/01/the-natureof-obamas-charismat (accessed 16 November 2016); BBC (5 November 2008). Obama wins historic US election, http://news.bbc.co.uk/2/hi/americas/ us_elections_2008/7709978.stm (accessed 1 December 2016); Roberts, S. (20 July 2009). 2008 surge in black votes nearly erased racial gap. The New York Times, http://www.nytimes.com/2009/07/21/us/politics/21vote.html (accessed 1 December 2016); BBC (2016). US Election 2016 results, http://www.bbc.com/ news/election/us2016/results (accessed 1 December 2016); Bennis, W. and Zelleke, A. (28 February 2008). Barack Obama and the case for charisma. The Christian Science Monitor, http://www.csmonitor.com/Commentary/Opinion/2008/0228/p09s01-coop.html (accessed 16 November 2016); Sommers, J. (15 May 2016). Barack Obama ‘Hope’ poster designer Shepard Fairey expresses disappointment in president. The Huffington Post, http://www. huffingtonpost.co.uk/entry/barack-obama-hope-poster-shephard-fairey_uk_57384603e4b01359f686f6fa (accessed 1 December 2016); Rollert, J. P. (16 May 2012). President Obama’s ‘cool’ factor. The Washington Post, https://www.washingtonpost.com/national/on-leadership/president-obama-is-cool-and-thatsa-good-thing/2012/05/16/gIQA3DY0TU_story.html (accessed 16 November 2016).

vision An attractive, ideal future organisational state or outcome that is credible yet not readily attainable.

Other charismatic leaders include Mother Teresa, Sam Walton, Alexander the Great, Oprah Winfrey and Martin Luther King, Jr. Charisma can be used for positive outcomes that benefit the group, but it can also be used for self-serving purposes that lead to the deception, manipulation and exploitation of others. When charismatic leaders respond to organisational problems in terms of the needs of the entire group rather than their own emotional needs, they can have a powerful, positive influence on organisational performance.50 At Apple, Steve Jobs’s personal identity was so closely aligned with his company that serving Apple and serving his own emotional needs were likely one and the same! As with the Level 5 and authentic leadership approaches discussed earlier in this chapter, humility typically plays an important part in distinguishing whether a charismatic leader will work to benefit the larger organisation or use his or her gifts for ego-building and personal gain.51 Charismatic leaders are skilled in the art of visionary leadership. A vision is an attractive, ideal future organisational state or outcome that is credible yet not readily attainable. Vision is an important component of both charismatic and transformational leadership. Visionary leaders, who concentrate on formulating and communicating the organisation’s longer term ‘big picture’, speak to the hearts of employees, letting them feel that they are part of something bigger than themselves. Where others see obstacles or failures, visionary leaders see possibility and hope. Charismatic leaders typically have a strong vision for the future, almost an obsession, and they can motivate others to help realise it.52 These leaders have an emotional impact on subordinates because they strongly believe in the vision and can communicate it to others in a way that makes the vision real, personal and meaningful.

T R A N S F O R M AT I O NA L V E R S U S T R A N S AC T I O NA L L E A D E R S H I P transformational leader A leader distinguished by a special ability to bring about innovation and change.

Transformational leaders are similar to charismatic leaders, but are distinguished by their special

ability to bring about innovation and change by recognising their followers’ needs and concerns, providing meaning, challenging people to look at old problems in new ways and acting as role models for new values and behaviours. Transformational leaders inspire followers not only to believe in the

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leader personally, but also to believe in their own potential to imagine and create a better future for the organisation. Transformational leaders create significant change in both their followers and the organisation.53 Transformational leadership can be better understood when considered in comparison to transactional leadership.54 Transactional leaders clarify the role and task requirements of subordinates, initiate structure, provide appropriate rewards, and try to be considerate and meet the social needs of subordinates. The transactional leader’s ability to satisfy subordinates may improve productivity. Transactional leaders excel at management functions. They are hardworking, tolerant and fair minded. They take pride in keeping things running smoothly and efficiently. Transactional leaders often stress the impersonal aspects of performance, such as plans, schedules and budgets. They have a sense of commitment to the organisation and conform to organisational norms and values. Transactional leadership is important to all organisations, but leading change requires a different approach. Transformational leaders have the ability to lead changes in the organisation’s mission, strategy, structure and culture, as well as to promote innovation in products and technologies. Transformational leaders do not rely solely on tangible rules and incentives to control specific transactions with followers. They focus on intangible qualities such as vision, shared values and ideas to build relationships, give larger meaning to diverse activities, and find common ground to enlist followers in the change process.55 Studies show that transformational leadership has a positive impact on follower development and follower performance.56 Moreover, transformational leadership skills can be learned, and are not ingrained personality characteristics. However, some personality traits may make it easier for a leader to display transformational leadership behaviours. For example, studies of transformational leadership have found that the trait of agreeableness, as discussed in the previous chapter, is often associated with transformational leaders.57 In addition, transformational leaders are typically emotionally stable and positively engaged with the world around them, and they have a strong ability to recognise and understand others’ emotions.58 These characteristics are not surprising, considering that these leaders accomplish change by building networks of positive relationships.

R EMEMBE R THIS ◗◗

A charismatic leader is a leader who has the ability to inspire and motivate people to transcend their expected performance, even to the point of personal sacrifice.

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Both charismatic and transformational leaders provide followers with an inspiring vision, an attractive, ideal future that is credible yet not readily attainable.

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A transformational leader is distinguished by a special ability to bring about innovation and change by creating an inspiring vision, shaping values, building relationships and providing meaning for followers.

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A transactional leader clarifies subordinates’ roles and task requirements, initiates structure, provides rewards and displays consideration for followers.

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transactional leader A leader who clarifies employees’ role and task requirements, initiates structure, provides rewards and displays consideration for employees.

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LEADER

FOLLOWER

Honest

Honest

Competent

Competent

Forward-looking Inspiring Intelligent EXHIBIT 10.10 The top five qualities of leaders and followers

10.7

FOLLOWERSHIP

No discussion of leadership is complete without a consideration of followership. Leadership matters, but without effective followers, no organisation can survive. Dependable People have different expectations of what constitutes a good follower versus a Cooperative good leader, as illustrated by the results of studies asking people to rank the desired characteristics of leaders and followers. The top five qualities desired in each are as Loyal listed in EXHIBIT 10.10.59 There may be some differences, but overall, many of the qualities that define a good follower are the same as those possessed by a good leader. Leaders can develop an understanding of their followers and create the conditions that help them to be most effective.60 One model of followership is illustrated in EXHIBIT 10.11.

Robert E. Kelley conducted extensive interviews with managers and their subordinates and came up with five follower styles, which are categorised according to two dimensions.61 Dependent, uncritical thinking

EXHIBIT 10.11 Styles of followership

Passive

Conformist

Pragmatic survivor

Active

Effective

Passive

Alienated

Independent, critical thinking Source: Based on Robert E. Kelley, The Power of Followership (New York: Doubleday, 1992). critical thinking Thinking independently and being mindful of the effect of one’s behaviour on achieving goals. uncritical thinking Failing to consider the possibilities beyond what one is told; accepting others’ ideas without thinking.

The first dimension is the quality of independent, critical thinking versus dependent, uncritical thinking. Independent critical thinkers are mindful of the effects of their own and others’ behaviour on achieving organisational goals. They can weigh the impact of their boss’s and their own decisions and offer constructive criticism, creativity and innovation. Conversely, a dependent, uncritical thinker does not consider possibilities beyond what he or she is told, does not contribute to the cultivation of the organisation and accepts the supervisor’s ideas without thinking. The second dimension of follower style is active versus passive behaviour. An active follower participates fully in the organisation, engages in behaviour that is beyond the limits of the job, demonstrates a sense of ownership and initiates problem solving and decision making. A passive follower, by contrast, is

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characterised by a need for constant supervision and prodding by superiors. Passivity is often regarded as laziness; a passive person does nothing that is not required and avoids added responsibility. The extent to which an individual is active or passive and is an independent, critical thinker or a dependent, uncritical thinker determines whether the person will be an alienated follower, a passive follower, a conformist, a pragmatic survivor or an effective follower, as illustrated in EXHIBIT 10.11.

◗◗ The alienated follower is a passive, yet independent, critical thinker. Alienated employees are often effective followers who have experienced setbacks and obstacles, perhaps promises broken by their superiors. Thus, they are capable, but focus exclusively on the shortcomings of their boss. Often cynical, alienated followers are able to think independently, but they do not participate in developing solutions to the problems or deficiencies that they see. These people waste valuable time complaining about their boss without offering constructive feedback.

◗◗ The conformist participates actively in a relationship with their boss, but doesn’t use critical thinking skills. In other words, a conformist typically carries out any and all orders, regardless of the nature of the request. The conformist participates willingly, but without considering the consequences of what he or she is being asked to do – even at the risk of contributing to a harmful endeavour. A conformist is concerned only with avoiding conflict. This follower style might reflect an individual’s over-dependent attitude towards authority, yet it can also result from rigid rules and authoritarian environments that create a culture of conformity.

◗◗ The pragmatic survivor has qualities of all four extremes – depending on which style fits with the prevalent situation. This type of person uses whatever style best benefits his or her own position and minimises risk. Pragmatic survivors often emerge when an organisation is going through desperate times, and individuals find themselves doing whatever is needed to get through the difficulty. Within any given company, some 25 to 35 per cent of people tend to be pragmatic survivors, avoiding risks and fostering the status quo.62

◗◗ The passive follower exhibits neither critical, independent thinking nor active participation. Being passive and uncritical, these people show neither initiative nor a sense of responsibility. Their activity is limited to what they are told to do, and they accomplish things only with a great deal of supervision. Passive followers leave the thinking to the boss. Often, this style is the result of a micromanaging boss who encourages passive behaviour. People learn that to show initiative, accept responsibility, or think creatively is not rewarded and may even be punished by the boss, so they grow increasingly passive.

◗◗ The effective follower is both a critical, independent thinker and active in the organisation. Effective followers behave the same towards everyone, regardless of their position in the organisation. They develop an equitable relationship with their leaders and do not try to avoid risk or conflict. These people are capable of self-management, discern strengths and weaknesses in themselves and their bosses, are committed to something bigger than themselves, and work towards competency, solutions and positive impact. One example of an effective follower is Laurie Stein, general counsel of Clorox, a worldwide manufacturer and marketer of consumer and professional products based in the United States. When a company brings in an outside CEO, one expert estimates that managers have a 30 to 40 per cent chance of being fired. But not effective followers like Laurie Stein. Before Donald Knauss even took the CEO job, Stein did extensive research on him to help her figure out how to work with him most effectively. She began looking for how she could best serve Knauss and the organisation as it embarked on a new path. Even if she disagreed with any strategic changes that he wanted to make, Stein believed that it was her

alienated follower A person who is an independent, critical thinker but is passive in the organisation.

conformist A follower who participates actively in the organisation but does not use critical thinking skills.

pragmatic survivor A follower who has qualities of all four follower styles, depending on which fits the prevalent situation.

passive follower A person who exhibits neither critical independent thinking nor active participation.

effective follower A critical, independent thinker who actively participates in the organisation.

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job to support them. Since Stein had previously worked in China, she volunteered to informally advise colleagues about revamping the company’s strategy in that country. Knauss appreciated Stein’s proactive approach. ‘She will help anyone who asks for help,’ he says. Within months of taking the CEO job, Knauss had broadened Stein’s duties and power.63 Effective followers recognise that they have power in their relationships with superiors; thus, they have the courage to manage upward, to initiate change and to put themselves at risk or in conflict with the boss if they believe that it serves the best interest of the team or organisation.

R EMEMBE R THIS ◗◗ ◗◗

Leaders can accomplish nothing without effective followers.

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Uncritical thinking means failing to consider the possibilities beyond what one is told, accepting others’ ideas without thinking.

◗◗ ◗◗

An effective follower is a critical, independent thinker who actively participates in the organisation.

◗◗

A conformist is a follower who participates actively in the organisation but does not use critical thinking skills.

◗◗ ◗◗

A passive follower is one who exhibits neither critical independent thinking nor active participation.

Critical thinking means thinking independently and being mindful of the effect of one’s behaviour on achieving goals.

An alienated follower is a person who is an independent, critical thinker but is passive in the organisation.

A follower who has qualities of all four follower styles, depending on which fits the prevalent situation, is called a pragmatic survivor.

10.8 power The potential ability to influence the behaviour of others. influence The effect that a person’s actions have on the attitudes, values, beliefs or behaviour of others.

POWER AND INFLUENCE

Both followers and leaders use power and influence to get things done in organisations. Sometimes the terms power and influence are used synonymously, but there are distinctions between the two. Power is the potential ability to influence the behaviour of others.64 Influence is the effect that a person’s actions have on the attitudes, values, beliefs or behaviour of others. Whereas power is the capacity to cause a change in a person, influence may be thought of as the degree of actual change. Most discussions of power include five types that are available to leaders,65 and these can be categorised as either hard power or soft power. Hard power is power that stems largely from a person’s position of authority, and includes legitimate, reward and coercive power. Soft power includes expert power and referent power, which are based on personal characteristics and interpersonal relationships more than on a position of authority.

‘ H A R D’ P O S I T I O N P OW E R The traditional manager’s power comes from the organisation (hard power). The manager’s position gives him or her the power to reward or punish subordinates to influence their behaviour. Legitimate power, reward power and coercive power are all forms of position power used by managers to change employee behaviour.

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LEGITIMATE P O WER Power coming from a formal management position in an organisation and the authority granted to it is called legitimate power. Once a person has been selected as a supervisor, most employees understand that they are obligated to follow his or her direction with respect to work activities. Subordinates accept this source of power as legitimate, which is why they comply with directives given by the supervisor or manager.

legitimate power Power that stems from a formal position in an organisation and the authority granted to it.

REWARD P O WER Another kind of power, reward power, stems from the authority to bestow rewards on other people. Managers may have access to formal rewards, such as pay increases or promotions. They also have at their disposal informal rewards such as praise, attention and recognition. Managers can use rewards to influence subordinates’ behaviour.

reward power Power that results from the authority to reward others.

COERCIV E POWER The opposite of reward power is coercive power. It refers to the authority to punish or recommend punishment. Managers have coercive power when they have the right to fire or demote employees, criticise them or withhold pay increases. If an employee does not perform as expected, the manager has the coercive power to reprimand the employee, put a negative letter in the employee’s file, deny the employee a raise and hurt the employee’s chances for a promotion.

coercive power Power that stems from the authority to punish or recommend punishment.

P E R S O NA L ‘ S O F T ’ P OW E R Effective leaders don’t rely solely on the hard power of their formal position to influence others. Jeffrey Immelt, CEO of GE, considers himself a failure if he exercises his formal authority more than seven or eight times a year. The rest of the time, he is using softer means to persuade and influence others and to resolve conflicting ideas and opinions.66 In contrast to the external sources of position power, personal power most often comes from internal sources, such as an individual’s special knowledge or personal characteristics. Personal power is the primary tool of the leader, and it is becoming increasingly important as more businesses are run by teams of workers who are less tolerant of authoritarian management.67 Michelle Davis, who works as a middle manager at Fair Isaac Corporation (FICO), says that relying on soft power can be frustrating, but it is a crucial part of the job.68 Two types of personal power are expert power and referent power.

TAKE A MOMENT As a new manager, you may not have a lot of position power. Build your personal power by strengthening your knowledge and skills and by developing positive relationships. Interpersonal influence tactics will serve you well throughout your career, even as your position power increases.

EXPERT POWER Power resulting from a person’s special knowledge or skill regarding the tasks being performed is referred to as expert power. When someone is a true expert, others go along with their recommendations because of his or her superior knowledge. Followers as well as leaders can possess expert power. For example, some managers lead teams in which members have expertise that the leader lacks. Some

expert power Power that stems from special knowledge or skill in tasks performed by employees.

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leaders at top management levels may lack expert power because subordinates know more about technical details than they do.

REFERENT P O WER referent power Power that results from the characteristics that command employees’ identification, respect and admiration, so that they wish to emulate the leader.

Referent power comes from an individual’s personal characteristics that command others’ identification, respect and admiration, meaning that others wish to emulate that individual. Referent power does not depend on a formal title or position. When employees admire a supervisor because of the way that he or she deals with them, the influence is based on referent power. Referent power is most visible in the area of charismatic leadership. In social and religious movements, we often see charismatic leaders who emerge and gain a tremendous following based solely on their personal power.

O T H E R S OU R C E S O F P OW E R There are additional sources of power that are not linked to a particular person or position, but rather to the role an individual plays in the overall functioning of the organisation. These important sources include personal effort, relationships with others and information.

PERSO NA L EFFORT People who show initiative, work beyond what is expected of them, take on undesirable but important projects, and show interest in learning about the organisation and industry often gain power as a result. Stephen Holmes says he got his start towards the CEO’s office at Wyndham Worldwide because of personal effort. As a young internal auditor at a private-equity firm in the early 1980s, Holmes was spending his evenings trying to learn a new spreadsheet program. Noted investor Henry Silverman noticed him night after night and, intrigued by the young auditor’s efforts, stopped by to see what he was doing. Silverman asked Holmes to move with him to future companies, including Blackstone, HMS and eventually Wyndham. ‘I was a kid,’ Holmes says, ‘[but he] put me into positions that no one else my age was getting to do.’69

NETWO RK O F RELATIO NS HI P S People who are enmeshed in a network of relationships have greater power. A leader or employee with many relationships knows what’s going on in the organisation and industry, whereas one who has few interpersonal connections is often in the dark about important activities or changes. Networks of relationships are crucial in the political arena for instance. Abraham Lincoln is considered by historians to be one of the greatest presidents of the United States partly because he built relationships and listened carefully to a broad range of people both inside and outside of his immediate circle when the United States was so bitterly divided over the Civil War. He included people who didn’t agree with him and were critical of his goals and plans.70 Leaders who are good networkers develop a large group of contacts that they keep in touch with, that they can comfortably call on when they need to inquire about an issue or exert soft influence.

INFO RM ATIO N Information is a primary business resource, and people who have access to information and control over how and to whom it is distributed are typically powerful. To some extent, access to information is determined by a person’s position in the organisation. Top managers typically have access to more information than middle managers, who in turn have access to more information than lower-level supervisors or front-line

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employees. Both leaders and followers can tap into these additional sources of power. Leaders succeed when they take the time to build relationships both inside and outside the organisation and to talk informally about important projects and priorities. Jack Griffin was forced out as CEO of Time Inc. after less than six months on the job, largely because he failed to develop positive relationships. Griffin tried to use the hard power of his position to make necessary changes at Time without building the soft power connections needed to implement the changes. Board members began to realise that Griffin had become so unpopular that the company was likely to lose valuable employees if he stayed on as CEO.71

I N T E R P E R S O NA L I N F L U E N C E TA CT I C S Leaders often use a combination of influence strategies, and people who are perceived as having greater power and influence typically are those who use a wider variety of tactics. One survey of a few hundred leaders identified more than 4000 different techniques that these people used to influence others.72 However, these tactics fall into basic categories that rely on understanding the principles that cause people to change their behaviour and attitudes. EXHIBIT 10.12 lists six principles for asserting influence. Notice that most of these involve the use of personal power rather than relying solely on position power or the use of rewards and punishments.73

EXHIBIT 10.12 Six interpersonal influence tactics for leaders

1. Use rational persuasion.

2. Help people to like you.

3. Rely on the rule of reciprocity.

Greater influence Leader

4. Develop allies.

5. Be assertive – ask for what you want.

6. Make use of higher authority.

1 Use rational persuasion. The most frequently used influence strategy is to use facts, data and logical argument to persuade others that a proposed idea, request or decision is appropriate. Using rational persuasion can often be highly effective because most people have faith in facts and analysis.74 Rational persuasion is most successful when a leader has technical knowledge and expertise related to the issue at hand (expert power), although referent power is also used. That is, in addition to facts and figures, people have to believe in the leader’s credibility.

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2 Help people to like you. People would rather say yes to someone they like than to someone they don’t. Effective leaders strive to create goodwill and favourable impressions. When a leader shows consideration and respect, treats people fairly and demonstrates trust in others, people are more likely to want to help and support the leader by doing what he or she asks. In addition, most people like a leader who makes them feel good about themselves, so leaders should never underestimate the power of praise.

3 Rely on the rule of reciprocity. Leaders can influence others through the exchange of benefits and favours. Leaders share what they have – whether it is time, resources, services or emotional support. The feeling among people is nearly universal that others should be paid back for what they do, in one form or another. This unwritten ‘rule of reciprocity’ means that leaders who do favours for others can expect that others will do favours for them in return.75

4 Develop allies. Effective leaders develop networks of allies – people who can help the leader accomplish his or her goals. Leaders talk with followers and others outside of formal meetings to understand their needs and concerns as well as to explain problems and describe the leader’s point of view. They strive to reach a meeting of minds with others about the best approach to a problem or decision.76

5 Ask for what you want. Another way to influence others is to make a direct and personal request. Leaders have to be explicit about what they want, or they aren’t likely to get it. An explicit proposal is sometimes accepted simply because others have no better alternative. Also, a clear proposal or alternative will often receive support if other options are less well defined.

6 Make use of higher authority. Sometimes to get things done leaders have to use their formal authority,

Source: Fairfax Syndication/Michael Clayton-Jones

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as well as gain the support of people at higher levels to back them up. However, research has found that the key to successful use of formal authority is to be knowledgeable, credible and trustworthy – that is, to demonstrate expert and referent power as well as legitimate power. Managers who become known for their expertise, who are honest and straightforward with others, and who inspire trust can exert greater influence than those who simply issue orders.77 Research indicates that people rate leaders as ‘more effective’ when they are perceived to use a variety of influence tactics. But not all managers use influence in the same way. Studies have found that leaders in human resources, for example, tend to use softer, more subtle approaches such as building goodwill, using favours and developing allies, whereas those in finance are inclined to use harder, Janine Allis is founder and Managing Director of Boost Juice, which she built from a start-up idea in more direct tactics such as formal her home. A true entrepreneur, she has achieved remarkable growth in this health-oriented business, at a profit, on an international basis, while also managing to raise a family of four children. Her recent authority and assertiveness.78 new business venture is in healthy Mexican food, called Salsa’s Fresh Mex Grill.

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R EMEMBE R THIS ◗◗ ◗◗ ◗◗ ◗◗

Power is the potential ability to influence the behaviour of others.

◗◗ ◗◗ ◗◗

Reward power results from the authority to bestow rewards.

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Referent power results from characteristics that command subordinates’ identification with, respect and admiration for, and desire to emulate the leader.

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Both leaders and followers can tap into other sources of power, including personal effort, networks of relationships and access to or control over information.

◗◗

Leaders use a wide range of interpersonal influence tactics, and people who use a wider variety of tactics are typically perceived as having greater power.

All leaders use power to influence people and accomplish organisational goals. Influence is the effect a person’s actions have on the attitudes, values, beliefs or behaviour of others. Legitimate power is power that stems from a manager’s formal position in an organisation and the authority granted by that position.

Coercive power stems from the authority to punish or recommend punishment. Expert power is power that results from a leader’s special knowledge or skill in the tasks performed by subordinates.

If there is one thing that will stop a new initiative or approach stone cold, it is if senior leaders in an organisation do not ‘talk the talk’ and ‘walk the walk’. The energy, enthusiasm, role modelling and some resources to get things going are necessary for essentially any new initiative, including sustainable development. All staff at some point look to their ‘bosses’ to get guidance as to what behaviours and procedures are and are not to be implemented. People will be encouraged to save water, paper and energy if they see their organisation’s leaders doing so, and will be immediately ‘turned off’ if they see leaders not role modelling these activities. In respect of external stakeholder relationships and the empowerment of those stakeholders, only senior leaders such as board members, chief executives and general managers can usually initiate and authorise such activities. Moreover, the cultural aspects of sustainable development, meaning the sustainability orientation (see Chapter 4), becomes a state of mind that is set in place by the organisation’s leaders, and will not take hold or remain if it is not so led. The strategic aspect of sustainable development, namely the intent to pursue sustainability strategy and the work to broaden the vision and measures of success for the organisation, needs to be authorised from the top of the organisation. Leaders then can use these tools of management, meaning goals, measures, objectives and plans, to do the leadership work of influencing their staff and external stakeholders to move up the ‘sustainability maturity’ curve. Coca-Cola has embraced sustainable development through a CEO-led set of initiatives. The company has set in place stringent improvement initiatives in almost all of its functions and activities. This includes in improving the environmental impact of the materials it uses, recycling packaging, and in its community relations and support activities. Similarly, Toyota has taken the global lead in improving fuel efficiency of motoring by offering its hybrid Synergy Drive engines, which are approximately twice as fuel efficient as conventional engines, through much of its vehicle range. These companies invest large amounts of resources in such initiatives, and are led by people who believe such strategies are good business. These leaders are taking a long-term view on their business and the environment in which they operate. They recognise that stakeholder engagement – achieved by advances in ‘doing the right thing’ – is ultimately of critical importance. Such leadership comes from the application of moral and servant leadership concepts. Many start-ups have combined ambitions of contributing to environmental or social progress with business ambitions. Abigail Forsythe started the KeepCup business with her brother, and they have led this company in just a few years to become globally successful from a Melbourne base, through replacing many thousands of single use throw-away coffee cups with their reusable KeepCup products. Their business has overcome many challenges to become well established in both its contribution to environmental progress and business profitability.

SUSTAINABLE DEVELOPMENT LEADERSHIP OF SUSTAINABLE DEVELOPMENT

See Chapter 4 for a discussion of cultural aspects of sustainable development.

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STUDY TOOLS

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S E A R C H M E ! M A NAG E M E N T

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RESPONSE TO THE MANAGEMENT CHALLENGE

LEADING A REVITALISATION Jess Moore, who was introduced earlier in this chapter, showed very strong leadership in his efforts to turn around the ICI Botany site from one where employees were totally misaligned with the business needs and goals to one in which common goals and strategies were implemented. He started with a high level of communication about the imperative to improve the plant’s performance, and of the benefits to all of doing this. At one point, he invited all the plant operators

to move from their award-based wage system to become staff members on salary. This structural change removed the incentive for plant operators to create overtime, as salaries were fixed and had reasonable overtime allowances built in. Productivity and service levels to customers started to improve. There was a great deal of resistance to these major changes, and Jess had to weather a six-week-long strike at the plant, including acts of violence and even death threats. During this difficult time of change, support from his head office waned at times, and Jess and his management team needed to have and display large amounts of personal courage to stay the course of their convictions and revitalise the whole culture and

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way of working at Botany. The outcome was a tremendous achievement in turning a troubled and unproductive workplace into a competitive and positive culture. The very same workers who used to spend their time looking to do the minimum possible during their work shift so as to maximise the opportunity for overtime (which sometimes meant letting plants and equipment get into mechanical trouble) became proud champions of the performance improvements. Some plants, such as the polythene (plastic sheet) plant, achieved productivity improvements of more than 500 per cent once the system and attitudes of the workforce were turned around. Jess Moore and his small team of managers were breakthrough leaders in the way that they combated fierce tradition and

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resistance, achieving benefits for all stakeholders, including workers, customers, managers and the company’s shareholders. The biggest challenge ultimately proved to be environmental: the ongoing cost of cleaning up the environmental disaster that came from decades of previously poor leadership and management, when toxic chemicals were poured into the ground and into drains, is proving to be monumental. ICI, which operated this site, is spending hundreds of millions of dollars, cleaning up the sins of its past. The company now has a highly enlightened leadership and ‘top shelf’ approach to all aspects of sustainability, but is still somewhat burdened by the legacy of its (distant) past poor leadership record.

DISCUSSION QUESTIONS 1 Suggest some personal traits that you believe would be useful to a business leader today. Are these traits more valuable in some situations than in others? How do you think traits differ from strengths?

7 How does Level 5 leadership differ from the concept of servant leadership? Do you believe anyone has the potential to become a Level 5 leader? Discuss.

2 In a study asking what people wanted from leaders versus followers, people ranked maturity number 8 for followers, but number 15 for leaders. What might account for people wanting a higher maturity level from followers?

8 Why do you think so little attention is given to followership compared to leadership in organisations? Discuss how the role of an effective follower is similar to that of a leader.

3 To what extent do you think good leadership skills can be learned and developed, as against being inherent traits that we are born with? 4 Suggest the sources of power that would be available to a leader of a university’s student organisation. What sources of power may not be available? To be effective, should student leaders keep power to themselves or delegate power to other students? 5 What skills and abilities does a manager need to lead effectively in a virtual environment? Do you believe a leader with a consideration style or an initiating-structure style would be more successful as a virtual leader? Explain your answer. 6 What is transformational leadership? Give examples of organisational situations that would call for transformational, transactional or charismatic leadership.

9 How can a young person learn to become an effective leader, even early in their career? 10 Are some leadership styles better suited to such organisations as opposed to traditional hierarchical organisations? Explain. 11 Consider the leadership position of a senior partner in a law firm. What task, subordinate, and organisational factors might serve as substitutes for leadership in this situation? 12 Studies of women leaders suggest that many of them view power differently than men do and prefer a collaborative, relationshiporiented use of power. If this is the case, what does it suggest about women leaders’ abilities to accomplish goals? What does it suggest about women’s ability to rise to higher organisational levels? Discuss.

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ETHICAL CHALLENGE

DOES WAGE REFORM START AT THE TOP?

Paula Smith has just been offered the opportunity of a lifetime. The chairman of the board of Resitronic Company has called to ask her to take the job as director of the troubled audio equipment manufacturing subsidiary. The first question Smith asked was: ‘Will the board give me the autonomy to turn this company around?’ The answer was yes. Resitronic’s problems were so severe that the board was desperate for change and ready to give Smith whatever it took to save the company. Smith knows that cost cutting is the first place she needs to focus. Labour expenses are too high, and product quality and production times are below industry standards. She sees that labour and management at Resitronic are two armed camps, but she needs cooperation at all levels to achieve a turnaround. Smith is energised. She knows she finally has the autonomy to try out her theories about an empowered workforce. Smith knows she must ask managers and workers to take a serious pay cut, with the promise of incentives to share in any improvements they might make. She also knows that everyone will be looking at her own salary as an indication of whether she walks her talk. Smith is torn. She realises she faces a year or two of complete hell, with long hours, little time for her family or outside interests, bitter resistance in employees and no guarantees of success. Even if she comes in at the current director’s salary, she will be taking a cut in pay. But if she takes a bigger cut coming in, with the promise of bonuses and share options tied to her own performance, she sends a strong message to the

GROUP CHALLENGE

entire subsidiary that they rise or fall together. She wonders what might happen if she fails. Many influences on the audio equipment subsidiary are beyond her control. As already mentioned, Resitronic itself is in trouble. From her current vantage point, Smith believes she can turn things around, but what will she discover when she gets inside? What if the board undercuts her? Doesn’t she owe it to herself and her family to be compensated at the highest possible level for the stress and risk they will be enduring? Can she afford to risk her own security to send a message of commitment to the plan she is asking others to follow? W H AT D O YO U D O ? 1 Take the same salary as the current director for one year. Circulate the information that although you are taking a cut to come to Resitronic, you are confident that you can make a difference. Build in pay incentive bonuses for the following years if the subsidiary succeeds. 2 Take a bigger cut in pay with generous incentive bonuses. Ask the board and the entire workforce to do the same. Open the books and let the whole company know exactly where they stand. 3 Ask for the same salary you are making now. You know you are going to be worth it, and you don’t want to ask your family to suffer monetarily as well as in their quality of life during this transition.

WHICH LEADERSHIP STYLES ARE MORE EFFECTIVE?

Step 1. Think about one situation in which a leader was effective at motivating people, and another situation in which a leader was ineffective, perhaps demotivating people. When you have these situations firmly in mind, answer the following questions: 1 What source or type of power was used by the effective leader? The ineffective leader? 2 Did the effective leader emphasise a task-oriented or relationshiporiented style? Explain your rating. What about the ineffective leader? 3 Did the effective leader come across as a humble person serving others or something larger than him- or herself, or did the leader seem ego-centred and self-serving? What about the ineffective leader?

Step 2. Divide into groups of three to five students. Compare your answers and look for patterns that distinguish effective from ineffective leaders across your group members’ experiences. What patterns do you find? Step 3. Each group member should describe the leadership situation, with respect to its ‘favourability’ or ‘readiness of followers’. What relationship do you observe between the leadership situations and the style that the leader used? Step 4. Prepare to present your findings to the class and to participate in a discussion led by your instructor.

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CASE FOR CRITICAL ANALYSIS

DGL INTERNATIONAL

When DGL International, a manufacturer of refinery equipment, brought in John Terrill to manage its technical services division, company executives informed him of the urgent situation. Technical services, with 20 engineers, was the highest-paid, best-educated and least productive division in the company. The instruction to Terrill: turn it around. Terrill called a meeting of the engineers. He showed great concern for their personal welfare and asked point blank: ‘What’s the problem? Why can’t we produce? Why does this division have such turnover?’ Without hesitation, employees launched a hail of complaints. ‘I was hired as an engineer, not a pencil pusher’, and ‘We spend over half our time writing asinine reports in triplicate for top management, and no one reads the reports’. After a two-hour discussion, Terrill concluded he had to get top management off the engineers’ backs. He promised the engineers, ‘My job is to stay out of your way so you can do your work, and I’ll try to keep top management off your backs, too.’ He called for the day’s reports and issued an order effective immediately that the originals be turned in daily to his office rather than mailed to headquarters. For three weeks, technical reports piled up on his desk. By month’s end, the stack was nearly a metre high. During that time no one called for the reports. When other managers entered his office and saw the stack, they usually asked, ‘What’s all this?’ Terrill answered: ‘Technical reports’. No one asked to read them.

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Finally, at month’s end, a secretary from finance called and asked for the monthly travel and expense report. Terrill responded, ‘Meet me in the president’s office tomorrow morning.’ The next morning the engineers cheered as Terrill walked through the department pushing a cart loaded with the enormous stack of reports. They knew the showdown had come. Terrill entered the CEO’s office and placed the stack of reports on his desk. The CEO and the other senior executives looked bewildered. ‘This,’ Terrill announced, ‘is the reason for the lack of productivity in the technical services division. These are the reports you people require every month. The fact that they sat on my desk all month shows that no one reads this material. I suggest that the engineers’ time could be used in a more productive manner, and that one brief monthly report from my office will satisfy the needs of other departments.’ QU E S T I O N S 1 What leadership style did John Terrill use? What do you think was his primary source of power? 2 Based on the Hersey–Blanchard model, described on page 480 of this chapter, should Terrill have been less participative? Should he have initiated more task structure for the engineers? Explain. 3 What leadership approach would you have taken in this situation?

CAMP BOW WOW: LEADERSHIP

For a real-world application of the management theories described in this chapter, log on to CourseMate to watch the On the Job video and answer the following questions. QUESTIO NS 1 Does Camp Bow Wow CEO Heidi Ganahl possess qualities associated with contemporary leadership?

2 In what way is Ganahl’s leadership charismatic and visionary? Give examples. 3 Where does Ganahl’s leadership fall on the Leadership Grid discussed in the chapter and illustrated in EXHIBIT 10.6? Explain.

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ENDNOTES   1 ABC (22 February 2016). Australian Story - True Grit Part One – Transcript, http://www.abc. net.au/austory/content/2015/s4384756.htm (accessed 15 November 2016); ABC (29 February 2016). Australian Story – True Grit Part Two – Transcript, http://www.abc.net.au/austory/ content/2015/s4384761.htm (accessed 15 November 2016); Pocock, D. (2016). Bio, http://www. davidpocock.com/about-me/#bio (accessed 15 November 2016); Dutton, C. and Kelly, E. (12 February 2015). How David Pocock found the good life in Canberra. The Canberra Times, http://www.canberratimes.com.au/act-news/how-david-pocock-found-the-good-life-incanberra-20150212-13d69t.html (accessed 15 November 2016); Wilson, C. (24 March 2015). We need more David Pococks: Clyde Rathbone. The Canberra Times, http://www.canberratimes.com. au/rugby-union/brumbies/we-need-more-david-pococks-clyde-rathbone-20150324-1m6em0. html (accessed 15 November 2016); Maasdorp, J. (7 April 2016). David Pocock’s apology shows sporting world how to say sorry properly, http://www.abc.net.au/news/2016-04-07/davidpocock-shows-sporting-world-how-to-make-an-apology/7306588 (accessed 15 November 2016); Sygall, D. (3 December 2015). Wallabies star David Pocock spending off-season protecting rhinoceroses in Zimbabwe. The Sydney Morning Herald, http://www.smh.com.au/rugby-union/ australia-rugby/wallabies-star-david-pocock-shares-stunning-images-from-postrugby-worldcup-work-protecting-rhinoceros-in-zimbabwe-20151202-gle18k.html (accessed 15 November 2016); Tucker, J. (10 September 2010). Wallabies star David Pocock makes difference off field through charity work in Zimbabwe. The Courier Mail, http://www.couriermail.com.au/sport/ wallabies-star-david-pocock-makes-difference-off-field-through-charity-work-in-zimbabwe/ story-e6frepm6-1225916711992 (accessed 15 November 2016); Dutton, C. (23 March 2015). David Pocock says no room for homophobic slurs in sport or society after incident in Brumbies clash against Waratahs. The Sydney Morning Herald, http://www.smh.com.au/rugby-union/ union-match-report/david-pocock-says-no-room-for-homophobic-slurs-in-sport-or-societyafter-incident-in-brumbies-clash-against-waratahs-20150322-1m4vsf.html (accessed 15 November 2016); Adams, C. (20 February 2016). David Pocock opens up on being arrested, calling out homophobia and his immediate rugby plans, http://www.news.com.au/sport/davidpocock-opens-up-on-being-arrested-calling-out-homophobia-and-his-immediate-rugbyplans/news-story/291e58e4d04c453c5135ee35cfebd461 (accessed 15 November 2016).   2 Gary Yukl. (1989). Managerial Leadership: A Review of Theory and Research. Journal of Management 15, 251–89.   3 James M. Kouzes and Barry Z. Posner. (January 1990). The Credibility Factor: What Followers Expect from Their Leaders. Management Review, 29–33.   4 D. Michael Abrashoff,‘Retention Through Redemption,’ Harvard Business Review (February 2001): 136–141; D. Michael Abrashoff, It’s Your Ship: Management Techniques from the Best Damn Ship in the Navy (New York: Business Plus, 2002); and Mike Abrashoff,‘The Bossless, Not Leaderless Office,’ Leadership Blog, GLS Worldwide, 25 June 2013, http://www.glsworld.com/thought-leadership/ leadership-blog/2013/06/the-bossless-not-leaderless-office/ (accessed 23 November 2013).   5 Jim Collins. (January 2001). Level 5 Leadership: The Triumph of Humility and Fierce Resolve. Harvard Business Review, 67–76; Jim Collins. (October 2001). Good to Great. Fast Company, 90–104; A. J. Vogl. (September–October 2001). Onward and Upward (an interview with Jim Collins). Across the Board, 29–34; and Jerry Useem. (19 February 2001). Conquering Vertical Limits. Fortune, 84–96.   6 Collins. Level 5 Leadership.   7 Quoted in William J. Holstein. (8 May 2005). The View’s Still Great from the Corner Office. The New York Times.   8 Richard L. Daft and Robert H. Lengel. (1998). Fusion Leadership: Unlocking the Subtle Forces That Change People and Organizations (San Francisco: Berrett-Koehler).   9 Leigh Buchanan. (May 2007). In Praise of Selflessness: Why the Best Leaders Are Servants. Inc., 33–5. 10 Robert K. Greenleaf. (1977). Servant Leadership: A Journey into the Nature of Legitimate Power and Greatness (Mahwah, NJ: Paulist Press). 11 (30 October 2006). Not Her Father’s Chief Executive (an interview with Marilyn Carlson Nelson). U.S. News & World Report, 64–5. 12 (16 April 2009). Maersk Alabama Crew Recalls Pirate Attack. USA Today, http://www.usatoday. com/news/nation/2009-04-16-pirates_N.htm (accessed 30 April 2009); Stacy Meichtry, Arian Campo-Flores and Leslie Scism. (17 January 2012). Cruise Company Blames Captain. The Wall Street Journal, http://online.wsj.com/article/SB100014240529702037353045771652 90656739300.html (accessed 20 January 2012); (23 March 2012). Death Toll of Italy’s Costa Concordia Wreck Rises to 30. Philippine Star, http://www.philstar.com/article.aspx?articleid= 790169&publicationsubcategoryid=200 (accessed 14 September 2012).

13 Jena McGregor. (5 September 2013). Lenovo CEO Hands over His Bonus to Hourly Workers— Again. Washington Post, http://www.washingtonpost.com/blogs/on-leadership/wp/2013/09/05/ lenovo-ceo-hands-over-his-bonus-to-hourly-workers-again/ (accessed 21 October 2013). 14 Adam Bluestein. (May 2011). Start a Company. Change the World. Inc., 71–80. 15 Bill George. (2003). Authentic Leadership: Rediscovering the Secrets to Lasting Value (San Francisco: Jossey-Bass); Bill George. (22 October 2006). Truly Authentic Leadership. Special Report: America’s Best Leaders. U.S. News & World Report, http://www.usnews.com/usnews/ news/articles/061022/30authentic.htm (accessed 5 October 2010). 16 Judy B. Rosener. (1995). America’s Competitive Secret: Utilizing Women as a Management Strategy (New York: Oxford University Press), pp. 129–35. 17 Alice H. Eagly and Linda L. Carli. (2003). The Female Leadership Advantage: An Evaluation of the Evidence. The Leadership Quarterly, 14, 807–34; Rosener, America’s Competitive Secret; Judy B. Rosener. (November–December 1990). Ways Women Lead. Harvard Business Review, 119–25; Sally Helgesen. (1990). The Female Advantage: Women’s Ways of Leadership (New York: Currency/ Doubleday); Bernard M. Bass and Bruce J. Avolio. (Winter 1994). Shatter the Glass Ceiling: Women May Make Better Managers. Human Resource Management, 33:4, 549–60; and Carol Kinsey Goman. (10 August 2011). What Men Can Learn from Women about Leadership in the 21st Century. The Washington Post, http://www.washingtonpost.com/national/on-leadership/what-men-can-learnfrom-womenabout-leadership/2011/08/10/gIQA4J9n6I_story.html (accessed 12 September 2012). 18 Rochelle Sharpe. (20 November 2000). As Leaders, Women Rule. BusinessWeek, 75–84. 19 Kevin S. Groves. (2005). Gender Differences in Social and Emotional Skills and Charismatic Leadership. Journal of Leadership and Organizational Studies, 11:3, 30ff. 20 Jack Zenger and Joseph Folkman. (15 March 2012). Are Women Better Leaders Than Men? HBR Blog Network. Harvard Business Review, http://blogs.hbr.org/cs/2012/03/a_study_in_ leadership_women_do.html (accessed 12 September 2012); and Herminia Ibarra and Otilia Obodaru. (January 2009). Women and the Vision Thing. Harvard Business Review, 62–70. 21 Susan Carey. (14 August 2007). More Women Take Flight in Airline Operations. The Wall Street Journal, B1; and Ann Therese Palmer. (24 December 2006). Teacher Learns All About Airline; United VP Began as Reservations Clerk, Rose Through Ranks. Chicago Tribune, 3. 22 This analogy is from Gordon P. Rabey. (2010). Leadership Is Response: A Paper for Discussion. Industrial and Commercial Training, 42:2, 87–92. 23 This discussion is based on Philip A. Dover and Udo Dierk. (2010). The Ambidextrous Organization: Integrating Managers, Entrepreneurs, and Leaders. Journal of Business Strategy, 31:5, 49–58; Gary Yukl and Richard Lepsinger. (2005). Why Integrating the Leading and Managing Roles Is Essential for Organizational Effectiveness. Organizational Dynamics, 34:4, 361–75; and Henry Mintzberg. (2009). Managing (San Francisco: Berrett-Koehler Publishers). 24 Nancy F. Koehn. (1 April 2012). The Driver in Ford’s Amazing Race. The New York Times, BU.1. 25 Mathew J. Manimala and Kishinchand Poornima Wasdani, ‘Distributed Leadership at Google: Lessons from the Billion-Dollar Brand,’ Ivey Business Journal, May–June 2013, http:// iveybusinessjournal.com/topics/leadership/distributed-leadership-at-google-lessons-fromthe-billion-dollar-brand#.UmalkSbD91s (accessed 22 October 2013). 26 As described in Manimala and Wasdani, Distributed Leadership at Google. 27 G. A. Yukl. (1981). Leadership in Organizations (Englewood Cliffs, NJ: Prentice Hall); and S. C. Kohs and K. W. Irle. (1920). Prophesying Army Promotion. Journal of Applied Psychology, 4, 73–87. 28 R. Albanese and D. D. Van Fleet. (1983). Organizational Behavior: A Managerial Viewpoint (Hinsdale, IL: The Dryden Press); and S. A. Kirkpatrick and E. A. Locke. (1991). Leadership: Do Traits Matter? Academy of Management Executive, 5:2, 48–60. 29 A summary of various studies and surveys is reported in Del Jones. (15 December 2005) Optimism Puts Rose-Colored Tint in Glasses of Top Execs. USA Today. 30 Annie Murphy Paul. (November–December 2011). The Uses and Abuses of Optimism (and Pessimism). Psychology Today, 56–63. 31 Tom Rath and Barry Conchie. (2009). Strengths Based Leadership (Gallup Press); Marcus Buckingham and Donald O. Clifton. (2001). Now, Discover Your Strengths (New York: The Free Press), p. 12. 32 Buckingham and Clifton, Now, Discover Your Strengths. 33 Gary Yukl, Angela Gordon and Tom Taber. (2002). A Hierarchical Taxonomy of Leadership Behavior: Integrating a Half Century of Behavior Research. Journal of Leadership and Organizational Studies, 9:1, 13–32. 34 C. A. Schriesheim and B. J. Bird. (1979). Contributions of the Ohio State Studies to the Field of Leadership. Journal of Management, 5, 135–45; C. L. Shartle. (1979). Early Years of the Ohio State University Leadership Studies. Journal of Management, 5, 126–34; and

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R. Likert. (1979). From Production- and Employee-Centeredness to Systems 1–4. Journal of Management, 5, 147–56. 35 P. C. Nystrom. (1978). Managers and the High-High Leader Myth. Academy of Management Journal, 21, 325–31; and L. L. Larson, J. G. Hunt and Richard N. Osborn. (1976). The Great High-High Leader Behavior Myth: A Lesson from Occam’s Razor. Academy of Management Journal, 19, 628–41. 36 R. Likert. From Production- and Employee-Centeredness to Systems 1–4. 37 Robert R. Blake and Jane S. Mouton. (1985). The Managerial Grid III (Houston, TX: Gulf). 38 Diane Brady and Matthew Boyle,‘Campbell’s Recipe for a CEO Yields Denise Morrison,’ Bloomberg BusinessWeek, 23 June 2011, http://www.businessweek.com/magazine/content/11_27/ b4235060614059.htm (accessed 12 March 2013); and Jo Napolitano,‘Private Sector; No, She Doesn’t Breathe Fire,’ The New York Times, 1 September 2002, http://www.nytimes.com/2002/09/01/ business/private-sector-no-she-doesn-t-breathe-fire.html (accessed 23 October 2013). 39 This discussion is based on Paul Hersey and Ken Blanchard. (January 1996). Revisiting the LifeCycle Theory of Leadership. In Great Ideas Revisited. Training & Development, 42–7; Kenneth H. Blanchard and Paul Hersey. (January 1996). Life-Cycle Theory of Leadership. In Great Ideas Revisited. Training & Development, 42–7; Paul Hersey. (February 2009). Situational Leaders: Use the Model in Your Work. Leadership Excellence, 12; and Paul Hersey and Kenneth H. Blanchard, (1982). Management of Organizational Behavior: Utilizing Human Resources, 4th edn (Englewood Cliffs, NJ: Prentice Hall). The concept of readiness comes from Hersey. Situational Leaders. 40 Jennifer Robison. (10 January 2008). Many Paths to Engagement: How Very Different Management Styles Get the Same Great Results at Mars Incorporated. Gallup Management Journal, http://gmj.gallup.com/content/103513/Many-Paths-Engagement.aspx (accessed 31 July 2010). 41 Andrew Ross Sorkin. Warren Buffett, Delegator in Chief. The New York Times, http://www. nytimes.com/2011/04/24/weekinreview/24buffett.html (accessed 14 September 2012). 42 Fred E. Fiedler. (1954). Assumed Similarity Measures as Predictors of Team Effectiveness. Journal of Abnormal and Social Psychology, 49, 381–88; F. E. Fiedler. (1958). Leader Attitudes and Group Effectiveness (Urbana, IL: University of Illinois Press); and F. E. Fiedler. (1967). A Theory of Leadership Effectiveness (New York: McGraw-Hill). 43 Fred E. Fiedler and M. M. Chemers. (1974). Leadership and Effective Management (Glenview, IL: Scott, Foresman). 44 Reported in George Anders. (19 November 2007). Theory & Practice: Tough CEOs Often Most Successful, a Study Finds. The Wall Street Journal. 45 Fred E. Fiedler. (1965). Engineer the Job to Fit the Manager. Harvard Business Review, 43, 115–22; and F. E. Fiedler, M. M. Chemers and L. Mahar. (1976). Improving Leadership Effectiveness: The Leader Match Concept (New York: Wiley). 46 R. Singh. (1983). Leadership Style and Reward Allocation: Does Least Preferred Coworker Scale Measure Tasks and Relation Orientation? Organizational Behavior and Human Performance, 27, 178–97; and D. Hosking. (1981). A Critical Evaluation of Fiedler’s Contingency Hypotheses. Progress in Applied Psychology, 1, 103–54. 47 S. Kerr and J. M. Jermier. (1978). Substitutes for Leadership: Their Meaning and Measurement. Organizational Behavior and Human Performance, 22, 375–403; and Jon P. Howell and Peter W. Dorfman. (1986). Leadership and Substitutes for Leadership among Professional and Nonprofessional Workers. Journal of Applied Behavioral Science, 22, 29–46. 48 Katherine J. Klein and Robert J. House. (1995). On Fire: Charismatic Leadership and Levels of Analysis. Leadership Quarterly, 6:2, 183–98. 49 Jay A. Conger and Rabindra N. Kanungo. (1987). Toward a Behavioral Theory of Charismatic Leadership in Organizational Settings. Academy of Management Review, 12, 637–47; Jaepil Choi. (2006). A Motivational Theory of Charismatic Leadership: Envisioning, Empathy, and Empowerment. Journal of Leadership and Organizational Studies, 13:1, 24ff; and William L. Gardner and Bruce J. Avolio. (1998). The Charismatic Relationship: A Dramaturgical Perspective. Academy of Management Review, 23:1, 32–58. 50 Robert J. House and Jane M. Howell. (1992). Personality and Charismatic Leadership. Leadership Quarterly, 3:2, 81–108; and Jennifer O’Connor et al. (1995). Charismatic Leaders and Destructiveness: A Historiometric Study. Leadership Quarterly, 6:4, 529–55. 51 Rob Nielsen, Jennifer A. Marrone and Holly S. Slay. (February 2010). A New Look at Humility: Exploring the Humility Concept and Its Role in Socialized Charismatic Leadership. Journal of Leadership and Organizational Studies, 17:1, 33–44. 52 Robert J. House. (1985). Research Contrasting the Behavior and Effects of Reputed Charismatic vs. Reputed Non-Charismatic Leaders. Paper presented as part of a symposium, ‘Charismatic Leadership: Theory and Evidence’, Academy of Management, San Diego. 53 Bernard M. Bass. (1995). Theory of Transformational Leadership Redux. Leadership Quarterly, 6:4, 463–78; Noel M. Tichy and Mary Anne Devanna. (1986). The Transformational Leader (New York: John Wiley & Sons); James C. Sarros, Brian K. Cooper and Joseph C. Santora. (November 2008).

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Building a Climate for Innovation Through Transformational Leadership and Organizational Culture. Journal of Leadership and Organizational Studies, 15:2, 145–58; and P. D. Harms and Marcus Crede. (February 2010). Emotional Intelligence and Transformational and Transactional Leadership: A Meta-Analysis. Journal of Leadership and Organizational Studies, 17:1, 5–17. 54 The terms transactional and transformational come from James M. Burns. (1978). Leadership (New York: Harper & Row); and Bernard M. Bass. (Winter 1985). Leadership: Good, Better, Best. Organizational Dynamics, 13, 26–40. 55 Daft and Lengel, Fusion Leadership. 56 Gang Wang et al. (2011). Transformational Leadership and Performance Across Criteria and Levels: A Meta-Analytic Review of 25 Years of Research. Group & Organization Management, 36:2, 223–70; Taly Dvir et al. (2002). Impact of Transformational Leadership on Follower Development and Performance: A Field Experiment. Academy of Management Journal, 45:4, 735–44. 57 Robert S. Rubin, David C. Munz and William H. Bommer. (2005). Leading from Within: The Effects of Emotion Recognition and Personality on Transformational Leadership Behavior. Academy of Management Journal, 48:5, 845–58; and Timothy A. Judge and Joyce E. Bono. (October 2000). Five-Factor Model of Personality and Transformational Leadership. Journal of Applied Psychology, 85:5, 751ff. 58 Rubin, Munz and Bommer. Leading from Within. 59 Augustine O. Agho. (November 2009). Perspectives of Senior-Level Executives on Effective Followership and Leadership. Journal of Leadership and Organizational Studies, 16:2, 159–66; and James M. Kouzes and Barry Z. Posner. (1990). The Leadership Challenge: How to Get Extraordinary Things Done in Organizations (San Francisco: Jossey-Bass). 60 Barbara Kellerman. (December 2007). What Every Leader Needs to Know About Followers. Harvard Business Review, 84–91. 61 Robert E. Kelley. (1992). The Power of Followership (New York: Doubleday). 62 Ibid., pp. 117–18. 63 Joann S. Lublin, ‘How to Prove You’re a Keeper to a New CEO,’ The Wall Street Journal, 8 March 2013, B8. 64 Henry Mintzberg. (1983). Power In and Around Organizations (Englewood Cliffs, NJ: Prentice Hall); and Jeffrey Pfeffer. (1981). Power in Organizations (Marshfield, MA: Pitman). 65 John R. P. French, Jr. and Bertram Raven. The Bases of Social Power. In D. Cartwright and A. F. Zander, eds. (1960). Group Dynamics (Evanston, IL: Row Peterson), pp. 607–23. 66 Reported in Vadim Liberman, ‘Mario Moussa Wants You to Win Your Next Argument’ (Questioning Authority column), Conference Board Review (November–December 2007): 25–26. 67 Jay A. Conger, ‘The Necessary Art of Persuasion,’ Harvard Business Review (May–June 1998): 84–95. 68 Melissa Korn, ‘What It’s Like Being a Middle Manager Today,’ The Wall Street Journal, 6 August 2013, B1. 69 Roger Yu. (22 November 2010). Co-Workers Praise Wyndham CEO’s Welcoming Demeanor. USA Today, http://www.usatoday.com/money/companies/management/profile/2010-11-22wyndhamceo22_ST_N.htm (accessed 14 September 2012). 70 Nancy F. Koehn, ‘Lincoln’s School of Management,’ The New York Times, 26 January 2013; Hitendra Wadhwa, ‘Lessons in Leadership: How Lincoln Became America’s Greatest President,’ Inc.com, 12 February 2012, http://www.inc.com/hitendra-wadhwa/lessons-inleadership-how-abraham-lincoln-became-americas-greatest-president.html (accessed 4 March 2013); and Gil Troy and Karl Moore, ‘Leading from the Centre: What CEOs Can Learn from U.S. Presidents,’ Ivey Business Journal, September–October, 2010, http://www. iveybusinessjournal.com/topics/leadership/leading-from-the-centre-what-ceos-can-learnfrom-u-s-presidents (accessed 21 May 2013). 71 Jeremy W. Peters. (17 February 2011). Time Inc. Chief Executive Jack Griffin Out. The New York Times, http://mediadecoder.blogs.nytimes.com/2011/02/17/time-inc-chief-executive-jackgriffin-out/ (accessed 18 February 2011). 72 D. Kipnis et al. (Winter 1984). Patterns of Managerial Influence: Shotgun Managers, Tacticians, and Politicians. Organizational Dynamics, 58–67. 73 These tactics are based on Kipnis et al. Patterns of Managerial Influence; and Robert B. Cialdini. (October 2001). Harnessing the Science of Persuasion. Harvard Business Review, 72–9. 74 Kipnis et al. Patterns of Managerial Influence; and Jeffrey Pfeffer. (1992). Managing with Power: Politics and Influence in Organizations (Boston: Harvard Business School Press), Chapter 13. 75 Ibid. 76 V. Dallas Merrell. (1979). Huddling: The Informal Way to Management Success (New York: AMACOM). 77 Robert B. Cialdini. (2000). Influence: Science and Practice, 4th edn (Boston: Pearson Allyn & Bacon). 78 Harvey G. Enns and Dean B. McFarlin. (Summer 2003). When Executives Influence Peers, Does Function Matter? Human Resource Management, 4:2, 125–42.

CHAPTER 11 MOTIVATING EMPLOYEES

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define motivation and explain the difference between intrinsic and extrinsic rewards

2 identify and describe content theories of motivation based on employee needs

3 identify and explain process theories of motivation

4 describe the reinforcement perspective and social learning theory and how they can be used to motivate employees

5 discuss major approaches to job design and how job design influences motivation. Explain how empowerment heightens employee motivation

6 identify three elements of employee engagement and describe some ways that managers can create a work environment that promotes engagement.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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SANDSTROM PRODUCTS: MOTIVATING EMPLOYEES After 13 years at Sandstrom Products, a manufacturer of paints and coatings, Leo Henkelman was thinking about quitting. He’d started as a paint runner, the lowest job in the plant, and worked his way up to a mill operator position. Henkelman spent his days mixing paints in a giant blender, following formulas supplied by the lab. As he gained knowledge and experience, he came up with a lot of good ideas for improving formulas, yet the people in the lab continually ignored his suggestions. ‘It was like they hired me from the neck down,’ he said. ‘Warm body, strong back, weak mind.’ Increasing pressure from quality-conscious

customers multiplied the frustration he shared with most of the operators, who felt powerless to change anything. Some workers, including Henkelman, just stopped caring. Finding no challenge at work, he would show up with a hangover and just put in time until he could clock out and hit the bottle again. Top management knew the company had problems – for one thing, Sandstrom was haemorrhaging cash, losing money for the third year out of the last five. Things had to change or Sandstrom would go broke. Source: Whitford, D. (June 1995). Before & After. Inc., 44–50.

QU E S T I O N If you were the CEO of Sandstrom Products, how would you motivate employees like Leo Henkelman to give their all to the company? Is high motivation even possible in this kind of routine manufacturing operation?

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NEW MANAGER SELF-ASSESSMENT ARE YOU ENGAGED OR DISENGAGED? The term employee engagement is becoming popular in the corporate world. To learn what engagement means, answer the following questions twice: (1) once for a course you both enjoyed and performed well in; and (2) a second time for a course you did not enjoy and performed poorly in. Please mark a ‘1’ to indicate whether each item is Mostly true or Mostly false for the course you enjoyed and performed well. Please mark a ‘2’ to indicate whether each item is Mostly true or Mostly false for the course you did not enjoy and performed poorly in. MOSTLY TRUE

MOSTLY FALSE

1 I made sure to study on a regular basis. 2 I put forth effort. 3 I found ways to make the course material relevant to my life. 4 I found ways to make the course interesting to me. 5 I raised my hand in class. 6 I had fun in class. 7 I participated actively in small group discussions. 8 I helped fellow students. Scoring and Interpretation: Engagement means that people involve and express themselves in their work, going beyond the minimum effort required. Engagement typically has a positive relationship with both personal satisfaction and performance. If this relationship was true for your classes, the number of ‘1s’ in the Mostly true column will be higher than the number of ‘2s’. You might expect a score of 6 or higher for a course in which you were engaged, and possibly 3 or lower if you were disengaged. The challenge for a new manager is to learn to engage subordinates in the same way your instructors in your favourite classes were able to engage you. Teaching is similar to managing. What techniques did your instructors use to engage students? Which techniques can you use to engage your people when you become a new manager? Source: Questions based on Handelsman, M., Briggs, W. L., Sullivan, N. and Towler, A. (January/February 2005), ‘A Measure of College Student Course Engagement’, Journal of Educational Research, 98, 184–91.

When people get a job at Mars, Incorporated, one of the largest and most successful private companies in the world, they rarely leave. Mars has been on Fortune’s ‘The 100 Best Companies to Work For’ list since 2013. It was ranked 95th in 2013, 76th in 2014, 85th in 2015, and 99th in 2016. Further, the company also featured on ‘Best Workplaces to Retire From’ (ranked 24), ‘Best Workplaces in Manufacturing & Production’ (ranked 14), ‘Best Workplaces for Millennials’ (ranked 63), and ‘World’s Best Multinational Workplaces’ (ranked 12) lists in 2016.1 Mars, maker of confectionery such as M&Ms and Snickers and pet food such as Pedigree and Whiskas, is a private, family-owned business with more than US$35 billion in sales. At Mars, 89 per cent of employees say their workplace is great – ranking very high on challenges, atmosphere, rewards, pride, communication, and bosses. Perks and programs include:

◗◗ the Mars Volunteer Program (MVP), a worldwide initiative that allows Mars’s employees (who the company refers to as ‘associates’) to make a difference in the communities where the company operates and sources their products

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◗◗ the Mars Ambassador Program (MAP), which helps qualified employees develop their skills while building partnerships around the world

◗◗ the Make The Difference Program and Awards, which celebrates the impact the work of an individual or team can make on an entire organisation, and Mars communities by bringing The Five Principles of Mars to life

◗◗ open offices which creates an environment that encourages networking, openness, and communication that spans physical and organisational barriers

◗◗ the Pets @ Work initiative, which allows employees to bring their pets to work ◗◗ health and wellness programs, which aim to find the right work–life balance as well as fostering a

Mars office

Source: Alamy Stock Photo/Frank Paul

healthy and safe environment, including stress management, weight management and other wellness programs.

Managers in other companies are discovering that creating an environment where people feel valued and that they are making an important contribution is one key to high employee motivation, which is an essential ingredient for organisational success. Most people begin a new job with energy and enthusiasm, but employees can lose their drive if managers fail in their role as motivators. Yet motivation is a challenge for many managers because motivation arises from within employees and may differ for each person. Some people are motivated primarily by money, others are motivated to perform well

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because managers make them feel appreciated for doing a good job, and still others find their primary motivation in the challenge of solving complex problems or making a contribution to society. With such diverse motivations among individuals, how do managers find the right way to motivate people towards common organisational goals? This chapter reviews several approaches to employee motivation. First, we define motivation and the types of rewards that managers use. Then, we examine several models that describe the employee needs and processes associated with motivation. We also look at the use of reinforcement for motivation, explain social learning theory and examine how job design – changing the structure of the work itself – can affect employee satisfaction and productivity. We discuss how managers build a thriving workplace by giving people a sense of making progress towards meaningful goals and helping people feel engaged and empowered at work.

CASE STUDY MANAGING MOTIVATION AT DEGUSSA PEROXIDE LTD Degussa Peroxide Ltd (DPL) has a distinctive challenge in keeping its workforce motivated. It needs to think more about creating new demands for its staff rather than motivating them to accept change. As a highly capitalintensive petrochemical operation, it can afford to pay high wages, especially in comparison with most other employment opportunities around its location in rural Waikato, on New Zealand’s North Island. Good pay and careful selection processes have allowed the recruitment of employees who are open to learning new skills. Manufacturing peroxide is an automated, 24-hour-a-day operation. At the centre of operations is the need to monitor a process that typically needs only occasional adjustments for optimal performance. Watching computer screens has limited scope for generating job satisfaction. Mixing that job with ancillary production tasks such as machine maintenance or logistics work is not an option as such work is outsourced to specialists. DPL addresses motivation by radically expanding the range of responsibility given its shift workers and allowing them scope to design their own jobs. At any point in time, the workforce divides into four groups:

✚✚ Shift workers whose main task is to oversee production seven days a week on a roster of day and night shifts.

✚✚ Shift workers acting as support staff who work day shifts only but who are on-call to cover for night shift staff unavailable because of illness or other events.

✚✚ Shift workers performing service tasks usually filled by middle managers or specialists such as engineering

services, HR, safety management, customer support and logistics management.

✚✚ A small office staff comprising the managing director, site manager (a chemical engineer), a marketing manager (located in Australia), a financial administrator and a parttime receptionist. All except the office staff move between groups. This typically gives each shift worker four months each year in a service role and the chance to fill new roles on each rotation. With most existing staff having been employed for at least 10 years, understanding of all the activities needed to keep the plant running is now well dispersed among the workforce. For example, around a third of staff have overseen the safety management system, helping to build the safety culture as well as diversifying work challenges. This structure has evolved since the plant opened in 1991. In 1998, the plant was acquired by German company Degussa AG from the American firm DuPont. This allowed DPL to take over the office functions previously provided by DuPont’s New Zealand head office. More recently, the number of shift workers overseeing the production process was reduced to two: the original shift group had numbered five. This change released more staff time for service roles and special project work, with the additional benefit of greatly reducing the amount of night and weekend work. Within Degussa, DPL has both achieved new efficiency benchmarks for operating a peroxide plant and demonstrated how the willingness to depart from

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traditional workplace structures can sustain staff motivation. Tom Barratt, the managing director who has overseen DPL since its opening, believes the work structure suits the New Zealand culture of comparatively self-sufficient individuals

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with a low concern for status differences. Even so, it also takes a philosophical commitment to recognising the potential within people to achieve the workforce adaptability found at DPL. Source: Contributed by Martin Perry, Massey University

11.1

INDIVIDUAL NEEDS AND MOTIVATION

Most of us get up in the morning, go to school or work, and behave in ways that are predictably our own. All these behaviours are motivated by something, but most of us don’t think of why we do the things we do. Motivation refers to the forces either within or external to a person that arouse enthusiasm and persistence to pursue a certain course of action. Employee motivation affects productivity, and part of a manager’s job is to channel motivation towards the accomplishment of organisational goals.2 Studies have found that high employee motivation goes hand in hand with high organisational performance and profits.3 It is the responsibility of managers to find the right combination of motivational techniques and rewards to satisfy employees’ needs and simultaneously encourage great work performance. A simple model of human motivation is illustrated in EXHIBIT 11.1. People have needs – such as for recognition, achievement or monetary gain – that translate into an internal tension that motivates specific behaviours with which to fulfil various needs. To the extent that the behaviour is successful, the person is rewarded because the need is satisfied. The reward also informs the person that the behaviour was appropriate and can be used again in the future.

motivation The forces either within or external to a person that arouse enthusiasm and persistence to pursue a certain course of action.

I N T R I N S I C A N D E X T R I N S I C R E WA R D S TAKE A MOMENT As a new manager, remember that people will be more engaged when they do things they really like. If you haven’t already taken the self-assessment at the beginning of this chapter, take it now to understand what engages you in a class. You will read more about engagement later in the chapter.

NEED Creates desire to fulfil needs (money,

BEHAVIOUR Results in

friendship, recognition, achievement)

actions to fulfil needs

REWARDS Satisfy needs;

EXHIBIT 11.1 A simple model of motivation

intrinsic or extrinsic rewards

FEEDBACK Reward informs person whether behaviour was appropriate and should be used again

Managers who understand the motives that compel people to initiate, alter or continue a desired behaviour are more successful as motivators. EXHIBIT 11.2 illustrates four categories of motives based on two criteria. The vertical dimension contrasts intrinsic versus extrinsic rewards. Intrinsic rewards are the satisfactions a person receives in the process of performing a particular action. The completion of a

intrinsic reward The satisfaction received in the process of performing an action.

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EXHIBIT 11.2 Four categories of motives managers can use

Extrinsic

extrinsic reward A reward given by another person.

complex task may bestow a pleasant feeling of accomplishment, or solving a problem that benefits others may fulfil a personal mission. For example, employees at Salesforce.com, which provides cloud computing services to organisations such as CGU Insurance, Westfield and Commonwealth Bank in Australia, and overseas for Cisco, Google, Japan Airlines and Burberry, are motivated by being on the ‘cutting edge’ of reinventing how companies handle ordinary but critical tasks like sales, customer relations and internal communications.4 Extrinsic rewards, on the other hand, are given by another person, typically a manager, and include promotions, praise and pay increases. They originate externally, as a result of pleasing others. At the Alta Gracia factory in the Dominican Republic, owned by Knights Apparel, employees are motivated by the extrinsic reward of high pay because they need money to support their families and can’t make nearly as much anywhere else.5

Intrinsic

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1. Negative approach

3. Positive approach

Threats and punishments 

Rewards such as pay raises, bonuses, praise 

2. Negative approach

4. Positive approach

Tap into self-doubts 

Help people enjoy their work, get sense of accomplishment 

Pain/Fear 

Pleasure/Growth 

Source: Based on Bruce H. Jackson. (April 2010). Influence Behavior; Become a Master Motivator. Leadership Excellence, 14.

Effective managers want people to receive both extrinsic and intrinsic rewards to meet their needs. Google, for example, which is built on the philosophy of creating the ‘happiest, most productive workplace in the world’, provides some of the most amazing extrinsic rewards in corporate America – free breakfast, lunch and dinner; subsidised massages; free yoga and Pilates classes; fitness centres; free snacks, beverages and lollies all day. The headquarters includes play areas, cafes, coffee bars and cosy conversation areas, as well as conference rooms and offices, many with desks that engineers were allowed to design for themselves. Yet the strongest employee motivation seems to come from the sense of community and support that these lavish perks create rather than from the perks themselves. Google analyses data on everything to see how people are interacting because creativity requires ‘serendipitous interaction. For this to happen, you need to shape a community,’ says Ben Waber, the author of People Analytics. ‘It’s the antithesis of the old factory model, where people were just cogs in a machine.’6 The perks help keep people happy, but the sense of meaning and engagement that people get from their work keeps them motivated day in and day out. The horizontal dimension of EXHIBIT 11.2 contrasts behaviours that are driven by fear or pain versus those driven by growth or pleasure. The four quadrants represent four differing approaches for motivating people. Quadrants 1 and 2 are both negative approaches to motivating. Quadrant 1 uses negative, extrinsic methods, such as threats or punishments, to get people to perform as desired. Quadrant 2 methods attempt

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to motivate people by tapping into their self-doubts or anxieties. For example, a manager might motivate people to work hard by emphasising the weak economy and high unemployment rate. Quadrant 1 and 2 methods can indeed be effective, as fear is a powerful motivator.7 However, using fear to motivate people in organisations almost always has negative consequences for employee development and longterm performance. The Management in practice below takes a light-hearted approach by looking at some negative techniques that kill employee motivation and happiness. Quadrants 3 and 4 are positive motivational approaches. Quadrant 3 methods attempt to influence behaviour by using extrinsic rewards that create pleasure. At Hilcorp Energy in the United States, for example, managers offered employees the chance to earn a bonus of $50 000 each if they helped the organisation to meet its growth goal.8 This positive motivational approach is useful, but limited. External rewards are important, but they can lose their power as motivational tools over time. The most effective managers also emphasise Quadrant 4 techniques that tap into deep-seated employee energy and commitment by helping people get intrinsic rewards from their work. For example, Chip Conley, founder and former CEO of Joie de Vivre, encouraged managers of hotel housekeeping staff to ‘focus on the impact they’re making rather than just the task of cleaning the toilet’.9

MANAGEMENT IN PRACTICE HOW TO UTTERLY DESTROY MOTIVATION Many managers unknowingly demolish positive emotions in the workplace. Destroying people’s positive feelings about themselves and their work is a sure way to kill motivation. Managers use a variety of techniques that make people miserable at work; if you’ve ever had a manager who used any of them, you’ll know how it feels. Keep that in mind when you become a practising manager.

✚✚ Never allow people to feel a sense of pride or accomplishment. In a recent study, one of the top demotivators reported by employees was constant setbacks. Setbacks are instances where people are blocked or stalled in doing their most important work or unable to make a meaningful contribution. One head of product development moved people on and off projects so often that they never experienced a sense of accomplishment. The resulting motivation level? Zero.

✚✚ Set such grandiose and vague goals that people don’t know what they mean or have any idea how to achieve them. There is nothing wrong with challenging goals. In fact, they can be highly motivating. But some managers set

goals that have little relevance to employees, that are so extreme as to seem unattainable or so vague that they have no meaning.

✚✚ Pass up every opportunity to say ‘thank you’. No one likes to feel appreciated, after all, right? Smart managers know that’s not true! Sincerely thanking people for their efforts can provide a tremendous motivational boost, especially when times have been tough. In response to a McKinsey survey, 67 per cent of people cited praise from an immediate supervisor as an effective motivator. It ranked higher than any other incentive on the list, including pay raises and cash bonuses.

✚✚ Make sure people don’t have any fun. When people have fun at work, they want to be there. Managers influence whether people develop positive relationships and are able to have moments of levity and joy during their workday. Without some light moments, work is a hard slog every day. No wonder many people just want to stay home.

SOURCES: Based on Teresa Amabile and Steven Kramer. (6 March 2012). How to Completely, Utterly Destroy an Employee’s Work Life. The Washington Post, http://www. washingtonpost.com/national/on-leadership/how-to-completely-utterly-destroy-an-employees-work-life/2012/03/05/gIQAxU3iuR_story.html (accessed 8 March 2012); T. Amabile and S. Kramer. (January 2012). How Leaders Kill Meaning at Work. McKinsey Quarterly, http://www.mckinseyquarterly.com/How_leaders_kill_meaning_at_work_2910 (accessed 10 February 2012); Martin Dewhurst, Matthew Guthridge and Elizabeth Mohr. (2010). Motivating People: Getting Beyond Money. McKinsey Quarterly, 1, 12–15; and Regina M. Clark. (2009). Are We Having Fun Yet? Creating a Motivating Work Environment. Industrial and Commercial Training, 41:1, 43–6.

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M A NAG E R S A S M O T I VAT O R S Studies have found that high employee motivation goes hand in hand with high organisational performance and profits.10 It is the responsibility of managers to find the right combination of motivational techniques and rewards to satisfy employees’ needs and simultaneously encourage high work performance. Some ideas about motivation, referred to as content theories, stress the analysis of underlying human needs and how managers can satisfy needs in the workplace. Process theories concern the thought processes that influence behaviour. They focus on how people seek rewards in work circumstances. Reinforcement and social learning theories focus on employee learning of desired work behaviours. In EXHIBIT 11.1 earlier, content theories focus on the concepts in the first box, process theories on those in the second, and reinforcement and social learning theories on those in the third.

M O T I VAT I NG I N A BO S S L E S S E N V I RO N M E N T As companies flatten their hierarchies and eliminate managers, motivated employees become especially important. In a truly bossless organisation, no one is taking attendance or monitoring work. People and teams act on their own. An organisation that wants to go bossless should consider the following motivation methods:

◗◗ Don’t hide information. At Menlo Innovations, information concerning motivational factors is so open that a new employee is likely to feel exposed. A chart displays the names, titles and pay grades of all employees. In response to a question about what it felt like to have his salary visible to colleagues, an employee responded, ‘It’s liberating’.

◗◗ Rely on intrinsic rewards. People at the web design firm DreamHost understand that the way employees are motivated is changing. ‘Twenty years ago, it was about higher pay. Now it’s more about finding your work meaningful and interesting,’ said CEO Simon Anderson. Chris Rufer, founder of tomato-processor Morning Star, describes his company as deeply humane, something that buoys the spirits of workers because relationships among members are deep and substantive.

◗◗ Let people own the goal. At Morning Star, goals, not supervisors, are used for motivation. A tomato sorter pledges to sort a predetermined amount of tomatoes a day, for example. A person responsible for helping evaporate the water out of tomato pulp signs an agreement to evaporate a specific number of gallons of water every week. With a clear goal, people are left alone to do their work.

◗◗ Reward the team. In a bossless environment, achievement is usually tied to the team, so individual work means nothing until it fits into a larger project that requires the assistance of peers. Individual rewards are replaced by shared achievement. Friendliness and helpfulness matter more than personal ladder-climbing and reward seeking.

◗◗ At Menlo Innovations and other bossless companies, peer teams make hiring decisions as well as deciding promotions, retrenchments and firings.

◗◗ Hire attitude over aptitude. Hiring workers who are self-starters and team players can be vital to making a boss-free system work. Technical wizards who are jerks, for example, will poison the company culture.

◗◗ Cissy Pau of Clear HR Consulting says employees ‘need to know what to do, how to do it, when to do it’. ◗◗ Reinvent management. Thomas Davenport, co-author of Manager Redefined, says that managers have to learn to motivate in a different way. ‘Nobody comes to work in the twenty-first century world and

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says, “Please manage me”. They say, “Create an environment where I can be successful”.’ Managers must learn to see themselves as working among equals rather than being above others. Their new job is to support the people around them, remove obstacles, and encourage better work, which is similar to ‘servant leadership’, as described in Chapter 10.11

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See Chapter 10 for a discussion of servant leadership.

R EMEMBE R THIS ◗◗ ◗◗

Motivation is the arousal of enthusiasm and persistence to pursue a certain course of action.

◗◗ ◗◗

Intrinsic rewards are the satisfactions that a person receives in the process of performing a particular action.

◗◗

People can be driven to act by fear, but good managers avoid the use of fear tactics to motivate people because this approach damages employee commitment and performance in the long run.

◗◗

In addition to providing appropriate extrinsic rewards, effective managers try to help people achieve intrinsic rewards from their work.

All behaviours are motivated by something, such as the desire to fulfil needs for money, recognition, friendship or a sense of accomplishment.

Extrinsic rewards are given by another person, such as a manager, and include pay increases, promotions and praise.

11.2

CONTENT PERSPECTIVES ON MOTIVATION

Content theories emphasise the needs that motivate people. At any point in time, people have a variety of needs. These needs translate into an internal drive that motivates specific behaviours in an attempt to fulfil the needs. In other words, our needs are like a hidden catalogue of the things that we want and will work to get. To the extent that managers understand employees’ needs, they can design reward systems to meet them and direct employees’ energies and priorities towards attaining organisational goals.

content theories A group of theories that emphasise the needs that motivate people.

TH E H I E R A RCH Y OF NE E DS Probably the most famous content theory was developed by Abraham Maslow.12 Maslow’s hierarchy of needs theory proposes that people are motivated by multiple needs, and that these needs exist in a hierarchical order, as illustrated in EXHIBIT 11.3. Maslow identified five general types of motivating needs in ascending order, listed here in order of importance:

1 Physiological needs. These most basic human physical needs include food, water and oxygen. In the organisational setting, they are reflected in the needs for adequate heat, air and base salary to ensure survival.

2 Safety needs. These needs include a safe and secure physical and emotional environment and freedom from threats – that is, for freedom from violence and for an orderly society. In the workplace, safety needs reflect the needs for safe jobs, fringe benefits and job security. Because of the unstable economy and high unemployment in recent years, especially in some European countries such as Greece and Spain, and also in the United States, safety needs have taken priority for many people. A Canadian job satisfaction survey indicated that job security was the most important element of job satisfaction, with good benefits being second most important.13

hierarchy of needs theory A content theory that proposes that people are motivated by five categories of needs – physiological, safety, belongingness, esteem and self-actualisation – that exist in a hierarchical order.

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3 Belongingness needs. These needs reflect the desire to be accepted by one’s peers, have friendships, be part of a group and be loved. In the organisation, these needs influence the desire for good relationships with co-workers, participation in a work group and a positive relationship with supervisors. PortionPac Chemical, a maker of cleaning fluids, has exceptionally low turnover because people feel a sense of belonging. Most of the employees have worked together for more than a decade, and people treat one another like family, which contributes to a high level of motivation.14

4 Esteem needs. These needs relate to the desire for a positive self-image and to receive attention, recognition and appreciation from others. Within organisations, esteem needs reflect a motivation for recognition, an increase in responsibility, high status and credit for contributions to the organisation. One example comes from Intuit, where Jennifer Lepird spent weeks working long, gruelling hours on a big acquisition deal. After the deal closed, Lepird was delighted to get a thank-you note from her manager, along with a small gift certificate, because it met her need to feel appreciated. ‘The fact that somebody took the time to recognise the effort made the long hours just melt away,’ she says.15

5 Self-actualisation needs. These needs include the need for self-fulfilment, which is the highest need category. They concern developing one’s full potential, increasing one’s competence and becoming a better person. Self-actualisation needs can be met in the organisation by providing people with opportunities to grow, be creative and acquire training for challenging assignments and advancement.

EXHIBIT 11.3 Maslow’s hierarchy of needs

Fulfilment off the job Education, religion, hobbies, personal growth

Needs hierarchy Self-actualisation Needs

Approval of family, friends, community

Esteem Needs

Family, friends, community groups

Belongingness Needs

Freedom from war, pollution, violence

Food, water, oxygen

Safety Needs

Physiological Needs

Fulfilment on the job Opportunities for training, advancement, growth and creativity Recognition, high status, increased responsibilities Work groups, clients, co-workers, supervisors

Safe work, fringe benefits, job security

Heat, air, base salary

According to Maslow’s theory, low-order needs take priority – they must be satisfied before higherorder needs are activated. The needs are satisfied in sequence: physiological needs come before safety needs, safety needs before social needs and so on. A person desiring physical safety will devote his or her efforts to securing a safer environment and will not be concerned with esteem needs or self-actualisation needs. Once a need is satisfied, it declines in importance and the next higher need is activated. A study of employees in the manufacturing department of a major healthcare company in the United Kingdom provides some support for Maslow’s theory. Most line workers said they worked at the company primarily because of the good pay, benefits and job security. Thus, employees’ lower-level physiological and safety needs were being met. When questioned about their motivation, employees indicated the importance of positive social relationships with both peers and supervisors (belongingness needs) and a desire for greater respect and recognition from management (esteem needs).16

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CASE STUDY

Nintendo Co., Ltd (Nintendo) is a Japanese multinational consumer electronics and software company headquartered in Kyoto, Japan. Home to some of the most iconic video game franchises of all time, including Mario, Pokémon, Donkey Kong and The Legend of Zelda, Nintendo has sold over 696.39 million consoles and 4.339 billion video games worldwide. Nintendo’s most successful video game console was the Wii. Released in 2006, the console went on to sell over 101.18 million consoles and 965.72 million games globally. Nintendo’s least successful video game console (excluding the ill-fated Virtual Boy) was its next release: the Wii U. Released in 2012, the console went on to sell only 13.56 million consoles and 82.76 million games globally, up against Sony’s PlayStation 4 (PS4) and PlayStation 4 Pro (released in 2013 and 2016 respectively, with current global sales of 45.78 million consoles and 297.50 million games) and Microsoft’s Xbox One and Xbox One S (again released in 2013 and 2016 respectively, with current global sales of 23.83 million consoles and 151.64 million games). Nintendo retired the Wii U in March 2017 with the release of its hybrid video game console (both home and portable), the Nintendo Switch. The Wii U (code name ‘Project Café) was the first Nintendo console to support high-definition graphics and utilised the touchscreen GamePad as part of play. Despite the innovative hardware and critically acclaimed first party games like Super Mario 3D World, Super Smash Bros. for Wii U, Mario Kart 8, Super Mario Maker, and Splatoon, the Wii U was met with slow adaptation and resulted in a decline in market share and profits for Nintendo. So what went wrong? Some analysts compare the Wii U’s failure to that of Nintendo’s Virtual Boy, which released a total of 22 games and sold only a paltry 770 000 consoles worldwide. First, was the expensive technology and lack of third-party support. The Wii U’s touchscreen GamePad was said to be a little gimmicky and more ‘innovation for innovation’s sake’, according to Internet gaming personality Matthew Patrick. Nintendo has always been a company to take risks and invest in innovation. Some products, like the Nintendo DS and 3DS (selling 215.77 million consoles and 1.098 billion games worldwide) as well as the Wii, have been embraced by the general public, while others

Source: Getty Images/Bloomberg/Jin Lee

NINTENDO WII U: COPING WITH FIERCE COMPETITION IN THE WORLD’S VIDEO GAME MARKET

Wii video games

like the Nintendo 64 Disk Drive (64DD) add-on (with 10 games released and selling 15 000 units in Japan only before Nintendo quietly pulled the plug) did not. By designing innovative, and thus different, products, Nintendo makes it difficult for developers, especially non-Nintendo, thirdparty companies to produce and/or port games (originally developed for either Xbox, PlayStation or PC) for their video game consoles. The Wii U GamePad is essentially a second screen for developers to program for. Many games on the Wii U either underutilise or fail to utilise the touchscreen at all. The GamePad therefore becomes a cumbersome and expensive piece of technology, with most developers choosing to manufacture games for the Xbox One and PS4 – consoles that are easier (and less innovative) to develop for. Nintendo’s competitors have sold a combined 449.14 million games for their eighth-generation video game consoles, with the Wii U far behind on 82.76 million. Developers obviously want to make a profit on the millions of dollars that they have invested in designing, manufacturing and marketing a game that they have produced. It makes business sense to target video game consoles that are easy to develop for and guaranteed to sell games. Second, was the weak line-up of launch titles. There were simply not enough games at launch that showed off the Wii U’s capabilities, especially with the touchscreen GamePad. After the Wii U’s November 2012 launch and soft console sales, Shigeru Miyamoto, Nintendo’s Representative Director/ Creative Fellow and the creator of the Donkey Kong, Mario,

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The Legend of Zelda, Star Fox, F-Zero and Pikmin series, stated that Nintendo is ‘really focused on delivering content that takes advantage of that GamePad interaction and makes that second screen something that’s very meaningful and so that’s where we need to put our focus’. Nintendo of America president Reggie Fils-Aimé agreed, commenting that the Wii U simply did not have the games to support it at launch: ‘This industry is all about content … I can map out why the Wii took off at launch, it had two killer pieces at launch: Twilight Princess, Wii Sports… So what happened with Wii U? Once the software came that showcased the capabilities of the system, guess what happened? The hardware took off.’ The software that Fils-Aimé was referring to, and fully utilised the GamePad, was Mario Kart 8 (6.98 million), New Super Mario Bros. U (5.19 million), Super Smash Bros. for Wii U (4.83 million), Nintendo Land (4.42 million), Splatoon (4.39 million), Super Mario 3D World (4.27 million), Super Mario Maker (2.24 million). Third, was marketing reasons. The ‘Wii U’ name was simply confusing to gamers, with many thinking it was a tablet accessory for the Wii. The confusion further came from the fact that gamers could also use their Wii remotes and play their existing Wii games on the Wii U. Dan Adelman, former head of Nintendo of America’s indie program, commented that, ‘…the name Wii U is abysmal. I think that cut sales in half right there’. Additionally, former

President and CEO of Nintendo, Satoru Iwata, stated that, ‘Some have the misunderstanding that Wii U is just Wii with a pad for games, and others even consider Wii U GamePad as a peripheral device connectable to Wii … We feel deeply responsible for not having tried hard enough to have consumers understand the product.’ The console name is very important. Sony keeps it simple with its PlayStation reiterations: PlayStation, PlayStation 2, PlayStation 3, PlayStation 4. Nintendo has traditionally taken a more unique approach: Nintendo Entertainment System (NES)/ Family Computer (Famicom), Super Nintendo Entertainment System (SNES or Super NES)/Super Family Computer (Super Famicom), Game Boy, Nintendo 64, GameCube, Wii, Nintendo DS and 3DS. Simply put, the name (Wii U) did not resonate with gamers or the general public. Nintendo is hoping to turn around its fortunes with the launch of the Nintendo Switch console. The company learnt its lesson from the commercial failure of the Wii U: it has an impressive third-party list of developers involved (including EA, Activision, Sega, Konami, Capcom and Ubisoft); it has a number of ‘big name’ launch titles, including a new 3D Super Mario game; and it did an impressive job of informing gamers and the general public of what the console is called and what it is capable of, with the Nintendo Switch trailer generating more than 21 million views, 500 000 likes, and 120 000 comments.

Sources: Nintendo (2016). Corporate information: Company history, https://www.nintendo.co.jp/corporate/en/history/index.html (accessed 30 November 2016); VGChartz (2016). Platform totals: Hardware, http://www.vgchartz.com/analysis/platform_totals/ (accessed 30 November 2016); VGChartz (2016). Platform totals: Software, http://www.vgchartz.com/analysis/platform_totals/Software/Global/ (accessed 30 November 2016); Nintendo (2016). Nintendo Switch, https://www.nintendo.com.au/nintendo-switch/ (accessed 30 November 2016); Purchese, R. (7 June 2011). Project Cafe becomes Wii U, http://www. eurogamer.net/articles/2011-06-07-nintendo-unveils-project-cafe-at-e3 (accessed 1 December 2016); Nintendo (2016). Wii U Features, http://www.nintendo. com/wiiu/features (accessed 1 December 2016); Metacritic (2016). Best Wii U video games of all time, http://www.metacritic.com/browse/games/score/ metascore/all/wii-u (accessed 1 December 2016); Byford, S. (27 July 2016). Nintendo records $49 million operating loss as Wii U sales crumble. The Verge, http://www.theverge.com/2016/7/27/12294482/nintendo-earnings-q1-2016 (accessed 1 December 2016); Tassi, P. (6 June 2012). What Nintendo didn’t tell you about the Wii U, Forbes, http://www.forbes.com/sites/insertcoin/2012/06/06/what-nintendo-didnt-tell-you-about-the-wiiu/#54b3269671b5 (accessed 1 December 2016); (13 August 2010). Virtual Boy, Nintendo’s big 3-D flop, turns 15, Wired, https://www.wired.com/2010/08/virtual-boy/ (accessed 1 December 2016); Patrick, M. R. [The Game Theorists] (8 March 2014). Game Theory: Wii U is the new Virtual Boy, https://www.youtube.com/ watch?v=FS1p7W5dmBE (accessed 1 December 2016); Tassi, P. (24 March 2016). Nintendo may very well innovative itself to death with the NX, Forbes, http://www.forbes.com/sites/insertcoin/2016/03/24/nintendo-may-very-well-innovate-itself-to-death-with-the-nx/#61bb056025da (accessed 1 December 2016); Giant Bomb (2013). Nintendo 64DD, http://www.giantbomb.com/nintendo-64dd/3045-101/ (accessed 1 December 2016); Crecente, B. (2015). Nintendo explains why the Wii U didn’t take off at launch, http://www.polygon.com/2015/6/22/8823035/nintendo-explains-why-the-wii-u-didnt-take-off-at-launch (accessed 1 December 2016); VGChartz (2016). Wii U, http://www.vgchartz.com/platform/47/wii-u/ (accessed 1 December 2016); Kuchera, B. (5 August 2014). The Wii U name is still hurting Nintendo, http://www.polygon.com/2014/8/5/5970787/wii-u-nintendo-bad-name (accessed 1 December 2016); Whitehead, T. (11 November 2016). Editorial: The Wii U has been Nintendo’s lowest selling home console; it deserved better, http://www.nintendolife.com/news/2016/11/ editorial_the_wii_u_has_been_nintendos_lowest_selling_home_console_it_deserved_better (accessed 1 December 2016); Whitehead, T. (21 November 2016). Rumour: Nintendo Switch release date and key games outlined, http://www.nintendolife.com/news/2016/11/rumour_nintendo_switch_release_ date_and_key_games_outlined (accessed 1 December 2016); Nintendo (20 October 2016). First look at Nintendo Switch, https://www.youtube.com/ watch?v=f5uik5fgIaI (accessed 1 December 2016).

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E RG T H E O R Y Clayton Alderfer proposed a modification of Maslow’s theory in an effort to simplify it and respond to criticisms of its lack of empirical verification.17 His ERG theory identified three categories of needs:

1 Existence needs. The needs for physical wellbeing. 2 Relatedness needs. The needs for satisfactory relationships with others. 3 Growth needs. The needs that focus on the development of human potential and the desire for

ERG theory A modification of the needs hierarchy theory that proposes three categories of needs: existence, relatedness and growth.

personal growth and increased competence. The ERG model and Maslow’s needs hierarchy are similar because both are hierarchical in form and presume that individuals move up the hierarchy one step at a time. However, Alderfer reduced the number of need categories to three, and proposed that movement up the hierarchy is more complex, reflecting a frustration-regression principle The idea that failure to meet a high-order need may cause a regression to an already satisfied lowerorder need.

to an already fulfilled lower-order need. Thus, a worker who cannot fulfil a need for personal growth may revert to a lower-order need and redirect his or her efforts towards making a lot of money. The ERG model, therefore, is less rigid than Maslow’s needs hierarchy, suggesting that individuals may move down as well as up the hierarchy, depending on their ability to satisfy needs. Needs hierarchy theories explain why organisations find ways to recognise employees, encourage their participation in decision making, and give them opportunities to make significant contributions to the organisation and society. Many companies are finding that creating a humane work environment that allows people to achieve a balance between work and personal life is also a great high-level motivator. Some companies go even further with job flexibility. At Coulter & Associates, an insurance and investment advisory firm, employees can come and go as they please, without telling anyone where they are going or why, so long as they get their jobs done. Shannon Mehls, who works as an assistant to one of Coulter’s senior investment advisers, says employees now feel like ‘mini entrepreneurs’, managing their own schedules and focusing on results instead of just putting in 40 hours and getting a pay Members of Gen Y and Gen Z, who, according to their managers, report for cheque.18 Although not all managers would be comfortable work with self-esteem to spare, often proceed directly from existence needs to working in an environment where employees come and growth needs. Once satisfied they’re receiving fair pay, what younger employees want most is training. In fact, recent studies found that respondents chose go as they please, there is some evidence that people training from a list of benefits three times more often than a cash bonus. There’s a practical reason for this interest in personal growth. Younger employees know who have greater control over their work schedules are they need to acquire skills that will make them attractive job candidates. Unlike significantly less likely to suffer job burnout and are more many of their elders, they don’t expect to work for a single employer throughout their careers. highly committed to their employers.19

Source: Getty Images/VCG/Corbis/Monalyn Gracia

frustration-regression principle; namely, that failure to meet a high-order need may trigger a regression

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INNOVATIVE WAY FLEXIBLE WORK POLICIES Flexible work arrangements are becoming increasingly common in Australia as companies realise the benefits of giving their employees more flexibility. For example, in 2015, Woolworths Limited launched a new workplace flexibility program that covers more than 550 of its employees. The pilot program, named WoWFlex, ‘focuses on encouraging flexible work and is supported by a new flexibility policy and an activity-based working model’. At National Australia Bank’s (NAB) Melbourne headquarters, more than 95 per cent of its 6000 employees work under flexible arrangements. The office, at 700 Bourke Street, has been rated best workplace in Australia, and is known ‘for its avant garde fitouts, including informal meeting spaces, collaborative tables, quiet rooms and team huddle spaces, and has fully ‘agile’ flexible workspaces which enable employees to sit at and use different spaces’. Unfortunately, many organisations are not allowing their employees to utilitse flexible working. According to Lindsay Brown, Citrix Regional Director of Mobility Apps for

APAC, ‘The harsh reality is the majority of organisations do not trust their employees to be as productive at home as they do in the office, even though the economic and social benefits offer a compelling argument that we can no longer ignore’. This lack of trust, and the denial of these flexibleworking conditions, stems from failure by management to understand the benefits of flexible work policies. This failure may result in employee disengagement leading to employees looking elsewhere for work. Although technologies exist to assist employees working at home, many workers do not have access to them, despite their workplace having flexible work arrangements. A survey conducted by Galaxy found that only 45 per cent of all workers have access to a work-issued tablet or laptop, just 35 per cent have a work smartphone, 45 per cent do not have the ability to access their work emails from home, 66 per cent cannot access work files remotely and 64 per cent do not have telephone conference facilities.

Sources: Woolworths Limited (2015). Corporate responsibility report 2015, http://woolworthslimited2015.csr-report.com.au/files/people.pdf (accessed 25 November 2016); News.com.au (29 November 2015). Australian bosses are keeping workers at the desk while embracing flexible work for themselves, http://www.news.com.au/finance/work/at-work/australian-bosses-are-keeping-workers-at-the-desk-while-embracing-flexible-work-for-themselves/newsstory/c3e6f6196f2cb0b3ccfc127c8e82ca42 (accessed 25 November 2016); Swan, D. (27 October 2015). Australia is failing to embrace flexible working. The Australian, http://www.theaustralian.com.au/business/technology/australia-is-failing-to-embrace-flexible-working/news-story/6e4357bc33910ba174d399f455 4259ae (accessed 25 November 2016).

In the GFC-induced economic downturn, some companies found flexible options a great way to cut payroll costs while retaining and motivating valued employees. NAB, one of the four largest financial institutions in Australia, has a Workspace@NAB flexible working program and supports its employees in a flexible working environment. At NAB, flexible working may be one or a combination of: (1) working your normal hours at a location other than your primary workplace; (2) flexibility to your roster, supporting flexible start and finishing times; (3) moving from full to part-time to work the same number of hours over fewer days; (4) compressing your working week to work the same number of hours over fewer days; (5) purchasing additional time away from work through lifestyle leave. Since implementing these flexible workspaces, NAB has experienced a 17 per cent increase in staff satisfaction with their workplace and an 11 per cent boost in productivity.20

A T WO - FAC T O R A P P ROA C H T O M O T I VAT I O N Frederick Herzberg developed another popular theory of motivation called the two-factor theory.21 Herzberg interviewed hundreds of workers about times when they were highly motivated to work and other times when they were dissatisfied and unmotivated. His findings suggested that the work

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characteristics associated with dissatisfaction were quite different from those pertaining to satisfaction, which prompted the notion that two factors influence work motivation. The two-factor theory is illustrated in EXHIBIT 11.4. The centre of the scale is neutral, meaning that workers are neither satisfied nor dissatisfied. Herzberg believed that two entirely separate dimensions contribute to an employee’s behaviour at work. The first, called hygiene factors, involves the presence or absence of job dissatisfiers, such as working conditions, pay, company policies and interpersonal relationships. When hygiene factors are poor, work is dissatisfying. However, good hygiene factors simply remove the dissatisfaction; they do not in themselves cause people to become highly satisfied and motivated in their work. Highly satisfied

Area of satisfaction Motivators

Motivators influence level of satisfaction

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hygiene factors Factors that involve the presence or absence of job dissatisfiers, including working conditions, pay, company policies and interpersonal relationships.

EXHIBIT 11.4 Herzberg’s two-factor theory

Achievement Recognition Responsibility Work itself Personal growth

Neither satisfied or dissatisfied

Area of dissatisfaction

Hygiene factors

Hygiene factors influence level of dissatisfaction

Working conditions Pay and security Company policies Supervisors Interpersonal relationships Highly dissatisfied

The second set of factors does influence job satisfaction. Motivators focus on high-level needs and include achievement, recognition, responsibility and opportunity for growth. Herzberg believed that when motivators are absent, workers are neutral towards work, but when motivators are present, workers are highly motivated and satisfied. Thus, hygiene factors and motivators represent two distinct factors that influence motivation. Hygiene factors work only in the area of dissatisfaction. Unsafe working conditions or a noisy work environment will cause people to be dissatisfied, but their correction will not lead to a high level of motivation and satisfaction. Motivators such as challenge, responsibility and recognition must be in place before employees will be highly motivated to excel at their work. There is a growing realisation among managers of the importance of employee recognition, perhaps because tough economic conditions have made it more difficult for them to reward people with large pay increases. The most recent Globoforce MoodTracker Survey report indicates that 82 per cent of employees surveyed say that being recognised for their efforts increased their motivation. ‘It made me work harder,

motivators Factors that influence job satisfaction based on fulfilment of highlevel needs such as achievement, recognition, responsibility and opportunity for growth.

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want to come to work every day, and I was proud to work for my boss,’ said one respondent. A lack of recognition was the number-two reason cited for leaving a job among job seekers.22 The implication of the two-factor theory for managers is clear. On one hand, providing hygiene factors will eliminate employee dissatisfaction but will not motivate workers to high achievement levels. On the other hand, recognition, challenge and opportunities for personal growth are powerful motivators and will promote high satisfaction and performance. The manager’s role is to remove dissatisfiers – that is, to provide hygiene factors sufficient to meet basic needs – and then to use motivators to meet higher-level needs and propel employees towards greater achievement and satisfaction.

A CQU I R E D N E E D S The acquired needs theory, developed by David McClelland, proposes that certain types of needs are acquired during the individual’s lifetime. In other words, people are not born with these needs but may learn them through their life experiences.23 The three needs most frequently studied are:

◗◗ Need for achievement. The desire to accomplish something difficult, attain a high standard of success, master complex tasks and surpass others.

◗◗ Need for affiliation. The desire to form close personal relationships, avoid conflict and establish warm friendships.

◗◗ Need for power. The desire to influence or control others, be responsible for others and have authority over others. Early life experiences typically determine whether people acquire these needs. If children are encouraged to do things for themselves and receive reinforcement, they will acquire a need to achieve. If they are reinforced for forming warm human relationships, they will develop a need for affiliation. If they get satisfaction from controlling others, they will acquire a need for power. For more than 20 years, McClelland studied human needs and their implications for management. People with a high need for achievement are frequently entrepreneurs. People who have a high need for affiliation are successful integrators, whose job is to coordinate the work of several departments in an organisation. Integrators include brand managers and project managers who must have excellent people skills. A high need for power often is associated with successful attainment of top levels in the organisational hierarchy.24 For example, McClelland studied managers at AT&T for 16 years and found that those with a high need for power were more likely to follow a path of continued promotion over time. More than half of the employees at the top levels had a high need for power. In contrast, managers with a high need for achievement but a low need for power tended to peak earlier in their careers and at a lower level. The reason is that achievement needs can be met through the task itself, but power needs can be met only by ascending to a level at which a person has power over others. In summary, content theories focus on people’s underlying needs and label those particular needs that motivate behaviour. The hierarchy of needs theory, the ERG theory, the two-factor theory and the acquired needs theory all help managers to understand what motivates people. In this way, managers can design work to meet needs and hence elicit appropriate and successful work behaviours.

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CASE STUDY With their years of experience in the restaurant business, Robert Basham, Timothy Gannon and Chris Sullivan, founders of Outback Steakhouse, were acutely aware of the hygiene needs in the food-service industry. Outback is an Australian-themed restaurant founded in the United States that deliberately adopts an Australian theme, sells Australian menu items and is decorated with Australian artefacts. While the average restaurant is designed to maximise the number of customers at the expense of the food preparation area, Outback puts the emphasis on providing the best possible spaces for servers and kitchen staff to do their jobs effectively, even at peak business times. Outback’s dinneronly policy and maximum five-day working week give managers and staff time for a life outside the restaurant, which cuts down on employee turnover. Each server handles only three tables at a time, ensuring first-class service to customers and higher tips for servers. To motivate managers over a sustained period, Outback provides ownership. After making a US$10 000 investment and signing a five-year contract, Outback managers receive annual company contributions equal to a percentage of the manager’s restaurant’s cash flow, known as the Partnership Ownership Account Plan (POA). This percentage increases each year in line with the manager’s ownership. Managers can also receive a President’s Club bonus for achieving beyond annual sales targets. In addition, managers can receive monthly payments based on his or her restaurant’s cash flow and they receive about 4000 shares that vest at the end of five years. Regular staff also participate in a share ownership plan. Restaurants are usually managed by a three-person team so that responsibility can be shared and the unfriendly hours typically experienced in the hospitality industry are reduced. Managers are thus able to have a work–life balance. Managers are further motivated by the level of responsibility Outback bestows on them. Restaurant managers have the authority to make their own decisions rather than merely implement decisions dictated by headquarters. The company also has a succession plan in place to promote identified candidates within Bloomin’ Brands, the parent company.

Source: iStockphoto/sshepard

OUTBACK STEAKHOUSE

From humble beginnings, Outback Steakhouse has blossomed into a large and profitable business in an already well-supplied market.

Has Outback’s motivational approach worked? In December 1994, six years after its launch, there were 210 Outbacks, with revenues estimated at US$544 million. As Timothy Gannon put it, ‘We believe if you treat employees as if you were one of them and give them the right environment, they will blow you away with their performance’. By 2012, Outback boasted 975 restaurants worldwide including six in Australia, one in China and 41 in Brazil. As a major chain in Bloomin’ Brands, Outback Steakhouse is part of an enterprise with 93 000 employees and total revenues of nearly US$4.0 billion in 2012. Outback’s co-founders, who are all significant shareholders in the parent company Bloomin’ Brands, have innovated with kerbside takeaway, Internet booking and new brands, menu items and formulas combining to keep them at the leading edge. The founders clearly believe and live the idea that they succeed through their people, known as ‘Outbackers’. By keeping their employees motivated, and ‘having a good time’, Outback’s executives know that the customer service will be good. Bloomin’ Brands’ successful approach to motivating its staff has led to Outback’s expansion into 25 countries, with many hundreds of restaurants operating under numerous brand names. Such growth signifies a company and a group of managers who are clearly getting a lot of things, including staff motivation, right.

Sources: Finegan, J. (December 1994). Unconventional Wisdom. Inc., 44–58; Bloomin’ Brands Inc. (4 March 2013), Form 10-K Annual Report, http://investors.bloominbrands.com/secfiling.cfm?filingID=1546417-13-38&CIK=1546417 (accessed 21 November 2013); http://outbacksteakhouse.com.au/index.php/careeropportunities/management (accessed 21 November 2013).

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R EMEMBE R THIS ◗◗ ◗◗

Content theories emphasise the needs that motivate people.

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ERG theory is a modification of the needs hierarchy and proposes three categories of needs: existence, relatedness and growth.

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The frustration-regression principle is the idea that failure to meet a high-order need may cause a regression to an already satisfied lower-order need; thus, people may move down as well as up the needs hierarchy.

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Giving people more control over their work schedules and opportunities to contribute ideas are two ways that managers meet people’s higher-level needs.

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One element of Herzberg’s two-factor theory, hygiene factors, focuses on lower-level needs and involves the presence or absence of job dissatisfiers, including working conditions, pay and company policies.

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Herzberg’s second factor, motivators, influences job satisfaction based on fulfilling higher-level needs such as achievement, recognition, responsibility and opportunities for personal growth.

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The acquired needs theory proposes that certain types of needs, including the need for achievement, need for affiliation and need for power, are acquired during an individual’s lifetime of experiences.

The best known content theory is Maslow’s hierarchy of needs theory, which proposes that people are motivated by five categories of needs – physiological, safety, belongingness, esteem and selfactualisation – that exist in a hierarchical order.

11.3 process theories A group of theories that explain how employees select behaviours with which to meet their needs and determine whether their choices were successful.

See Chapter 5 for a discussion of the importance and purposes of goals.

goal-setting theory Motivation can be increased and performance enhanced by setting specific, challenging goals and providing timely feedback.

PROCESS PERSPECTIVES ON MOTIVATION

Process theories explain how people select behavioural actions to meet their needs and determine

whether their choices were successful. Important perspectives in this area include goal-setting, equity theory and expectancy theory.

GOA L S E T T I NG Recall from Chapter 5 our discussion of the importance and purposes of goals. Numerous studies have shown that specific, challenging targets significantly enhance people’s motivation and performance levels.25 You have probably noticed in your own life that you are more motivated when you have a specific goal, such as getting a high distinction on a final exam, losing five kilograms before summer holidays or earning enough money during the summer to buy a used car. Goal-setting theory, described by Edwin Locke and Gary Latham, proposes that managers can increase motivation and enhance performance by setting specific, challenging goals, and then helping people track their progress towards goal achievement by providing timely feedback. EXHIBIT 11.5 illustrates key components of goal-setting theory.26

◗◗ Goal specificity refers to the degree to which goals are concrete and unambiguous. Specific goals such as ‘Visit one new customer each day’ or ‘Sell $1000 worth of merchandise a week’ are more motivating than vague goals such as ‘Keep in touch with new customers’ or ‘Increase merchandise sales’. For example, a lack of clear, specific goals is cited as a major cause of the failure of pay-for-performance incentive plans in many organisations.27 Vague goals can be frustrating for employees.

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◗◗ In terms of goal difficulty, difficult goals are more motivating than easy ones. Easy goals provide little challenge for employees and don’t require them to increase their output. Highly ambitious but achievable goals ask people to stretch their abilities and provide a basis for greater feelings of accomplishment and personal effectiveness. A study in Germany found that, over a three-year period, only employees who perceived their goals as difficult reported increases in positive emotions and feelings of job satisfaction and success.28

Provide feedback Challenging

Specific Accepted

◗◗ Goal acceptance means that employees have to ‘buy into’ the goals and be committed to them. Having people participate in setting goals is a good way to increase acceptance and commitment.

◗◗ Finally, the component of feedback means that people get information about how well they are doing in progressing towards goal achievement. It is important for managers to provide performance feedback on a regular, ongoing basis. However, self-feedback, where people are able to monitor their own progress towards a goal, has been found to be an even stronger motivator than external feedback.29

Higher motivation

EXHIBIT 11.5 Criteria for motivational goals

Why does goal setting increase motivation? For one thing, it enables people to focus their energies in the right direction. People know what to work towards, so they can direct their efforts towards the most important activities to accomplish the goals. Goals also energise behaviour, because people feel compelled to develop plans and strategies that keep them focused on achieving the target. Specific, difficult goals provide a challenge and encourage people to put forth high levels of effort. In addition, when goals are achieved, pride and satisfaction increase, contributing to higher motivation and morale.30

TAKE A MOMENT As a new manager, use specific, challenging goals to keep people focused and motivated. Have team members participate in setting goals and determining how to achieve them. Give regular feedback on how people are doing.

Recent research points to the importance of making progress towards goals as a key to motivation. The making progress principle is the idea that the single most important factor that can boost motivation, positive emotions and perceptions during a workday is making progress towards meaningful goals.31 Providing feedback on how well people are progressing and giving them a way to track their progress towards goals provides a renewable energy that fuels motivation. Sometimes managers underestimate the importance of the continuous feedback aspect of goal setting and achievement. Knowing that they are making everyday progress (even only small steps) can make all the difference in how motivated people feel to continue pursuing a goal.

making progress principle The idea that the most important factor to boost motivation, positive emotions and perceptions is making progress towards meaningful goals.

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E QU I T Y T H E O R Y equity theory A process theory that focuses on individuals’ perceptions of how fairly they are treated relative to others.

equity A situation that exists when the ratio of one person’s outcomes to inputs equals that of another’s.

Equity theory focuses on individuals’ perceptions of how fairly they are treated compared with others.

Developed by J. Stacy Adams, equity theory proposes that people are motivated to seek social equity in the rewards that they receive for performance.32 According to equity theory, if people perceive their compensation to be equal to what others receive for similar contributions, they will believe that their treatment is fair and equitable. People evaluate equity by a ratio of inputs to outcomes. Inputs to a job include education, experience, effort and ability. Outcomes from a job include pay, recognition, benefits and promotions. The input-to-outcome ratio may be compared to another person in the work group or to a perceived group average. A state of equity exists whenever the ratio of one person’s outcomes to inputs equals the ratio of another’s outcomes to inputs. Inequity occurs when the input-to-outcome ratios are out of balance, such as when a new, inexperienced employee receives the same salary as a person with a high level of education or experience. Interestingly, perceived inequity also occurs in the other direction. Thus, if an employee discovers that he or she is making more money than other people who contribute the same inputs to the company, the employee may feel the need to correct the inequity by working harder or getting more education. Scientific studies indicate that the human brain seems programmed to dislike inequity, even when we benefit from it. Moreover, people get less satisfaction from money they receive without having to earn it than they do from money they work to receive.33 Perceived inequity creates tensions within individuals that motivate them to bring equity into balance.34 The most common methods for reducing a perceived inequity are these:

◗◗ Change work effort. A person may choose to increase or decrease his or her input to the organisation. Individuals who believe that they are underpaid may reduce their level of effort or increase their absenteeism. Overpaid people may increase their effort on the job.

◗◗ Change outcomes. A person may change his or her outcomes. An underpaid person may request a salary increase or a bigger office. A union may try to improve wages and working conditions to be consistent with a comparable union whose members make more money.

◗◗ Change perceptions. Research suggests that people may change perceptions of equity if they are unable to change inputs or outcomes. They may increase the status attached to their jobs artificially or distort others’ perceived rewards to bring equity into balance.

◗◗ Leave the job. People who feel inequitably treated may decide to leave their jobs rather than suffer the inequity of being under- or overpaid. In their new jobs, they expect to find a more favourable balance of rewards. The implication of equity theory for managers is that employees indeed evaluate the perceived equity of their rewards compared to others. Many big law firms are reducing the compensation of 10 to 30 per cent of their partners each year in order to free up money to hire and reward ‘star performers’, rejecting the traditional practice of paying partners relatively similar amounts. The change fits with the strategy of rewarding people who generate more business, but it is having a damaging effect on the morale and motivation of other partners, who perceive the new compensation scheme as inequitable.35 Inequitable pay puts pressure on employees that is sometimes almost too great to bear. They attempt to change their work habits, try to change the system, or leave the job.36

Australian cosmetic store, MECCA Brands, has placed in the top 5 BRW list of best companies to work for the past 3 years. MECCA attributes the company’s success to an unwavering commitment to achieve its purpose of enabling customers to look and feel their best. To achieve this goal, MECCA employees are encouraged to treat the store as though it were their own business. Employees are empowered to break the rules where they deem it to be appropriate in order to achieve a positive outcome. This is referred to as doing the wrong thing for the right reason. Staff get a 40 per cent discount on the company’s products as well as health and wellness rewards.

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Source: Fairfax Syndication/Dallas Kilponen

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E X P E CTA N C Y T H E O R Y Expectancy theory suggests that motivation depends on individuals’ expectations about their ability to

perform tasks and receive desired rewards. Expectancy theory is associated with the work of Victor Vroom, although a number of scholars have made contributions in this area.37 Expectancy theory is concerned not with identifying types of needs, but with the thinking process that individuals use to achieve rewards. For example, one interesting study of expectancy theory looked at patrol officer drug arrests. The research found that officers who produced the most drug arrests were more likely to have perceived that such arrests were a management priority and were rewarded by their organisation, received specialised training to hone their skills related to drug interdiction, and perceived that they had sufficient time and resources to investigate suspected drug activity properly.38 Expectancy theory is based on the relationship among the individual’s effort, the individual’s performance and the desirability of outcomes associated with high performance. These elements and the relationships among them are illustrated in EXHIBIT 11.6. The keys to expectancy theory are the expectancies for the relationships among effort, performance and the value of the outcomes to the individual.

expectancy theory A process theory that proposes that motivation depends on individuals’ expectations about their ability to perform tasks and receive desired rewards.

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EXHIBIT 11.6 Major elements of expectancy theory

E→P expectancy Probability that effort will lead to desired performance

Effort

Valence (value of outcomes)

Outcomes (Pay, recognition, other rewards)

Performance

P→O expectancy Probability that performance will produce desired outcome

E→P expectancy Expectancy that putting effort into a given task will lead to high performance.

P→O expectancy Expectancy that successful performance of a task will lead to the desired outcome.

valence The value or attraction an individual has for an outcome.

E → P expectancy involves determining whether putting effort into a task will lead to high performance. For this expectancy to be high, the individual must have the ability, previous experience and necessary equipment, tools and opportunity to perform. Let’s consider a simple sales example. If Paloma, a salesperson at the Diamond Gift Shop, believes that increased selling effort will lead to higher personal sales, we can say that she has a high E → P expectancy. However, if Paloma believes she has neither the ability nor the opportunity to achieve high performance, the expectancy will be low, and so will be her motivation. P → O expectancy involves determining whether successful performance will lead to the desired outcome or reward. If the P → O expectancy is high, the individual will be more highly motivated. If the expectancy is that high performance will not produce the desired outcome, motivation will be lower. If Paloma believes that higher personal sales will lead to a pay increase, we can say that she has a high P → O expectancy. She might be aware that raises are coming up for consideration and talk with her supervisor or other employees to see if increased sales will help her earn a better raise. If not, she will be less motivated to work hard. Valence is the value of outcomes, or attraction to outcomes, for the individual. If the outcomes that are available from high effort and good performance are not valued by employees, motivation will be low. Likewise, if outcomes have a high value, motivation will be higher. If Paloma places a high value on the pay raise, valence is high and she will have a high motivational force. On the other hand, if the money has low valence for Paloma, the overall motivational force will be low. For an employee to be highly motivated, all three factors in the expectancy model must be high.39 Expectancy theory attempts not to define specific types of needs or rewards, but only to establish that they exist and may be different for every individual. One employee might want to be promoted to a position of increased responsibility, and another might have high valence for good relationships with peers. Consequently, the first person will be motivated to work hard for a promotion and the second for the opportunity of a team position that will keep him or her associated with a group. Studies substantiate the idea that rewards need to be individualised to be motivating. A survey finding shows that the top reason people leave their jobs is because they ‘don’t feel appreciated’. Yet Gallup’s analysis of 10 000 workgroups in 30 industries found that making people feel appreciated depends on finding the right kind of reward for each individual. Some people prefer tangible rewards such as bonuses, gifts or luxury trips, while others place high value on words of appreciation and recognition. In addition, some want public recognition while others prefer to be quietly praised by someone they admire and respect.40

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career development aspirations. Since I joined CSC Australia, I have expanded my industry knowledge and been part of multiple project opportunities across all Australian regions, New Zealand and Asian countries. My career has stepped further into business architecture and now I lead a growing team of consultants focused on enterprise mobility projects working along SAP Business Managers in charge of selling and delivering successful projects. My passion for supply chain processes has not left me despite all of the other business functions I have been involved in. Hence, I decided to get my master’s degree in Supply Chain Management to reinforce my knowledge and learn as much as possible. Finally, I would like to share a reflection about how important it is to be yourself during your career progression and the challenges life throws at you. Don’t ever doubt yourself and what you can do when you have passion for what you do. Australia is a country of opportunities and advantages for whoever works hard and establishes the right relationships. Lastly, one of the things I have learned in my career is that people listen more to you when you show respect for what they do and work to understand their viewpoint. Good luck!

AUSTRALIAN MANAGER PROFILE

Source: Courtesy Rocio Bustinza

My name is Rocio Bustinza. I was born in Peru. I graduated in Industrial Engineering with a specialisation in business process improvement, I learned about supply chain management from the early years of my career and I became passionate about the dynamics that are required in this business function. During my first year of pre-graduate studies, I decided I wanted to become a consultant and have the ability to be called into different industries to advise them on best practices. Throughout the years, this career has given me the opportunity to be in charge of managing multinational projects for big and small companies in Australia and worldwide. My career started in Peru where I completed my bachelor degree, and soon I joined the SAP world as a business consultant specialising in logistics and distribution. I have worked in several SAP mining and manufacturing implementation projects in Peru, Chile, Bolivia and Colombia. During the years I worked for BHP Billiton, an offer came through to join a global consulting firm and be based in Melbourne, Australia. Little did I know how much my life would change with the decision I was about to make. It has been almost six years since I decided to make a life away from home and follow my

ROCIO BUSTINZA FROM ENGINEER TO MA NAGER

SOURCE: Courtesy Rocio Bustinza

R EMEMBE R THIS ◗◗

Process theories, including goal-setting theory, equity theory and expectancy theory, explain how people select behaviours with which to meet their needs and determine whether their choices were successful.

◗◗

Goal-setting theory proposes that specific, challenging goals increase motivation and performance when the goals are accepted by subordinates and these subordinates receive feedback to indicate their progress towards goal achievement.

◗◗

The making progress principle is the idea that the single most important factor that can boost motivation, positive emotions and perceptions during a workday is making progress towards meaningful goals.

◗◗ ◗◗

Equity theory focuses on individuals’ perceptions of how fairly they are treated relative to others. A situation of equity exists when the ratio of one person’s outcomes to inputs equals that of another.

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◗◗

Expectancy theory proposes that motivation depends on individuals’ expectations about their ability to perform tasks and receive desired rewards.

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A person’s E → P expectancy is the expectancy that putting effort into a given task will lead to high performance.

◗◗ ◗◗

P → O expectancy is the expectancy that high performance of a task will lead to the desired outcome. Valence is the value of outcomes (rewards) to the individual.

REINFORCEMENT PERSPECTIVE ON MOTIVATION 11.4

reinforcement theory A motivation theory based on the relationship between a given behaviour and its consequences.

The reinforcement approach to employee motivation sidesteps the issues of employee needs and thinking processes described in the content and process theories. Reinforcement theory simply looks at the relationship between behaviour and its consequences. It focuses on changing or modifying employees’ on-the-job behaviour through the appropriate use of immediate rewards and punishments.

DI R ECT R E I NFORCE M E NT behaviour modification The set of techniques by which reinforcement theory is used to modify human behaviour. law of effect The assumption that positively reinforced behaviour tends to be repeated, and unreinforced or negatively reinforced behaviour tends to be inhibited. reinforcement Anything that causes a given behaviour to be repeated or inhibited. positive reinforcement The administration of a pleasant and rewarding consequence following desired behaviour.

avoidance learning The removal of an unpleasant consequence following desired behaviour.

Behaviour modification is the name given to the set of techniques by which reinforcement theory is used to

modify human behaviour.41 The basic assumption underlying behaviour modification is the law of effect, which states that behaviour that is positively reinforced tends to be repeated, and behaviour that is not reinforced tends not to be repeated. Reinforcement is defined as anything that causes a certain behaviour to be repeated or inhibited. For example, Whole Foods gives employees a 30 per cent discount on store purchases if they meet certain criteria for healthy habits, such as maintaining low cholesterol and blood pressure or quitting smoking. Indeed, many companies are searching for ways to reinforce behaviours that create healthier employees.42 The expectation at Whole Foods is that its healthier workforce will be more productive and innovative. The four reinforcement tools are positive reinforcement, avoidance learning, punishment, and extinction, as summarised in EXHIBIT 11.7. Positive reinforcement is the administration of a pleasant and rewarding consequence following a desired behaviour, such as praise for an employee who arrives on time or does a little extra work. Research shows that positive reinforcement does help motivate desired behaviours. Moreover, non-financial reinforcements such as positive feedback, social recognition and attention are just as effective as financial incentives.43 Studies of children indicate that those praised for trying hard and taking risks tend to enjoy challenges and find greater success over the long term. A recent study of employees at a fine-dining restaurant found that when leaders provided clear task guidelines and clear feedback on how well people were performing the tasks, motivation and performance improved. Cleaning and sanitising of tables, chairs, floors and toilets increased by 63 per cent, and restocking of side stations increased by 48 per cent.44 Supervisor attention and feedback provide a psychological boost to motivation that has nothing to do with financial rewards.

◗◗

Avoidance learning is the removal of an unpleasant consequence once a behaviour is improved,

thereby encouraging and strengthening the desired behaviour. Avoidance learning is sometimes called

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Praise employee Recommend pay raise

Positive reinforcement Increases likehood that behaviour will be repeated

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EXHIBIT 11.7 Changing behaviour with reinforcement

Employee increases work rate

Avoid reprimands, negative statements

Avoidance learning Increases likehood that behaviour will be repeated

Slow work rate Supervisor requests faster work Reprimand employee Make negative statements

Punishment Reduces likelihood that behaviour will be repeated

Employee continues slow work Withhold raises, merit pay, praise

Extinction Reduces likelihood that behaviour will be repeated

Source: Based on Richard L. Daft and Richard M. Steers, Organizations: A Micro/Macro Approach (Glenview, IL: Scott, Foresman, 1986), p. 109.

◗◗

Punishment is the imposition of unpleasant outcomes on an employee. Punishment typically occurs following undesirable behaviour. For example, a supervisor may berate an employee for performing a task incorrectly. The supervisor expects that the negative outcome will serve as a punishment and reduce the likelihood of the behaviour recurring. The use of punishment in organisations is controversial and often criticised because it fails to indicate the correct behaviour. However, almost all managers report that they find it necessary to occasionally impose forms of punishment ranging from verbal reprimands to employee suspensions or firings.45

◗◗

Extinction is the withholding of a positive reward. Whereas with

punishment, the supervisor imposes an unpleasant outcome such as a reprimand, extinction involves withholding praise or other positive outcomes. With extinction, undesirable behaviour is essentially ignored. The idea is that behaviour that is not positively reinforced will gradually disappear. A New York Times reporter wrote a humorous article about how she learned to stop nagging and instead use reinforcement theory to shape her husband’s behaviour after studying how professionals train animals.46 When her husband did something she liked, such as throw a dirty shirt in the hamper, she would use positive reinforcement, thanking him or giving him a hug and a kiss. Undesirable behaviours, such as throwing dirty clothes on the floor, on the other hand, were simply ignored, applying the principle of extinction.

punishment The imposition of unpleasant outcomes on an employee. extinction Withdrawing a positive or reinforcing reward, leading to the cessation of a behaviour.

Through its continuous improvements and staff engagement program known as ‘Breakout’, ANZ Bank lifted its staff satisfaction level from 49 per cent to over 85 per cent resulting in higher levels of customer satisfaction and retention.

Source: AAP Image/Sergio Dionisio

negative reinforcement. The idea is that people will change a specific behaviour to avoid the undesired result that the behaviour provokes. As a simple example, a supervisor who constantly reminds or nags an employee who is goofing off on the factory floor and stops the nagging when the employee stops goofing off is applying avoidance learning.

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TAKE A MOMENT

Farm managers often use a fixed-rate reinforcement schedule by basing a fruit or vegetable picker’s pay on the amount he or she harvests. A variation on this individual piece-rate system is a relative incentive plan that bases each worker’s pay on the ratio of the individual’s productivity to average productivity among all co-workers. A study of Eastern and Central European pickers in the United Kingdom found that workers’ productivity declined under the relative plan. Researchers theorised that fast workers didn’t want to hurt their slower colleagues, so they reduced their efforts. The study authors suggested a team-based scheme – where everyone’s pay increased if the team did well – would be more effective.

Source: iStock.com/Nnehring

As a new manager, remember that reward and punishment practices are partial motivational tools because they focus only on extrinsic rewards and lower-level needs. Using intrinsic rewards to meet higher level needs is important too.

S O C I A L L E A R N I NG T H E O R Y social learning theory Proposes that an individual’s motivation can result from observations of other people’s behaviour. vicarious learning Occurs when an individual sees others perform certain behaviours and get rewarded for them.

See Chapter 9 for a discussion of on-thejob training.

Social learning theory is related to the reinforcement perspective, but it proposes that an individual’s motivation can result not just from direct experience of rewards and punishments but also from the person’s observations of other people’s behaviour.47 Vicarious learning, or observational learning, occurs when an individual sees others perform certain behaviours and get rewarded for them. Young children often learn to behave well in school because they see that well-behaved children get more positive attention from the teacher, for example. Managers can enhance an individual’s motivation to perform desired behaviours by ensuring that the individual (1) has a chance to observe the desirable behaviours, (2) accurately perceives the behaviours, (3) remembers the behaviours, (4) has the necessary skills to perform the behaviours and (5) sees that the behaviours are rewarded by the organisation.48 Recall the discussion from Chapter 9 of on-the-job training. Managers typically pair a new employee with someone who models the type of behaviour that the organisation wants. Managers also promote social learning by highlighting top performers’ strengths and grooming them as examples for others.49 A key to vicarious motivation, though, is to make sure the learner knows that the desired behaviours are rewarded.

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MANAGEMENT IN PRACTICE THE CARROT-AND -STICK CONTROVERSY Everybody thought Rob Rodin was crazy when he decided to wipe out all individual incentives for his sales force at Marshall Industries, a large distributor of electronic components based in El Monte, California. He did away with all bonuses, commissions, holidays, and other awards and rewards. All salespeople would receive a base salary plus the opportunity for profit sharing, which would be the same percentage of salary for everyone, based on the entire company’s performance. Six years later, productivity per person at the company had tripled. Rodin was standing right in the middle of a big controversy in management. Do financial and other rewards really motivate the kind of behaviour organisations want and need? A growing number of critics say no, arguing that carrot-andstick approaches are a holdover from the Industrial Age and are inappropriate and ineffective in today’s economy, in which Gen Y and Gen Z employees are motivated by a range of monetary and non-monetary factors. Today’s workplace demands innovation and creativity from everyone – behaviour that is rarely inspired by money or other financial incentives. Reasons for criticism of carrot-and-stick approaches include the following:

✚✚ Extrinsic rewards diminish intrinsic rewards. When people are motivated to seek an extrinsic reward, whether it be a bonus, an award or the approval of a supervisor, generally they focus on the reward rather than on the work they do to achieve it. Thus, the intrinsic satisfaction people receive from performing their jobs actually declines. When people lack intrinsic rewards in their work, their performance stays just adequate to achieve the reward offered. In the worst case, employees may cover up mistakes, such as hiding an on-the-job accident in order to win a safety award.

✚✚ Extrinsic rewards are temporary. Offering outside incentives may ensure short-term success, but not longterm high performance. When employees are focused only on the reward, they lose interest in their work. Without personal interest, the potential for exploration, creativity and innovation disappears. While the current deadline or goal may be met, better ways of working will not be discovered.

✚✚ Extrinsic rewards assume people are driven by lower-level needs. Rewards such as bonuses, pay increases and even praise presume that the primary reason people initiate and persist in behaviour is to satisfy lower-level needs. However, particularly among today’s knowledge workers, behaviour also is based on yearnings for self-expression, and on feelings of self-esteem and self-worth. Offers of an extrinsic reward do not encourage the numerous types of behaviour that are motivated by people’s need to express themselves and realise their higher needs for growth and fulfilment. Alfie Kohn, one of the most vocal critics of carrot-and-stick approaches, offers the following advice to managers regarding how to pay employees: ‘Pay well, pay fairly, and then do everything you can to get money off people’s minds’. As Rob Rodin discovered at Marshall Industries, today’s organisations need employees who are motivated to think, experiment and continuously search for ways to solve new problems. Indeed, there is some evidence that money is not primarily what people work for. Managers should understand the limits of extrinsic motivators and work to satisfy employees’ higher, as well as lower, needs. To be motivated, employees need jobs that offer self-satisfaction in addition to a yearly pay rise.

SOURCES: Kohn, A. (January 1998), ‘Incentives Can Be Bad for Business’, Inc., 93–94; Vogl, A. J. (January 1994), ‘Carrots, Sticks, and Self-Deception’, Across the Board, 39–44; Colvin, G. (16 August 1998), ‘What Money Makes You Do’, Fortune, 213–214.

R EMEMBE R THIS ◗◗ ◗◗

Reinforcement theory is based on the relationship between a given behaviour and its consequences.

◗◗

The law of effect asserts that positively reinforced behaviour tends to be repeated, and unreinforced or negatively reinforced behaviour tends to be inhibited.

Behaviour modification refers to the set of techniques by which reinforcement theory is used to modify human behaviour.

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Reinforcement is anything that causes a certain behaviour to be repeated or inhibited.

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Managers apply avoidance learning, called negative reinforcement, when they remove an unpleasant consequence once a behaviour is improved.

◗◗ ◗◗ ◗◗

Punishment refers to the imposition of an unpleasant outcome following an undesirable behaviour.

◗◗

Vicarious learning occurs when an individual sees others perform certain behaviours and get rewarded for them.

Positive reinforcement is the administration of a pleasant and rewarding consequence following a desired behaviour.

Extinction refers to withholding positive rewards and essentially ignoring undesirable behaviour. Social learning theory proposes that an individual’s motivation can result not just from direct experience of rewards and punishments but also from thoughts, beliefs and observations of other people’s behaviour.

11.5

job design The application of motivational theories to the structure of work for improving productivity and satisfaction.

See Appendix to Chapter 1 for a discussion on the principles of scientific management. job enrichment A job design that incorporates achievement, recognition and other high-level motivators into the work.

JOB DESIGN FOR MOTIVATION

A job in an organisation is a unit of work that a single employee is responsible for performing. A job could include writing tickets for parking fines in Sydney, performing MRIs at Royal Perth Hospital or doing long-range planning for the Channel Nine television network. Jobs are an important consideration for motivation because performing their components may provide rewards that meet employees’ needs. Managers need to know what aspects of a job provide motivation as well as how to compensate for routine tasks that have little inherent satisfaction. Job design is the application of motivational theories to the structure of work for improving productivity and satisfaction.

JO B E N R I C H M E N T Recall from Appendix to Chapter 1 the principles of scientific management, in which tasks are designed to be simple, repetitive and standardised. This contributes to efficiency, but simplified jobs aren’t typically effective as a motivational technique because they can be boring and routine. Thus, managers in many companies are redesigning simplified jobs into jobs that provide greater variety and satisfaction. One technique, called job rotation, is to move employees systematically from one job to another to provide variety and stimulation. Another approach is to combine a series of small tasks into one new, broader job so that people perform a variety of activities, which is referred to as job enlargement. Overall, the trend is towards job enrichment, which means incorporating high-level motivators into the work, including responsibility, recognition and opportunities for growth, learning and achievement. In an enriched job, employees have control over the resources necessary for performing tasks, make decisions on how to do the work, experience personal growth and set their own work pace. Research shows that when jobs are designed to be controlled more by employees than by managers, people typically feel a greater sense of involvement, commitment and motivation, which in turn contributes to higher morale, lower turnover and stronger organisational performance.50

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One significant approach to job design is the job characteristics model developed by Richard Hackman and Greg Oldham.51 Hackman and Oldham’s research concerned work redesign, which is defined as altering jobs to increase both the quality of employees’ work experience and their productivity. Hackman and Oldham’s research into the design of hundreds of jobs yielded the job characteristics model, which is illustrated in EXHIBIT 11.8. The model consists of three major parts: core job dimensions, critical psychological states and employee growth-need strength.

CORE J O B DIM ENSIO NS Hackman and Oldham identified five dimensions that determine a job’s motivational potential:

◗◗ Skill variety. This is the number of diverse activities that

In the past, an employee might have been assigned to complete just one step in the overall assembly of a new vehicle, car after car after car. A second worker would do the next step, and so forth. In manufacturing plants where job enrichment is practised, however, one employee might be asked to complete a whole series of steps in the assembly process. Not only does the variety make the work more interesting and engaging, it also helps the employee feel more responsible and invested in his or her work.

compose a job and the number of skills used to perform it. A routine, repetitious assembly-line job is low in variety, whereas an applied research position that involves working on new problems every day is high in variety.

◗◗ Task identity. This is the degree to which an employee performs a total job with a recognisable beginning and ending. A chef who prepares an entire meal has more task identity than a café worker who ladles mashed potatoes.

◗◗ Task significance. This is the degree to which the job is perceived as important and having an impact on the company or consumers. People who distribute penicillin and other medical supplies during times of emergencies would feel they have significant jobs.

◗◗ Autonomy. This is the degree to which the worker has freedom, discretion and self-determination in planning and carrying out tasks. A house painter can determine how to paint the house; a paint sprayer on an assembly line has little autonomy.

Core job dimensions

Critical psychological states

Skill variety Task identity Task significance

Experienced meaningfulness of the work

Autonomy

Experienced responsibility for outcomes of the work

work redesign The altering of jobs to increase both the quality of employees’ work experience and their productivity. job characteristics model A model of job design that comprises core job dimensions, critical psychological states and employee growth-need strength.

Personal and work outcomes

High internal work motivation High-quality work performance

Feedback

Knowledge of the actual results of the work activities

High satisfaction with the work Low absenteeism and turnover

Employee growth-need strength Source: Adapted from J. Richard Hackman and G. R. Oldham. (1976). Motivation Through the Design of Work: Test of a Theory. Organizational Behavior and Human Performance, 16, 256.

EXHIBIT 11.8 The job characteristics model

Source: Alamy Stock Photo/Jim West

JO B C H A R AC T E R I ST I C S M OD E L

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◗◗ Feedback. This is the extent to which doing the job provides feedback to the employee about his or her performance. Jobs vary in their ability to let workers see the outcomes of their efforts. A football coach knows whether the team won or lost, but a basic research scientist may have to wait years to learn whether a research project was successful.

C RITIC A L PSYC HO LOG I C A L S TAT E S The model posits that core job dimensions are more rewarding when individuals experience three psychological states in response to job design. In EXHIBIT 11.8, skill variety, task identity and task significance tend to influence the employee’s psychological state of experienced meaningfulness of work. The work itself is satisfying and provides intrinsic rewards for the worker. The job characteristic of autonomy influences the worker’s experienced responsibility. The job characteristic of feedback provides the worker with knowledge of actual results. The employee thus knows how he or she is doing and can change work performance to increase desired outcomes.

P ERSONA L A ND WO RK O UT C O ME S The impact of the five job characteristics on the psychological states of experienced meaningfulness, responsibility and knowledge of actual results leads to the personal and work outcomes of high work motivation, high work performance, high satisfaction, and low absenteeism and turnover.

EM P LOYEE GRO WTH– NE E D S T R E NGT H

See Chapter 3 for the definition high power distance.

The final component of the job characteristics model is called employee growth–need strength, which means that people have different needs for growth and development. If a person wants to satisfy low-level needs, such as safety and belongingness, the job characteristics model has less effect. When a person has a high need for growth and development, including the desire for personal challenge, achievement and challenging work, the model is especially effective. People with a high need to grow and expand their abilities respond favourably to the application of the model and to improvements in core job dimensions. One interesting finding concerns the cross-cultural differences in the impact of job characteristics. Intrinsic factors such as autonomy, challenge, achievement and recognition can be highly motivating in industrialised Western cultures. However, they may contribute little to motivation and satisfaction in other cultures and might even lead to demotivation. One comparative study indicates that the link between intrinsic characteristics and job motivation and satisfaction is weaker in economically disadvantaged countries with poor governmental social welfare systems, as well as in countries that value high power distance, as defined in Chapter 3.52 Thus, the job characteristics model would be expected to be less effective in these countries.

R EMEMBE R THIS ◗◗

Jobs are an important consideration for motivation because performing their components may provide intrinsic rewards that meet employees’ needs.

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Job design refers to applying motivational theories to the structure of work to improve motivation, productivity and satisfaction.

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Most companies are moving away from simplified jobs and are using job rotation, job enlargement and job enrichment to provide employees with greater variety, stimulation and satisfaction.

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Job enrichment refers to incorporating high-level motivators, such as achievement, recognition and opportunities for growth, into the work.

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Work redesign means altering jobs to increase both the quality of employees’ work experience and their productivity.

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The job characteristics model is a model of job design that considers core job dimensions, individuals’ critical psychological states and employee growth-need strength.

11.6

INNOVATIVE IDEAS FOR MOTIVATING

Organisations are increasingly using various types of incentive compensation as a way to motivate employees to higher levels of performance. For example, when Elise Lelon, owner of the leadershipconsulting firm The You Business, couldn’t give pay raises because of budget pressures, she created a generous lump-sum bonus program tied to the amount of revenue that employees generated for the firm. ‘It gets their juices flowing and it helps the business grow,’ Lelon says.53 EXHIBIT 11.9 summarises several popular methods of incentive pay. PROGRAM

PURPOSE

Pay for performance

Rewards individual employees in proportion to their performance contributions.  Also called merit pay.

Gain sharing

Rewards all employees and managers within a business unit when predetermined performance targets are met. Encourages teamwork.

Employee share ownership plan (ESOP)

Gives employees part ownership of the organisation, enabling them to share in improved profit performance.

Lump-sum bonuses

Rewards employees with a one-time cash payment based on performance.

Pay for knowledge

Links employee salary with the number of task skills acquired. Workers are motivated to learn the skills for many jobs, thus increasing company flexibility and efficiency.

Flexible work schedule

Flextime allows workers to set their own hours. Job sharing allows two or more part-time workers to jointly cover one job. Telecommuting, sometimes called flex-place, allows employees to work from home or an alternative workplace.

Team-based compensation

Rewards employees for behaviour and activities that benefit the team, such as cooperation, listening and empowering others.

Lifestyle awards

Rewards employees for meeting ambitious goals with luxury items, such as high-definition televisions, tickets to big-name sporting events and exotic travel.

EXHIBIT 11.9 New motivational compensation programs

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Variable compensation and forms of ‘at risk’ pay such as bonus plans are key motivational tools that are becoming more common than fixed salaries at many companies. However, unless they are carefully designed, incentive plans can backfire, as evidenced by problems in the mortgage and finance industries, where some people resorted to overly aggressive and even unethical behaviour to earn huge bonuses. In the wake of the global financial crisis (GFC) of 2008–10, numerous companies, including financial firms such as Morgan Stanley, Credit Suisse and Goldman Sachs, revised compensation plans to make sure that incentives reward the desired behaviours.54 Unfortunately, many managers are still encouraging the wrong kinds of behaviour by rewarding people who behave unethically to get more business, signalling to employees that profits are more important than integrity. The 2011 National Business Ethics Survey from the Ethics Resource Center indicated that 45 per cent of people have witnessed ethical misconduct at work, and 13 per cent say they have felt pressure to bend the rules or even break the law to earn rewards – an increase of 5 percentage points from 2010. By 2013, that same survey (repeated) found improvements of some 10 per cent on these measures and also determined a higher level of activity in organisations aiming to install ethically responsible cultures.55 Incentive programs can be effective if they are used appropriately and combined with motivational ideas that also provide people with intrinsic rewards and meet higher-level needs. The most effective motivational programs typically involve much more than money or other external rewards in order to create an environment in which people thrive.

B U I L D I NG A T H R I V I NG WO R K F O R C E thriving workforce A workforce in which people are satisfied, productive and engaged in creating the future for themselves and their organisation.

Recent research examining what creates a consistently high-performing organisation has focused on the importance of an environment in which people can thrive. A thriving workforce is one in which people are not only satisfied and productive, but also engaged in creating the future – both their own and the organisation’s.56 Two components of thriving individuals are vitality and learning. A thriving employee is one who feels alive, energised and passionate about what he or she is doing. The individual has a sense that his or her work has purpose and meaning. In addition, a thriving employee is one who is learning and growing, developing new knowledge, skills and abilities that can be applied now and in the future. Managers promote thriving by applying many of the motivational techniques described throughout this chapter, such as meeting higher-level needs, helping people get intrinsic rewards from their work, and providing regular feedback on performance and progress. Two specific approaches to building a thriving workforce are empowering employees and creating an environment that promotes employee engagement.

E M P OW E R I NG P E O P L E T O M E E T H I G H E R N E E D S empowerment The delegation of power and authority to employees.

One significant way that managers can meet higher motivational needs is to shift power down from the top of the organisation and share it with employees to enable them to achieve goals. Empowerment is power sharing, the delegation of power and authority to subordinates in an organisation.57 Increasing employee power heightens motivation for task accomplishment because people improve their own effectiveness, choosing how to do a task and using their creativity.58 Empowering employees involves giving them four elements that enable them to act more freely to accomplish their jobs: information, knowledge, power and rewards.59

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1 Employees receive information about company performance. In companies where employees are fully empowered, all employees have access to all financial and operational information.

2 Employees have knowledge and skills to contribute to company goals. Companies use training programs and other development tools to help people acquire the knowledge and skills that they need to contribute to organisational performance.

3 Employees have the power to make substantive decisions. Empowered employees have the authority to influence work procedures and organisational performance directly, such as through quality circles or self-directed work teams.

4 Employees are rewarded based on company performance. Organisations that empower workers often reward them based on the results shown in the company’s bottom line. Organisations may also use other motivational compensation programs described in EXHIBIT 11.9 to tie employee efforts to company performance. At some companies, empowerment means giving employees almost complete freedom and power to make decisions and exercise initiative and imagination. However, organisations empower workers to varying degrees, from a situation where managers encourage employee ideas but retain final authority for decisions to a condition of full empowerment, such as that at Hilcorp (see p. 663). Research shows that empowerment typically increases employee satisfaction, motivation and productivity.60

G I V I NG M E A N I NG T O WO R K T H ROUG H E NGAG E M E N T Employee engagement, which was discussed in the previous chapter, means that people enjoy their jobs and are satisfied with their work conditions, contribute enthusiastically to meeting team and organisational goals, and feel a sense of belonging and commitment to the organisation. Alarmingly, some surveys show that only 30 per cent of employees in the United States are engaged and inspired at work, and 18 per cent are actively disengaged.61 Fully engaged employees care deeply about the organisation and actively seek ways to serve the mission.62 Active disengagement means that people are actively undermining their organisation’s success. How do managers engage employees? EXHIBIT 11.10 illustrates the three elements that create employee engagement: a sense of meaningfulness, a sense of connection and a sense of growth.63 When managers organise the workplace in such a way as to create these feelings, employee engagement grows, leading to high motivation and high organisational performance.

◗◗ People feel that they are working towards something of importance. When employees have a chance to accomplish something that provides real value, they feel a sense of meaningfulness. Good managers help people understand the purpose of their work, which contributes to feelings of pride and dignity. Kenexa, a leading human resources services company (purchased by IBM in 2012), uses psychologists and other scientists to study what motivates employees. One finding is that turnover is significantly lower among people who feel pride in their company and its mission than among those who don’t.64

◗◗ People feel connected to the company, to one another and to their managers. In a survey asking people what factors contribute to their engagement, 79 per cent of people said ‘good relationships with coworkers’ drove engagement to a high or very high extent. Even more, 91 per cent, pointed to good

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relationships with their immediate supervisor as being highly important.65 It can be said, then, that it is the behaviour of managers that makes the biggest difference to whether or not people feel engaged at work.66 Managers promote engagement when they listen to employees, genuinely care about their concerns and help them develop positive relationships with colleagues.

◗◗ People have the chance to learn, grow and advance. To be fully engaged, people need to feel not only that they are competent to handle what is asked of them, but also that they have the chance to learn and expand their potential. Good managers help employees to understand their own unique set of talents, skills, interests, attitudes and needs; put people in jobs where they can make their best contribution and receive intrinsic rewards every day; and make sure people have what they need to perform well. In addition, they give people the chance to work on challenging projects, participate in high-quality training and learning programs, and provide opportunities for advancement within the organisation. Studies have identified a correlation between employee engagement and company performance, including less turnover, greater profitability, and stronger employee and customer loyalty, as illustrated in EXHIBIT 11.10.67

EXHIBIT 11.10 Employee engagement model

Meaningfulness

High performance Increased employee performance

Connectedness

Engagement

Less turnover Higher profits Greater employee and customer loyalty

Learning/Growth

Source: Based on Fig. 1, ‘Integrative Model of Employee Engagement’, in J. Lee Whittington and Timothy J. Galpin. (2010). The Engagement Factor: Building a High-Commitment Organization in a Low-Commitment World. Journal of Business Strategy, 32:5, 14–24.

INNOVATIVE WAY PRUDENTIAL UK AND EUROPE Like other companies in the financial services industry, Prudential UK and Europe (Pru UK) is operating in a highly turbulent environment that has been wracked further by the global economic crisis and scandals in the financial industry. Cathy Lewis, Pru UK’s director of HR, CEO Rob Devey, and other top executives decided to focus on improving employee engagement. The first step was a survey to gather data from employees about what they thought would make a difference. One of the findings was that line

managers were not living up to the ideal of empowerment. Top executives redefined roles for line managers and had to reassign some who couldn’t make the shift. ‘It was quite painful,’ said customer services director Tracy Harris, but it allowed top executives to let managers run their own departments as if they were their own small businesses. Senior managers have begun writing weekly blogs, including notes about people who have made significant contributions or received awards. ‘It’s a little thing, but our people love

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it,’ Lewis says. One reason is that it encourages and enables close connections among employees. ‘These actions,’ says Devey, ‘are about showing you care and giving permission for people to take the lead with their own initiatives’.

When another engagement survey was conducted a year later, it showed that both engagement (whether people felt enough a part of the organisation to ‘go the extra mile’) and enablement (whether they felt that they had the resources and autonomy to do their jobs well) had strongly increased. Source: Scott, A. (January 2012). Dear Prudence. People Management: 36–39.

K E E P I NG STA F F M O T I VAT E D I N A U ST R A L I A AND NEW ZEALAND At a time of global economic instability, when many organisations are retrenching their staff, how do Australian organisations achieve and maintain high levels of motivation in those who remain? Garry Adams, Talent Business Leader at Mercer Pacific, claims that nearly half of Australian executives who earn over AU$100 000 a year have some incentive component in their remuneration. This follows trends in both the United States and Europe of hard-wiring managers’ and executives’ wallets to the performance outcomes of their organisation. Australian executives are working increasingly longer hours, often between 60 and 80 hours per week, and are expected to perform at high levels for all of that time. This is why some are bailing out and starting their own businesses. With 23 per cent of workers putting in over 50 hours per week in Australia, it is no surprise that managers are putting in even longer hours. For those who do start their own businesses, this is usually not a recipe for shorter hours, as entrepreneurs normally have to ‘eat, sleep and live in the business’ while they grow it.

R EMEMBE R THIS ◗◗

Variable compensation and ‘at risk’ pay have become key motivational tools, although these practices have been criticised in recent years for rewarding the wrong types of behaviour.

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Employee empowerment and engagement are recent motivational trends that focus less on extrinsic rewards and more on creating a work environment that enables people to achieve intrinsic rewards and meet higher-level needs.

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A thriving workforce is one in which people are satisfied, productive and engaged in creating the future for themselves and their organisation.

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Two components of thriving employees are vitality and learning, which managers can promote through empowering people and creating the conditions for employee engagement.

◗◗ ◗◗ ◗◗

Empowerment is the delegation of power and authority to subordinates in an organisation.

◗◗

Managers create an environment that promotes engagement by providing employees with a sense of meaning, a sense of connection and a sense of competence and growth.

◗◗

The behaviour of managers is the biggest factor in determining whether people feel motivated and engaged at work.

Empowering employees involves giving them information, knowledge, power and rewards. Engagement is an emotional and mental state in which employees enjoy their work, contribute enthusiastically to meeting goals, and feel a sense of belonging and commitment to the organisation.

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SUSTAINABLE DEVELOPMENT MOTIVATION FOR SUSTAINABILITY

Motivation can basically come from intrinsic or extrinsic sources for people, and this applies as much to the implementation of sustainable development work as anything else. People can be motivated by a combination of: 1. A sense of long-term survival and desire to improve quality of life. Creating value, broadly defined, for communities in cities and regional areas is reasonably expected to be of interest to the majority of people. Most reasonable people have a strong interest in longer-term issues of the quality of life for the human race – if not just for us, then for future generations. 2. A desire to do good, especially if it means doing well for our own organisation, meaning the one we own or work in. Whether it is equity that we have in a firm, or what is known as ‘sweat equity’, meaning the investment that employees make in their employer firm, we all want to be associated with a firm that is winning as against losing, and it is intrinsically attractive to want our employing organisation to be doing well by doing good things rather than otherwise. 3. Straight benefits for the organisation and each of us as an individual – initiatives such as recycling, using less materials, energy and services, and becoming more efficient by reducing greenhouse gas production are outcomes that most people will want to achieve. 4. A sense of belonging (refer to Maslow’s hierarchy) to a group of people and stakeholders who are in pursuit of ‘noble’ goals. 5. A sense of achievement, satisfaction and contribution to the greater good: from knowing that one’s work is not just contributing to profits, but that it is sustainably advancing environmental and community/social outcomes too. For managers, this strong sense of motivation can lead to higher levels of effort and productivity, service and quality, as well as progress on the environmental and social outcomes side. Attempts to achieve higher levels of sustainability, meaning stakeholder satisfaction and social and environmental outcomes, can lead to the unleashing of creative juices in a workforce. The organisation becomes more proactive and progressive on a number of performance fronts that become the implementation of ‘doing well by doing good’.

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STUDY TOOLS

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RESPONSE TO THE MANAGEMENT CHALLENGE

SANDSTROM PRODUCTS: MOTIVATING EMPLOYEES A very successful application of motivational ideas occurred for the factory workers at Sandstrom Products. Recall from the chapter opening Management Challenge that Leo Henkelman was an alienated mill operator who was considering quitting. When top management empowered workers by implementing open-book management, Henkelman was given the opportunity to take on more responsibility, learn new skills and make improvements. He learned his own strengths and limitations in the process. While serving as a temporary plant manager, he

found that delegation was not his strength – doing was. When a technician job opened up in the lab, he applied. Although he lacked the educational background normally required, the lab director gave him a chance. Using his experience, Henkelman guided the manufacturing process from beginning to end, working with customers to develop new products and refine old ones. As his skills and responsibilities increased, so did his pay, thanks to a proficiency pay system that based his pay on his skills and accomplishments and a gain-sharing plan that allowed him to share in the company’s profits. By trusting and empowering its workers, Sandstrom gave them a reason to care about the company, and the knowledge and power to make personal contributions to organisational performance.

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Results were staggering, as Sandstrom rebounded from a loss of more than $100 000 to profits of over $800 000 two years later. Surprisingly, the turnaround occurred while sales stayed the same, without new product lines or new customers. Cost cutting and improvements instituted by an empowered workforce made the difference. Sandstrom went

on to successfully develop and apply whole ranges of new products that have been successfully launched by this quite old company, including high technology coatings for the Space Shuttle, demonstrating that if the motivation is right, new and long-serving employees can, and usually will, do great things. Source: Whitford, D. (June 1995). Before and After. Inc., 44–50.

DISCUSSION QUESTIONS 1 Why do you think making progress ranks as the most important factor contributing to motivation according to a recent study? How can managers provide a sense of progress for employees working on long-range projects that might not show results for months or even years? 2 Psychologists have identified three pathways to happiness: pleasure, engagement, and meaning. Do you think that it is the manager’s responsibility to help people find these elements in their work? Discuss. 3 Assume that you are a front-line manager at a call centre. Try to come up with a specific motivational idea that fits in each of the four quadrants in EXHIBIT 11.2: Positive extrinsic; Positive intrinsic; Negative extrinsic; Negative intrinsic. 4 Security-screening staff at airports watch thousands of people each day pass through X-ray machines: to do their job well, they must maintain high levels of concentration on each and every item and person being scrutinised, without relaxing their standards or daydreaming for even one second. How might these employees be motivated to provide the security that travel threats now demand? 5 Using Hackman and Oldham’s core job dimensions, compare and contrast the jobs of these two state employees: (1) Jared, who spends much of his time researching and debating energy policy to make recommendations that will eventually be presented to the

state government and (2) Anise, who spends her days planting and caring for the flower gardens and grounds surrounding Parliament House. 6 If an experienced executive assistant discovered that he or she made the same amount of money as a newly hired cleaner, how do you think they would react? What inputs and outcomes might they evaluate to make this comparison? 7 A survey of teachers found that two of the most important rewards were the belief that their work was important and a feeling of accomplishment. According to Maslow’s theory, which needs do these rewards meet? 8 The teachers in question 7 also reported that pay and benefits were poor, yet they continue to teach. Use Herzberg’s two-factor theory to explain this finding. 9 How does empowerment provide the two conditions (vitality and learning) for a thriving workforce that are described in the chapter? Do you see any ways in which a manager’s empowerment efforts might contribute to demotivation among employees? Discuss. 10 A Gallup survey shows that highly educated workers are significantly less likely to be engaged than are those with a high school diploma or less. What might be some reasons for this lower level of engagement among more-educated employees?

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ETHICAL CHALLENGE

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COMPENSATION SHOWDOWN

When Suzanne Lebeau, human resources manager, received a call from Bert Wilkes, financial controller of Farley Glass Works, she expected to receive good news to share with the wage and bonus committee. She had already seen numbers to indicate that the year-end bonus plan, which was instituted by her committee in lieu of the traditional guaranteed rises of the past, was going to exceed expectations. It was a relief to her, because the plan, devised by a committee representing all levels of the workforce, had taken 11 months to complete. It had also been a boost to morale at a low point in the company’s history. Workers at the glass shower production plant were bringing new effort and energy to their jobs, and Lebeau wanted to see them rewarded. She was shocked to see Wilkes’ face so grim when she arrived for her meeting. ‘We have a serious problem, Suzanne,’ Wilkes said to open the meeting. ‘We ran the numbers from our third quarter to project our end-of-year figures and discovered that the executive bonus objectives, which are based on net operating profit, would not be met if we paid out the employee bonuses first. The executive bonuses are a major source of their income. We can’t ask them to do without their salary to ensure a bonus for the workers.’

Lebeau felt her temper rising. After all their hard work, she was not going to sit by and watch the employees be disappointed because the accounting department had not structured the employee bonus plan to work with the executive plan. She was afraid they would undo all the good that the bonus plan had done in motivating the plant workers. They had kept their end of the bargain, and the company’s high profits were common knowledge in the plant. W H AT D O YO U D O ? 1 Ask to appear before the executive committee to argue that the year-end bonus plan for workers be honoured. Executives could defer their bonuses until the problem in the structure of the compensation plan is resolved. 2 Go along with the financial controller. It isn’t fair for the executives to lose so much money. Begin to prepare the workers to not expect much this first year of the plan. 3 Go to the board of directors and ask for a compromise plan that splits the bonuses between the executives and the workers.

SOURCE: Based on Wallace, D. (July–August 1993). Promises to Keep, What Would You Do? Business Ethics, II, 11–12. Reprinted with permission from Business Ethics, Minneapolis, MN.

GROUP CHALLENGE

SHOULD, NEED, LIKE, LOVE

Step 1. Divide into groups of three to five students. Individually write down answers to the following four instructions. 1 Think of a study or work task that you felt an obligation to complete, but that you did not want to do. Write the task here: 2 Think of a study or work task that you did only because you needed an extrinsic benefit, such as money or course credit. Write the task here: 3 Think of a study or work task that you do because you like it – it is enjoyable for you. Write that task here:

4 Think of a study or work task that you love to do – one in which you become completely absorbed and from which you feel deep satisfaction when finished. Write the task here: Step 2. Reflect on those four tasks and what they mean to you. Rate how highly motivated (high, medium, low) you were to perform each of the four tasks. Then rate how much mental effort (high, medium, low) was required for you to complete each of the four tasks. Step 3. Compare your ratings with other members of your team. What is the correlation between doing a task because you Should-Need-LikeLove, your level of motivation and the amount of mental effort required to complete the task? Develop conclusions from your analysis to present to the class.

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Step 4. Discuss in your group: Are you more highly motivated when engaged in tasks that you like or love versus tasks you should do or need to do? Why? Does this corroborate any motivation theory in the chapter? How can you increase the number of ‘like’ and ‘love’ tasks in your life? How might you reduce the number of ‘should’ and

CASE FOR CRITICAL ANALYSIS

‘need’ tasks? How will this impact on your choice of a career and of an industry to work in? When you become a manager, will you want to increase the number of ‘like’ and ‘love’ tasks for your employees? How might you do so?

LAUREN’S BALANCING ACT

DeMarco’s Department Store manager Lauren Brewster’s ‘Wow’ moment came when she observed a Chicago restaurant staff’s gushing treatment of an international celebrity. ‘Everyone dreams of that kind of star treatment,’ Lauren told her assistant, Jack Klein. ‘Think about it. People brag about their bank or the local bar where “everybody knows your name”, or enjoy showing off a favourite restaurant where the hostess always remembers their favourite table.’ DeMarco’s, like other upscale department stores, suffered the double whammy of a slumping economy and increased competition from discount retailers and online shopping. How could the store, the ‘box’, compete, retain its old customers and build a strong future customer base? ‘We’ve always known that it’s all about customer service,’ Lauren said. ‘But what’s so great about grabbing a giant plastic shopping cart and slogging through some giant warehouse in your shorts and flip-flops, and then joining the herd at the checkout? That is not a shopping experience.’ ‘And what isn’t great about being treated like Oprah from the moment you hit the door until the sales associate swipes your card and hands over something lovely that you just purchased?’ Jack asked. Lauren’s idea was that store customers receive that personal, upscale, ‘you’re somebody special here’ treatment at DeMarco’s. Sales associates would raise their own professional level, regard customers as worthy of personalised service and build their own clientele. As added incentive, the entire DeMarco’s sales team was changed over from hourly pay to straight commission. ‘Your pay is built through your own initiative and individualised service that makes customers return to you again and again,’ Lauren instructed the sales force at the outset of the experiment. The idea intrigued Corporate, which approved a two-year experiment. As expected, the new plan created a minor exodus among those who wanted the assurance of a ‘regular pay cheque’. But as the program moved through its first year, both store and corporate management was pleased with the overall results. Marketing pushed the new image of elite, personalised customer service, and phrases such as ‘Katherine at DeMarco’s helped me select this outfit’, or ‘Damien

always lets me know when something new arrives at DeMarco’s that he thinks is perfect for me’ became the typical boast of savvy shoppers. Now, two years into the experiment, Corporate urged Lauren to submit a full assessment of the program as a potential model for implementation throughout the department store chain. Sales numbers vouched for the overall success, particularly over the last two quarters of the second year. Certain associates, including Katherine Knowles in designer dresses and Damien Fotopolous in women’s shoes, showed significant gains as a result of straight commissions, and sales associates and customers responded favourably overall, urging a continuation of the program. Reliance on commissions inspired these and other sales associates to treat their individual department as if it were their own small business, becoming experts on nuances of merchandise, exploring designs and trends, finding ways to promote their expertise and building an impressive number of loyal customers. The satisfaction level of customers was apparent in the numbers – not only sales numbers, but in repeat business, customer referrals to friends and customer comment cards, all of which had been tracked since the beginning of the program. The down side of the experiment was that while some associates soared, others either veered towards an aggressive, pushy sales style or became intimidated by co-workers and teetered, monthly, on the verge of being replaced because they weren’t making sales. The once-proud tradition of cooperation among sales staff was, in many instances, being eaten away by relentless competition. Work assignments away from the sales floor were resented. In addition, the managers and sales associates of certain departments, such as women’s accessories, complained of lower wages because, as one sales associate pointed out, ‘My commission on a $50 belt is nothing compared to Katherine’s commission on a $2800 designer dress.’ Resentment was mounting among those who witnessed the extravagant wages of a few. ‘If we change this program, if we keep straight commission for some and return to hourly pay for others, how does that fit with our new image?’ Lauren said to Jack. ‘How does it deal with the difference

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in pay scale? How does it assure us that the attitudes of our sales team and the culture of this store will not return to what we were before – just another store?’ QUESTIONS 1 What do you see as the advantages and disadvantages of the incentive system that DeMarco’s is using for sales associates? What impact do you think it is having on the DeMarco’s culture? Explain.

ON THE JOB VIDEO CASE

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2 Do you think the complaints of lower-paid sales associates are legitimate? Why? How do you suggest Lauren respond to these complaints, such as the gripe that the system offers few opportunities for large commissions in some departments? 3 Have the successes of sales associates such as Katherine or Damien created a situation in which loyalty to customers is stronger than loyalty to the store? For example, if a successful associate leaves DeMarco’s, might the customer leave also?

MIKE BOYLE STRENGTH AND CONDITIONING: MOTIVATING EMPLOYEES

Watch the following video to see how Mike Boyle Strength & Conditioning approaches its management functions. QUESTIO NS 1 In the video, Mike Boyle talks about establishing a work environment that motivates employees to do great work. List two or three specific ways Boyle has created this type of environment in his gyms, and explain how these actions empower the employees.

2 Cofounder Bob Hanson says that education is an important part of their approach to management. How does education relate to employee motivation and job enrichment? 3 The two trainers featured in the video seem very satisfied with their jobs. Use Maslow’s hierarchy of needs to explain why you think they feel the way they do.

ENDNOTES 1 Fortune (2013). Mars, http://archive.fortune.com/magazines/fortune/best-companies/2013/ snapshots/95.html (accessed 23 November 2016); Fortune (2014). Mars, http://fortune.com/ best-companies/2014/mars-76/?iid=leftrail (accessed 23 November 2016); Fortune (2015). Mars, http://fortune.com/best-companies/2015/mars-85/ (accessed 23 November 2016); Fortune (2016). Mars, http://fortune.com/best-companies/mars-99/ (accessed 23 November 2016); Great Place to Work (2016). Mars, Incorporated, http://reviews.greatplacetowork. com/mars-incorporated?utm_source=fortune&utm_medium=list-page&utm_content= reviews-link&utm_campaign=2016-100-best (accessed 23 November 2016). 2 Richard M. Steers and Lyman W. Porter, eds., Motivation and Work Behavior, 3d ed. (New York: McGraw-Hill, 1983); Don Hellriegel, John W. Slocum, Jr., and Richard W. Woodman, Organizational Behavior, 7th ed. (St. Paul, MN: West, 1995), p. 170; and Jerry L. Gray and Frederick A. Starke, Organizational Behavior: Concepts and Applications, 4th ed. (New York: Macmillan, 1988), pp. 104–105. 3 See Linda Grant, ‘Happy Workers, High Returns,’ Fortune (12 January 1998): 81; Elizabeth J. Hawk and Garrett J. Sheridan, ‘The Right Stuff,’ Management Review (June 1999): 43–48; Michael West and Malcolm Patterson, ‘Profitable Personnel,’ People Management (8 January 1998): 28–31; Anne Fisher, ‘Why Passion Pays,’ FSB (September 2002): 58; and Curt Coffman and Gabriel Gonzalez-Molina (2002), Follow This Path: How the World’s Great Organizations Drive Growth by Unleashing Human Potential (New York: Warner Books) 4 David A. Kaplan. (6 February 2012). Salesforce’s Happy Workforce. Fortune, 100–12. 5 Steven Greenhouse. (18 July 2010). A Factory Defies Stereotypes, But Can It Thrive? The New York Times, BU1.

6 James B. Stewart, ‘Looking for a Lesson in Google’s Lavish Perks,’ The New York Times, 15 March 2013, http://www.nytimes.com/2013/03/16/business/at-google-a-place-towork-and-play.html?_r=0 (accessed 29 October 2013). 7 Ashley Halsey III. (10 July 2011). Fines Lower Drivers’ Use of Cellphones. The Washington Post, http://www.washingtonpost.com/local/fines-lower-driversuse-ofcellphones/2011/07/08/gIQAMvX67H_story.html (accessed 11 July 2011). 8 Jack Stack. (6 July 2010). Hilcorp Energy Shares the Wealth. The New York Times, http://boss. blogs.nytimes.com/2010/07/06/hilcorp-energy-shares-thewealth/ (accessed 7 July 2010). 9 Phred Dvorak. (17 December 2007). Hotelier Finds Happiness Keeps Staff Checked In. 10 See Linda Grant. (12 January 1998). Happy Workers, High Returns. Fortune, 81; Elizabeth J. Hawk and Garrett J. Sheridan. (June 1999). The Right Stuff. Management Review, 43–8; Michael West and Malcolm Patterson. (8 January 1998). Profitable Personnel. People Management, 28–31; Anne Fisher. (September 2002). Why Passion Pays. FSB, 58; and Curt Coffman and Gabriel Gonzalez-Molina. Follow This Path: How the World’s Great Organizations Drive Growth by Unleashing Human Potential 11 Matthew Shaer, ‘The Boss Stops Here,’ New York Magazine (24 June–1 July 2013): 25–34; Knowledge@Wharton, ‘Going Boss-Free: Utopia or ‘Lord of the Flies’?’ 1 August 2012, http://www.theglobeandmail.com/report-on-business/small-business/sb-managing/ human-resources/the-bossless-office-motivational-experience-or-invitation-to-anarchy/ article4601671/; Shelley White, ‘The Bossless Office: Motivational Experience or Invitation to Anarchy?’ 11 October 2012, http://www.theglobeandmail.com/report-on-business/smallbusiness/sb-managing/human-resources/the-bossless-office-motivational-experience-or-

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invitation-to-anarchy/article4601671/; and Ilya Pozin, ‘Want Happier Employees? Get Rid of the Bosses,’ Inc., 18 June 2012, http://www.inc.com/ilya-pozin/want-happier -employeesget-rid-of-the-bosses.html. 12 Abraham F. Maslow. (1943). A Theory of Human Motivation. Psychological Review 50, 370–96. 13 Barbara Bowes. (24 July 2010). More than Money: Make Your Employees Feel Secure, Satisfied in Job. Winnipeg Free Press, I.1. 14 Leigh Buchanan. (June 2010). The Un-Factory. Inc., 62–7. 15 Telis Demos. (12 April 2010). The Way We Work: Motivate Without Spending Millions. Fortune, 37–8. 16 Sarah Pass. (15 September 2005). On the Line. People Management, 38. 17 Clayton Alderfer. (1972). Existence, Relatedness, and Growth (New York: Free Press). 18 Scott Westcott. (August 2008). Beyond Flextime; Trashing the Work Week. Inc., 30–1. 19 Studies and surveys reported in Karol Rose. (29 September 2003). Work-Life Effectiveness. Special advertising section, Fortune, S1–S17. 20 NAB (2016). Flexibility and the workplace, http://www.nab.com.au/about-us/careers/ working-at-nab/flexibility-and-the-workplace (accessed 25 November 2016); Johanson, S. (29 July 2015). NAB’s futuristic office rated best workplace in Australia. The Sydney Morning Herald, http://www.smh.com.au/business/nabs-futuristic-office-rated-best-workplace-inaustralia-20150727-giltoy.html (accessed 25 November 2016). 21 Frederick Herzberg. (January 2003). One More Time: How Do You Motivate Employees? Harvard Business Review, 87–96. 22 Workforce MoodTracker Summer 2013 Report: Empowering Employees to Improve Employee Performance, (Southborough, MA: Globoforce, 2013), http://go.globoforce. com/rs/globoforce/images/Summer2013Moodtracker.pdf (accessed 28 October 2013); and Workforce MoodTracker Fall 2012 Report: Revealing Key Practices for Effective Recognition, (Southborough, MA: Globoforce, 2012), http://www.globoforce.com/resources/researchreports/mood-tracker-fall-2012-revealing-key-practices-for-effective-recognition/ (accessed 28 October 2013). 23 David C. McClelland. (1985). Human Motivation (Glenview, IL: Scott, Foresman). 24 David C. McClelland. (1971). The Two Faces of Power. In Organizational Psychology, ed. D. A. Colb, I. M. Rubin and J. M. McIntyre (Englewood Cliffs, NJ: Prentice Hall), pp. 73–86. 25 See Gary P. Latham and Edwin A. Locke. (2006). Enhancing the Benefits and Overcoming the Pitfalls of Goal Setting. Organizational Dynamics, 35:4, 332–8; Edwin A. Locke and Gary P. Latham. (September 2002). Building a Practically Useful Theory of Goal Setting and Task Motivation: A 35-Year Odyssey. The American Psychologist, 57:9, 705ff; Gary P. Latham and Edwin A. Locke. (December 1991). Self-Regulation Through Goal Setting. Organizational Behavior and Human Decision Processes, 50:2, 212–47; G. P. Latham and G. H. Seijts. (1999). The Effects of Proximal and Distal Goals on Performance of a Moderately Complex Task. Journal of Organizational Behavior, 20:4, 421–8; P. C. Early, T. Connolly and G. Ekegren. (1989). Goals, Strategy Development, and Task Performance: Some Limits on the Efficacy of Goal Setting. Journal of Applied Psychology, 74, 24–33; E. A. Locke. (1968). Toward a Theory of Task Motivation and Incentives. Organizational Behavior and Human Performance, 3, 157–89; Gerard H. Seijts, Ree M. Meertens and Gerjo Kok. (1997). The Effects of Task Importance and Publicness on the Relation Between Goal Difficulty and Performance. Canadian Journal of Behavioural Science, 29:1, 54ff. See Gerard H. Seijts and Gary P. Latham. (2012). Knowing When to Set Learning versus Performance Goals. Organizational Dynamics, 41, 1–6, for a discussion of the importance of learning goals versus performance goals in turbulent environments. 26 Locke and Latham. Building a Practically Useful Theory of Goal Setting and Task Motivation. 27 Edwin A. Locke. (2005). Linking Goals to Monetary Incentives. Academy of Management Executive, 18:4, 130–3. 28 Latham and Locke. Enhancing the Benefits and Overcoming the Pitfalls of Goal Setting. 29 J. M. Ivanecevich and J. T. McMahon. (June 1982). The Effects of Goal Setting, External Feedback, and Self-Generated Feedback on Outcome Variables: A Field Experiment. Academy of Management Journal, 25:2, 359–72; G. P. Latham and E. A. Locke. (1991). SelfRegulation through Goal Setting. Organizational Behavior and Human Decision Processes, 50:2, 212–47. 30 Gary P. Latham. (2004). The Motivational Benefits of Goal-Setting. Academy of Management Executive, 18:4, 126–9. 31 This definition and discussion is based on Teresa M. Amabile and Steven J. Kramer. (May 2011). The Power of Small Wins. Harvard Business Review, 71–80; and Teresa M. Amabile and

Steven J. Kramer. (January–February 2010). What Really Motivates Workers: Understanding the Power of Progress. Harvard Business Review, 44–5. 32 J. Stacy Adams. (1965). Injustice in Social Exchange. In Advances in Experimental Social Psychology, 2nd edn, ed. L. Berkowitz (New York: Academic Press); and J. Stacy Adams. (November 1963). Toward an Understanding of Inequity. Journal of Abnormal and Social Psychology, 422–36. 33 Elizabeth Weise. (25 February 2010). Our Brains Dislike Inequality, Even When It’s In Our Favor. USA Today, http://content.usatoday.com/communities/sciencefair/post/2010/02/ our-brains-dont-like-inequality-even-when-its-in-our-favor/1 (accessed 21 March 2011); Daniel Yee. (14 May 2004). Brain Prefers Working over Money for Nothing. Cincinnati Post. 34 Ray V. Montagno. (1985). The Effects of Comparison to Others and Primary Experience on Responses to Task Design. Academy of Management Journal, 28, 491–8; and Robert P. Vecchio. (1982). Predicting Worker Performance in Inequitable Settings. Academy of Management Review, 7, 103–10. 35 Nathan Koppel and Vanessa O’Connell. (18 February 2011). Pay Gap Widens at Big Law Firms as Partners Chase Star Attorneys. The Wall Street Journal, http://online.wsj.com/article/ SB10001424052748704570104576124232780067002.html (accessed 8 February 2011). 36 James E. Martin and Melanie M. Peterson. (1987). Two-Tier Wage Structures: Implications for Equity Theory. Academy of Management Journal, 30, 297–315. 37 Victor H. Vroom. (1964). Work and Motivation (New York: Wiley); B. S. Gorgopoulos, G. M. Mahoney and N. Jones. (1957). A Path-Goal Approach to Productivity. Journal of Applied Psychology, 41, 345–53; and E. E. Lawler III. (1981). Pay and Organizational Effectiveness: A Psychological View (New York: McGraw-Hill). 38 Richard R. Johnson. (2009). Explaining Patrol Officer Drug Arrest Activity Through Expectancy Theory. Policing, 32:1, 6ff. 39 Richard L. Daft and Richard M. Steers. (1986). Organizations: A Micro/Macro Approach (Glenview, IL: Scott, Foresman). 40 Studies reported in Tom Rath. (9 December 2004). The Best Way to Recognize Employees. Gallup Management Journal, 1–5; and Erin White. (19 December 2005). Theory & Practice: Praise from Peers Goes a Long Way – Recognition Programs Help Companies Retain Workers as Pay Raises Get Smaller. The Wall Street Journal. 41 Alexander D. Stajkovic and Fred Luthans. (October 1997). A Meta-Analysis of the Effects of Organizational Behavior Modification on Task Performance, 1975–95. Academy of Management Journal, 1122–49; H. Richlin. (1970). Modern Behaviorism (San Francisco: Freeman); and B. F. Skinner. (1953). Science and Human Behavior (New York: Macmillan). 42 (23 May 2011). 100 Best Companies to Work For: Whole Foods Market. Fortune, 30; (2 June 2010). Employees Earn Cash for Exercising More. The Wall Street Journal, D3. 43 Stajkovic and Luthans. A Meta-Analysis of the Effects of Organizational Behavior Modification on Task Performance, 1975–95; Fred Luthans and Alexander D. Stajkovic. (1999). Reinforce for Performance: The Need to Go Beyond Pay and Even Rewards. Academy of Management Executive, 13:2, 49–57. 44 Michael Alison Chandler. (15 January 2012). In Schools, Self-Esteem Boosting Is Losing Favor to Rigor, Finer-Tuned Praise. The Washington Post, http://www.washingtonpost. com/local/education/in-schoolsself-esteem-boosting-is-losing-favor-to-rigor-finertunedpraise/2012/01/11/gIQAXFnF1P_story.html (accessed 16 January 2012); Ludwig, T. D. (2012). An Investigation of Response Generalization across Cleaning and Restocking Behaviors in the Context of Performance Feedback, Journal of Organizational Behavior Management 32: 141–151. 45 Kenneth D. Butterfield and Linda Klebe Treviño. (December 1996). Punishment from the Manager’s Perspective: A Grounded Investigation and Inductive Model. Academy of Management Journal, 39:6, 1479–512; and Andrea Casey. (1997). Voices from the Firing Line: Managers Discuss Punishment in the Workplace. Academy of Management Executive, 11:3, 93–4. 46 Amy Sutherland. (25 June 2006). What Shamu Taught Me About a Happy Marriage. The New York Times, http://www.nytimes.com/2006/06/25/fashion/25love.html?ex=1175659200& en=4c3d257c4d16e70d&ei=5070 (accessed 2 April 2007). 47 Arthur Bandura. (1977). Social Learning Theory (Englewood Cliffs, NJ: Prentice Hall); and T. R. V. Davis and F. Luthans. (1980). A Social Learning Approach to Organizational Behavior. Academy of Management Review, 5, 281–90. 48 Bandura, Social Learning Theory; and Davis and Luthans. A Social Learning Approach to Organizational Behavior. 49 Ilya Pozin. (February 2012). The Takeaway: Three Things That Motivate Employees More Than Money. Inc., 6.

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50 Christine M. Riordan, Robert J. Vandenberg and Hettie A. Richardson. (Winter 2005). Employee Involvement Climate and Organizational Effectiveness. Human Resource Management, 44:4, 471–88. 51 J. Richard Hackman and Greg R. Oldham. (1980). Work Redesign (Reading, MA: AddisonWesley); and J. Richard Hackman and Greg Oldham. (1976). Motivation Through the Design of Work: Test of a Theory. Organizational Behavior and Human Performance, 16, 250–79. 52 Xu Huang and Evert Van de Vliert. (2003). Where Intrinsic Job Satisfaction Fails to Work: National Moderators of Intrinsic Motivation. Journal of Organizational Behavior, 24, 157–79. 53 Sarah E. Needleman. (14 January 2010). Business Owners Try to Motivate Employees: As Recession Lingers, Managers Hold Meetings and Change Hiring Practices to Alleviate Workers’ Stress. The Wall Street Journal. 54 Aaron Lucchetti. (29 December 2009). Morgan Stanley to Overhaul Pay Plan. The Wall Street Journal; Graham Bowley. (21 October 2009). Credit Suisse Overhauls Compensation. The New York Times; Liam Pleven and Susanne Craig. (17 January 2008). Deal Fees Under Fire Amid Mortgage Crisis; Guaranteed Rewards of Bankers, Middlemen Are in the Spotlight. The Wall Street Journal; Phred Dvorak. (6 April 2009). Companies Seek Shareholder Input on Pay Practices. The Wall Street Journal; and Carol Hymowitz. (28 April 2008). Pay Gap Fuels Worker Woes. The Wall Street Journal. 55 Reported in Sarah Fister Gale. (6 September 2012). Keeping Your Nose Clean: A Look at Ethics in the Workplace. Workforce.com, http://www.workforce.com/article/20120906/ NEWS02/120909987/keeping-your-noseclean-a-look-at-ethics-in-the-workplace (accessed 24 September 2012); Ethics and Compliance Initiative (2013). National Business Ethics Survey 2013, http://www.ethics.org/research/nbes/nbes-reports/nbes-2013 (accessed 5 January 2017). 56 This section is based on Gretchen Spreitzer and Christine Porath. (January–February 2012). Creating Sustainable Performance. Harvard Business Review, 92–9; and Gretchen Spreitzer, Christine L. Porath and Cristina B. Gibson. (2012). Toward Human Sustainability: How to Enable More Thriving at Work. Organizational Dynamics, 41, 155–62. 57 Edwin R. Hollander and Lyn R. Offermann. (February 1990). Power and Leadership in Organisations. American Psychologist, 45, 179–89. 58 Jay A. Conger and Rabindra N. Kanungo. (1988). The Empowerment Process Integrating Theory and Practice. Academy of Management Review, 13, 471–82. 59 David E. Bowen and Edward E. Lawler III. (Spring 1992). The Empowerment of Service Workers: What, Why, How, and When. Sloan Management Review, 31–9; and Ray W. Coye

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and James A. Belohav. (March 1995). An Exploratory Analysis of Employee Participation. Group and Organization Management, 20:1, 4–17. 60 Golnaz Sadri. (May–June 2011). Empowerment for the Bottom Line. Industrial Management, 8–13; and Robert C. Ford and Myron D. Fottler. (1995). Empowerment: A Matter of Degree. Academy of Management Executive, 9:3, 21–31. 61 Gallup data reported in Grant, K. B. (30 June 2013). Americans Hate Their Jobs, Even with the Perks, USA TODAY, http://www.usatoday.com/story/money/business/2013/06/30/ americans-hate-jobs-office-perks/2457089/ (accessed 29 October 2013). 62 This definition is based on Mercer Human Resource Consulting’s Employee Engagement Model, as described in Paul Sanchez and Dan McCauley. (November–December 2006). Measuring and Managing Engagement in a Cross Cultural Workforce: New Insights for Global Companies. Global Business and Organizational Excellence, 41–50. 63 This section is based on Maureen Soyars and Justin Brusino. (March 2009). Essentials of Engagement: Contributions, Connections, Growth. T&D, 62–5; Kenneth W. Thomas. (November–December 2009). The Four Intrinsic Rewards That Drive Employee Engagement. Ivey Business Journal, http://www.iveybusinessjournal.com/article. asp?intAtricle_id=867 (accessed 24 November 2009); and Cristina de Mello e Souza Wildermuth and Patrick David Pauken. (2008). A Perfect Match: Decoding Employee Engagement – Part II: Engaging Jobs and Individuals. Industrial and Commercial Training, 40:4, 206–10. 64 Kate Rockwood. (November 2008). The Employee Whisperer. Fast Company, 72–3. 65 Soyars and Brusine. Essentials of Engagement. 66 Theresa M. Welbourne. (Spring 2007). Employee Engagement: Beyond the fad and into the Executive Suite. Leader to Leader, 45–51. 67 See J. K. Harter, F. L. Schmidt, and T. L. Hayes. (2002). Business Unit Level Relationship Between Employee Satisfaction, Employee Engagement, and Business Outcomes: A Meta Analysis. Journal of Applied Psychology, 87:2, 268–79; Coffman and Gonzalez-Molina, Follow This Path; M. Buckingham and C. Coffman. (1999). First, Break All the Rules: What the World’s Greatest Managers Do Differently (New York: Simon & Schuster); A. M. Saks. (2006). Antecedents and Consequences of Employee Engagement. Journal of Managerial Psychology, 21:7, 600–19; and Nikki Blacksmith and Jim Harter. (28 October 2011). Majority of American Workers Not Engaged in Their Jobs. Gallup.com, http://www.gallup. com/poll/150383/majority-american-workers-not-engagedjobs.aspx (accessed 24 September 2012).

CHAPTER 12 C O M M U N IC AT ION IN O RG A N IS AT ION S

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 explain why communication is essential for effective management and describe the model of communication

2 describe how the interpersonal aspects of communication, including open communication climates, communication channels, persuasion, communicating with candour, asking questions and

listening, affect managers’ ability to communicate.

3 view the workplace as a whole and grasp the roles of social media, personal communication networks, formal communications and the importance of crisis communication

4 explain why effective communication is essential for sustainable development.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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JOHN McFARLANE: COMMUNICATE TO BUILD MORALE When he was CEO of the ANZ Bank, John McFarlane spent some seven years trying to strongly and substantially influence the culture of that large organisation. When he took on the role, banks were not highly regarded in Australia by customers and the general public, and employee satisfaction within ANZ was not high. The cultural revolution that McFarlane wanted to catalyse was an attempt to drive the ‘service profit chain’, meaning that if he could light up the effort, motivation and connection to the bank of its 30 000 staff, then they would give better customer service to paying customers. By improving the way that staff worked together, and hence improving customer outcomes, better profits for shareholders would also result. Such a high-level

plan sounds good, but turning it into an action plan that could be successfully implemented was not easy. Perhaps the biggest challenge for the CEO was to communicate and convince those 30 000 people to sign on to such a major change. Staff satisfaction in ANZ Bank was a lowly 49 per cent at the time, similar to the other banks, and not satisfactory. As part of this, many staff were not happy with the company’s communications. As McFarlane said, just over half of the paid staff were unhappy working at ANZ. McFarlane needed to hatch and resource a substantial plan, then find a way to convince that large workforce of the sincerity and substance of the planned change initiative. QU E S T I O N If you were John McFarlane, how would you communicate to staff at ANZ so as to improve their staff satisfaction and engagement levels? What steps do you think he took to enhance communications and improve morale?

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NEW MANAGER SELF-ASSESSMENT DO YOU FOCUS ON WHAT OTHERS SAY? Instructions: Think about how you communicate with other people during a typical day at work or university. Answer the statements below based on whether they are Mostly true or Mostly false for you. There are no right or wrong answers, so answer honestly. MOSTLY TRUE

MOSTLY FALSE

1 I am extremely attentive to what others say. 2 I deliberately show people that I am listening to them. 3 I really enjoy listening very carefully to people. 4 My mind does not wander when someone is talking. 5 I often restate what the person said and ask if I got it right. 6 I usually think about a response while a person is still talking. 7 I often ask people to clarify what they mean. 8 I ask questions in every conversation. 9 I am genuinely curious in conversations about what other people think. 10 During a conversation, I frequently probe for deeper information. 11 I inquire about others’ points of view on topics. Scoring and Interpretation: Focusing on what others say is comprised of two aspects – listening and asking questions. For your Listening score, add 1 point for each Mostly true answer to items 1–5, plus 1 point for a Mostly false answer to question 6. Listening score 5 ____. For your Asking questions score, add 1 point for each Mostly true answer to items 7–11. Asking questions score 5 ____. Managers face many distractions, which makes it hard to pay attention when someone is speaking. Listening attentiveness prevents many communication mistakes. In addition, effective managers learn the habit of inquiry, which means to ask questions to learn more about something or to confirm their understanding. A score of 4 or more on either scale suggests that you are pretty good on that aspect of communication. A combined score of 8 or higher on the two scales suggests that you have excellent focus on what others are saying.

In her 20 years with Metro Guide Publishing in Halifax, Canada, Patty Baxter had never known the phones to be so quiet. A leading publisher of glossy magazines in tourism, arts and culture, entertainment, business, lifestyle and several other categories, Metro’s offices were usually humming with sales calls. Advertising sales were way down, and fortunately, Baxter discovered the reason before they fell off the cliff. It turned out that the young sales staff members were emailing clients and potential clients with their sales pitches rather than telephoning them. For these young people, who grew up texting and chatting online, calling someone without emailing first was strange, if not downright rude, suggesting as it did in their minds that they were prioritising their needs over the client’s. Time for a lesson in business sales communications, Baxter decided. Email, texting and online chatting is fine for some purposes, she pointed out, but it won’t cut it in professions like sales, where personal rapport is crucial. Establishing a personal relationship is a key part of making a sale, and that requires the warmth of a voice, if not a handshake. Baxter also hired Mary Jane Copps, a phone-use consultant, who was at

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first sceptical that she could actually make a living doing such a thing. Now Copps is in high demand because many young employees have ‘phone aversion’. At Metro Guide, training includes role playing that simulates sales calls to build confidence so the sales reps feel that they will be able to ‘say the right words, in the right order, in the right amount of time’, and that they will be able to listen with empathy and ask the right kinds of questions. Employees now keep track of how they contact clients and how they follow up with them to make sure that they are building the personal connections that will keep those advertising sales growing.1 Knowing how to communicate effectively is a vital part of every manager’s job. Good managers know which channels of communication to use for different types of messages, as well as why aspects of communication such as listening, asking questions and giving candid feedback are so important to organisational success. The most successful organisations are the ones whose managers keep the lines of communication open. They have the courage to talk about what employees want to hear and explain difficult decisions, especially during tough economic times. In fact, one study shows that companies with highly effective communication had 47 per cent higher total returns to shareholders between 2004 and 2009, compared to companies with less effective communication practices.2 Not only does effective communication lead to better bottom-line results, but much of a manager’s time is spent communicating as well. Managers spend at least 80 per cent of every working day in direct communication with others. In other words, 48 minutes of every hour is spent in meetings, on the telephone, communicating online, or talking informally while walking around. The other 20 per cent of a typical manager’s time is spent doing desk work, most of which is also communication in the form of reading and writing.3 This chapter explains why managers should make effective communication a priority. First, we examine communication as a crucial part of the manager’s job and describe a model of the communication process. Next, we consider how the interpersonal aspects of communication, including open communication climates, communication channels, persuasion, communicating with candour, asking questions and listening, affect managers’ ability to communicate. Then we look at the workplace as a whole and consider the role of social media, personal communication networks, formal communications and the importance of crisis communication before finally examining why effective communication is essential for sustainable development.

12.1

COMMUNICATION IS THE MANAGER’S JOB

EXHIBIT 12.1 illustrates the crucial role of managers as communication champions who are highly effective

communicators and make special efforts at ensuring that all employees and other stakeholders receive the information they need to make them successful. Managers gather important information from both inside and outside the organisation and then distribute appropriate information to others who need it. Managers’ communication is purpose-directed in that it directs everyone’s attention towards the vision, values and desired goals of the team or organisation and influences people to act in a way to achieve the goals. Managers facilitate strategic conversations by using open communication, actively listening to others, asking questions and using feedback for learning and change. Strategic conversation refers to people talking across boundaries and hierarchical levels about the team or organisation’s vision, critical strategic themes and the values that help achieve important goals.4

strategic conversation Dialogue across boundaries and hierarchical levels about the team or organisation’s vision, critical strategic themes and the values that help achieve important goals.

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At Procter & Gamble (P&G), for instance, CEO A. G. Lafley created a process that opened a strategic conversation between top management and leaders in the business units to discuss five themes: What is your vision? Where will you play? How will you win? What capabilities must be in place? What management systems are needed? Rather than formal presentations by top leaders, strategy meetings became informal dialogues among small teams of people from all levels. The goal was to create strategic thinkers throughout the organisation.5

EXHIBIT 12.1 The manager as communication champion

External information

Internal information

Manager as communication champion

Purpose-directed

Methods Rich channels Social media Upward, downward, and horizontal channels Personal networks

Direct attention to vision, values, desired outcomes Influence employee behaviour

Strategic conversations Open communication climate Asking questions Listening Feedback

Sources: Adapted from Henry Mintzberg, The Nature of Managerial Work (New York: Harper and Row, 1973); and Richard L. Daft, The Leadership Experience, 3rd ed (Cincinnati, OH: South-Western, 2005), p. 346.

Managers use different methods to communicate, depending on the purpose of the communication and the audience. After disappointing sales results, Virginia Rometty, CEO of IBM, posted a video on the company’s internal website to get the word out to hundreds of thousands of employees in 170 countries that IBM must move faster and do better at letting clients know the value that IBM can bring to them. Her ‘think fast, move faster’ speech was part reprimand and part pep talk. ‘Our fundamentals are strong and our future is in our own hands,’ Rometty said. ‘I know we will confront this honestly and with urgency, and moments like this are when IBMers rise to the occasion.’6 Online communication, including social media, which will be discussed later in this chapter, is growing in popularity. In fact, 65 per cent of managers surveyed say that they expect to use social media more next year to communicate with employees.7

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W H AT I S CO M M U N I C AT I O N ? Most of us think of spoken or written language when we think about communication, but words are only a small part of human communication. Managers are observed carefully by employees, so it’s important to remember that everything a manager does and says will communicate something. In addition, communication is a two-way street that includes asking questions, seeking feedback, paying attention to the non-verbal communication of others and listening actively. Communication is the process by which information is exchanged and understood by two or more people, usually with the intent to influence or motivate behaviour. Surveys of managers show that they consider communication their most critical skill and one of their top responsibilities.8 Most managers reveal, however, that they need to improve their communication effectiveness. Fewer than half of responding managers bother to tailor their messages to employees, customers or suppliers. Even fewer seek feedback from employees or customers because they fear hearing bad news. Without feedback, though, managers can’t respond adequately to problems or opportunities, and their plans and decisions may be out of alignment with employee perceptions and interests.9 In another recent survey by AMA Enterprise, nearly 40 per cent of employees said that they feel out of the loop and don’t know what is going on at their companies. Only a mere 9 per cent reported knowing what is going on most of the time.10

communication The process by which information is exchanged and understood by two or more people, usually with the intent to motivate or influence behaviour.

A M OD E L O F CO M M U N I C AT I O N Being a good communicator starts with appreciating how complex communication is and understanding the key elements of the communication process, as illustrated in EXHIBIT 12.2 and described in this section. Many people think communication is simple and natural. After all, we communicate every day without even thinking about it. In reality, though, human communication is quite complex and fraught with opportunities for misunderstanding. Communication is not just sending information, but sharing information in a planned way. A manager who has the ability to deliver rousing speeches or write brilliant commentary, but who doesn’t know how to listen, is not an effective communicator. Honouring this distinction between sharing and proclaiming is crucial for successful management. Knowing what communication entails helps you appreciate the complexity of it. As shown in EXHIBIT  12.2, a manager who wants to communicate with an employee encodes a thought or idea by selecting symbols (such as words) with which to compose a message. The message is the tangible formulation of the thought or idea sent to the employee, and the channel is the medium by which the message is sent. The channel might be a telephone call, an email message, a formal report or a faceto-face conversation. The employee decodes the symbols to interpret the meaning of the message. Feedback occurs when the employee responds to a manager’s communication with a return message. As illustrated in EXHIBIT 12.2, the nature of effective communication is cyclical, in that a sender and receiver may exchange messages several times to achieve a mutual understanding. Encoding and decoding sometimes can cause communication errors. Have you heard someone say, ‘But that’s not what I meant!’ or wasted time and energy on misunderstood instructions? Individual differences, knowledge, values, attitudes and background act as filters and may create ‘noise’ when translating from symbols to meanings. We’ve all likely experienced communication breakdowns because people can misinterpret a message easily. Feedback enables a manager to determine whether the employee correctly interpreted the message. The potential for communication errors is why feedback is so important. Without feedback, the communication cycle is incomplete. Effective communication involves both the transference and the mutual understanding of information.11

encode To select symbols with which to compose a message. message The tangible formulation of an idea to be sent to a receiver. channel The carrier of a communication. decode To translate the symbols used in a message for the purpose of interpreting its meaning. feedback A response by the receiver to the sender’s communication.

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TAKE A MOMENT As a new manager, be a communication champion by communicating across boundaries, actively listening to others and using feedback to make improvements. Remember that effective communication requires sharing and achieving mutual understanding.

EXHIBIT 12.2 Model of communication

Message

Sender

Formulate message

Ch an ne

l

Ch an ne l

Verbal and non-verbal symbols

Interpret message

Potential for error or misunderstanding

Formulate message

nn el

ha

a Ch

nn e

l

Interpret message

Receiver

Message

C

Verbal and non-verbal symbols

R EMEMBE R THIS ◗◗

Effective managers build broad personal communication networks through which they accomplish their jobs.

◗◗

The manager’s role as communication champion means to engage in purpose-driven strategic conversations via multiple channels.

◗◗

Social media is a method of communication that is growing in popularity as an effective way to communicate information within an organisation.

◗◗

Strategic conversation refers to dialogue across boundaries and hierarchical levels about the team or organisation’s vision, critical strategic themes and the values that help achieve important goals.

◗◗

Communication is the process by which information is exchanged and understood by two or more people.

◗◗

The sender encodes the idea by selecting symbols with which to compose a message and selecting a communication channel; the receiver decodes the symbols to interpret the meaning of the message.

◗◗ ◗◗

The message is the tangible formulation of an idea to be sent to the employee.

◗◗

Feedback occurs when the receiver responds to the sender’s communication with a return message.

The term channel refers to the medium by which a message is sent, such as a phone call, blog or text message.

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12.2

COMMUNICATING AMONG PEOPLE

Many top managers admit their performance as communication champions likely fell short during the worst of the global financial crisis of 2008–10 as they spent more time trying to make sure the financial status of their companies remained sound. Yet, as soon as the worst was over, Quicken Loans CEO Bill Emerson got back out among Quicken’s 3000 employees to reinforce his commitment to open communication. Emerson holds two-hour lunch meetings with groups of 15 employees at a time. He fills them in on what is happening with the company and the mortgage industry, asks about their problems and concerns, and solicits ideas and opinions about how the company operates. Emerson depended heavily on middle- and lower-level managers for maintaining a strong communication climate while he wrestled with business problems, but he knows that his visible commitment is essential to keep effective organisational conversations going.12 To achieve the best possible outcome, managers must understand how factors such as open communication climates, communication channels, the ability to persuade, communicating with candour, asking questions, listening and non-verbal behaviour all work to enhance or detract from communication. Managers should also consider how gender affects communication. The following Management in practice explores how gender differences influence the effectiveness of communication between men and women.

MANAGEMENT IN PRACTICE GENDER DIFFERENCES IN COMMUNICATION To improve the effectiveness of workplace communication, managers should be aware of various factors that influence how people communicate. For example, according to Marianne Legato, founder of the Partnership for Gender-Specific Medicine at New York’s Columbia University, there is evidence that men’s and women’s brains process language differently, which leads to real differences in communication. In addition, learned behaviours associated with being male or female influence communication patterns. Deborah Tannen, author of You Just Don’t Understand: Women and Men in Conversation, has spent three decades studying gender differences in communication. Grasping the following different communication styles of men and women can help managers maximise every employee’s talents and encourage both men and women to contribute more fully to the organisation.

✚✚ Purposes of conversations. Men’s conversations tend to focus on hierarchy – competition for relative power. To men, talk is primarily a means to preserve independence and negotiate and maintain status in a hierarchy. Men tend to use verbal language to exhibit knowledge and skill, such as by telling stories, joking or passing on information. For most

women, although certainly not all, conversation is primarily a language of rapport, a way to establish connections and negotiate relationships. Women use their unique conversational style to show involvement, connection and participation, such as by seeking similarities and matching experiences with others.

✚✚ Decision-making styles. When women make decisions, they tend to process and think of options out loud. Men process internally until they come up with a solution. Men can sometimes misunderstand women’s verbal brainstorming and assume that a woman is seeking approval rather than just thinking aloud.

✚✚ Success in collaborative environments. A report from McKinsey & Company, Leadership Through the Crisis and After, notes that the kinds of behaviours that executives say will help their companies through the economic crisis are most often practised by female managers. Women typically score higher than men on abilities such as motivating others, fostering communication and listening, abilities that are more important than ever when organisations are going through tough times.

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✚✚ Interpretation of non-verbal messages. About 70 per cent of communication occurs non-verbally, but men and women interpret non-verbal communication differently. Women believe that good listening skills involve making eye contact and demonstrating understanding by nodding. To men, listening can take place with minimum eye contact and almost no non-verbal feedback. Further, when a man nods, it means that he agrees. When a woman nods, it means that she is listening. Women tend to be better at interpreting

non-verbal communication. They are able to assess coalitions and alliances just by noting who is making eye contact during critical points in a meeting. Interestingly, some male managers may be shifting to a more female-oriented communication style in today’s challenging economic environment because women’s approach to leadership and communication may be more suited to inspiring employees and helping people pull together toward goals during difficult times.

SOURCES: Based on Tannen, D. (May–June 2010). He Said, She Said. Scientific American Mind: 55–59; Goman, C. K. (26 May 2009). Men and Women and Workplace Communication. Business Analyst Times, www.batimes.com/articles/men-and-women-and-workplace-communication.html (accessed 20 September 2012); and Bernstein, E. (16 November 2010). She Talks a Lot, He Listens a Little. The Wall Street Journal, http://online.wsj.com/news/articles/SB10001424052748704658204575610921238173714 (accessed 30 October 2013).

O P E N CO M M U N I C AT I O N C L I M AT E

open communication Sharing all types of communication throughout the organisation, across functional and hierarchical boundaries.

A survey of employees reveals that people genuinely want open and honest communication from their managers, including the bad news as well as the good.13 This created a dilemma for Tom Szaky, CEO of TerraCycle, a waste-recycling business, because he was hesitant to share bad news with his employees. He didn’t want them worrying about something that didn’t affect their jobs and becoming distracted and unproductive. ‘The problem with hiding information,’ Szaky said, ‘was that when challenges came up, I felt pretty much alone on them, and the staff was left guessing what was happening. Predictably, the lack of information fuelled rumours and damaged morale.’ Today, Szaky encourages transparency and promotes open, honest communication. Employees see everything in great detail, even the bad news. This new climate has fostered a feeling of ownership and trust. It also brings issues to the forefront faster than ever before.14 Open communication means sharing all types of information throughout the organisation, across functional and hierarchical boundaries. People throughout the organisation need to see the big picture, understand the decisions that managers make and know how their work contributes to the success of the company. Particularly in times of change, if people don’t hear what’s happening from managers, they rely on rumours and will often assume the worst.15 In an open communication environment, people know where they stand and what rules they need to play by. Open communication helps people to accept, understand and commit to goals. People can see how their actions interact with and affect others in the organisation. When people have access to complete information, they are more likely to come up with creative solutions to problems and make decisions that are good for the company. Unfortunately, when the employees in the survey mentioned above were asked to evaluate how well their managers were doing in providing open and honest communication, the average score on a scale of zero to 100 was 69.16 Managers can build an open communication climate by breaking down conventional hierarchical and department boundaries that may be barriers to communication. They

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can take care to communicate honestly with subordinates, keep people posted when things change in either a positive or negative direction, and help people to see the financial impact of their decisions and actions.17 To achieve the advantages of open communication, managers should use the type of communication network that maximises employee performance and job satisfaction. Research into employee communication has focused on two characteristics of effective communication: the extent to which team communications are centralised, and the nature of the team’s task.18 The relationship between these characteristics is illustrated in EXHIBIT 12.3. In a centralised network, team members must communicate through one individual to solve problems or make decisions. Centralised communication can be effective for large teams because it limits the number of people involved in decision making. The result is a faster decision that involves fewer people.19 In a decentralised network, individuals can communicate freely with other team members. Members process information equally among themselves until all agree on a decision.20 Decentralised communication is best for complex, difficult work environments where teams need a free flow of communication in all directions.21 See EXHIBIT 12.4. Slower and less accurate

Simple tasks

Faster and more accurate

559

centralised network A team communication structure in which team members communicate through one individual to solve problems or make decisions. decentralised network A team communication structure in which team members can communicate freely with each other and arrive at decisions together.

EXHIBIT 12.3 Effectiveness of team communication networks

Centralised =

Complex tasks

Y

Wheel

Circle

All channel

Decentralised =

EXHIBIT 12.4 Communication networks

Centralised network

Decentralised network

Source: Joel Spolsky. (February 2010). A Little Less Conversation. Inc., 28–9. Copyright 2010 by Mansueto Ventures LLC. Reproduced with permission of Mansueto Ventures LLC.

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Source: Getty Images/Chaos

CO M M U N I C AT I O N C H A N N E L S Managers have a choice of many channels through which to communicate. A manager may discuss a problem face to face, make a telephone call, use text messaging, send an email, write a memo or letter, or post an entry to a company blog, depending on the nature of the message. Research has attempted to explain how managers select communication channels to enhance communication effectiveness.22 One approach to selecting an effective communication channel is to interpret the emotions of the person who will be receiving the message and then select the channel that will result in the best outcome. Scientists have shown that managers can understand how a person is feeling by studying important clues: facial expressions, gestures, body posture and tone of voice. A smirk, a furrowed brow or sagging body posture are strong indicators of a person’s emotions.23 Another factor that shapes a manager’s selection of a communication channel is the type and amount of information to Meetings to discuss issues, challenges, problems and opportunities at the workplace can range from the formality of most board be communicated. Research has shown that channels differ in their meetings to informal meetings over lunch in which staff talk about the daily issues that they face. Many executives in business say it capacity to convey data. Just as a pipeline’s physical characteristics is impossible to have too much communication going up, down limit the kind and amount of liquid that can be pumped through it, a and across their companies. Although meetings are sometimes described as being time-wasters, meetings can be productive if they communication channel’s physical characteristics limit the kind and are short, sharp and focused − then they can lead to coordination of efforts and good team-based problem solving. Such informal amount of information that can be conveyed through it. The channels meetings also help develop informal relationships between staff that are kept professional, but can ease workplace tensions when available to managers can be classified into a hierarchy based on the going gets tough. information richness.

THE HIERA RC HY O F CHA NNE L R I C HNE S S channel richness The amount of information that can be transmitted during a communication episode.

EXHIBIT 12.5 A continuum of channel richness

Channel richness is the amount of information that can be transmitted during a communication episode.

The hierarchy of channel richness is illustrated in EXHIBIT 12.5. The capacity of an information channel is influenced by three characteristics: (1) the ability to handle multiple cues simultaneously; (2) the ability to facilitate rapid, two-way feedback; and (3) the ability to establish a personal focus for the communication.

Advantages Personal Two-way Fast feedback

Disadvantages Face-to-face communication

High channel richness

No permanent record Spontaneous Difficult to disseminate

Telephone Electronic messages (e-mail, Twitter, IM, blogs)

Advantages Permanent record Premeditated Easy to disseminate

Disadvantages

Letters and memos Reports/bulletins

Low channel richness

Impersonal One-way Slow feedback

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Face-to-face discussion is the richest medium because it permits direct experience, multiple information cues, immediate feedback and personal focus. Because of its richness, it is the best channel when communicating to people who are exhibiting strong emotions, such as anxiety, fear or defensiveness. Face-to-face discussions facilitate the assimilation of broad cues and deep, emotional understanding of the situation. Telephone conversations are next in the richness hierarchy. Although eye contact, posture and other body language cues are missing, the human voice still can carry a tremendous amount of emotional information. Electronic communication, such as email, instant messaging and text messaging, is increasingly being used for messages that were once handled face to face or by telephone. However, in a survey by researchers at Ohio State University in the United States, most respondents said they preferred the telephone or face-to-face conversation for communicating difficult news, giving advice or expressing affection.24 Because email messages lack both visual and verbal cues and don’t allow for interaction and feedback, email messages can sometimes be misunderstood. Using email to discuss disputes, for example, can lead to an escalation rather than a resolution of conflict.25 Too often, managers use email or text messaging to avoid the emotional discomfort of a real-time conversation, hiding behind their computers to send rebukes or criticisms that they would never deliver in person. ‘Because we can’t see their hurt, it doesn’t matter as much,’ says business consultant Margie Warrell. She advises managers to never use email in the following circumstances:

◗◗ When you are angry. As our anger increases, so does our inability to communicate effectively. Wait at least two hours to cool off before sending an email. Then you will be better able to choose the most constructive way to convey that you are upset.

◗◗ When your message may be misunderstood. Meet in person with someone who may be defensive about certain issues. A face-to-face conversation ensures that the other person hears your message in the most positive way.

◗◗ When you are cancelling or apologising. To cancel an engagement, pick up the phone and call instead of emailing to demonstrate that you care about the relationship. When an apology is called for, meet in person so you can ask and receive forgiveness, which goes a long way towards restoring a damaged relationship.

◗◗ When you are rebuking or criticising. While it is never easy to deliver negative feedback, it is better to communicate rebukes or criticisms in person so you can read visual cues and address any issues the other person might raise.26 Still lower on the hierarchy of channel richness are written letters and memos. Written communication can be personally focused, but it conveys only the cues written on paper and is slower to provide feedback. Impersonal written media, including flyers, bulletins and standard computer reports, are the lowest in richness. These channels are not focused on a single receiver, as they use limited information cues, and do not permit feedback.

SELECTING T HE A P P ROPRIAT E C HA NNE L It is important for managers to understand that each communication channel has advantages and disadvantages, and that each can be an effective means of communication in the appropriate circumstances.27 Channel selection depends on whether the message is routine or non-routine. Non-routine messages typically are ambiguous, concern novel events and involve great potential for misunderstanding.

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They often are characterised by time pressure and surprise. Managers can communicate non-routine messages effectively by selecting rich channels. Routine messages are simple and straightforward. They convey data or statistics or simply put into words what managers already agree on and understand. Routine messages can be efficiently communicated through a channel lower in richness, such as a memo, email, text message or Twitter. Written communications should be used when the communication is official and a permanent record is required.28 The key is to select a channel to fit the message. During a major acquisition, one firm decided to send top executives to all major work sites of the acquired company, where most of the workers met the managers in person, heard about their plans for the company and had a chance to ask questions. The results were well worth the time and expense of the personal face-to-face meetings, because the acquired workforce saw their new managers as understanding, open and willing to listen.29 Communicating their nonroutine message about the acquisition in person prevented damaging rumours and misunderstandings. The choice of a communication channel can also convey a symbolic meaning to the receiver; in a sense, the medium becomes the message. The firm’s decision to communicate face to face with the acquired workforce signalled to employees that managers cared about them as individuals.

INNOVATIVE WAY VIRTUAL BRAINSTORMING If you are more of a shy, introverted employee, you may find team activities, like brainstorming, exhausting. Further, you may find that your ideas get drowned out by your loud, extroverted co-workers, and your energy levels become zapped as you attempt to come up with ideas on the spot, with little to no research or cognitive thought going in to the information that you are providing the team. Often the first idea that is given in a brainstorming activity is the one that the team may continue to use throughout the session, even though it may be ill conceived. This is known as an anchoring bias and can be dangerous for both introverts and extroverts alike as it can take the group down the wrong path and give more outcomes to the brainstorming session. One way for introverts and extroverts to be better prepared for brainstorming is to engage in virtual brainstorming. In 2017, employees have the ability to easily undertake virtual brainstorming from anywhere in the world: from their office, from their home, from a café, while sitting on a bus, train, tram, ferry or plane, or while overseas in a foreign country. While traditional brainstorming needed all members in the one room, virtual brainstorming can be undertaken from your smartphone, tablet or laptop computer, provided you have access to the Internet. One of the main reasons that virtual brainstorming is preferred over traditional brainstorming is that it eliminates

production blocking, the process where the more dominant, extroverted individuals take over the session and talk too much. Virtual brainstorming enables everyone to contribute in an environment that does not encourage competition, by talking over or taking on the dominant individuals, or by engaging in social loafing or shirking, where you unconsciously step back and contribute less to the group due to the size of the group. In order to be successful, traditional brainstorming needs small groups of employees to be involved. Virtual brainstorming can have much larger numbers of individuals participating and still be successful.

Source: Getty Images/Tim Robberts

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A second reason why virtual brainstorming is preferred by many extroverts and introverts is that participants are anonymous, meaning that the fear of judgement is removed and the individual’s ideas can be received more objectively.

Lastly, virtual brainstorming can increase the diversity of ideas as individuals are not exposed or influenced by others’ ideas, generating a wider variety of suggestions.

Sources: Krauss Whitbourne, S. (25 March 2014). Nine signs you’re really an introvert, https://www.psychologytoday.com/blog/fulfillment-any-age/201403/ nine-signs-you-re-really-introvert (accessed 2 December 2016); Science Daily (2016). Anchoring bias in decision-making, https://www.sciencedaily.com/ terms/anchoring.htm (accessed 2 December 2016); Cain, S. (2012). Quiet: The power of introverts in a world that can’t stop talking. New York: Crown Publishers; Cain, S. [TED2012] (2012). Susan Cain: The power of introverts, https://www.ted.com/talks/susan_cain_the_power_of_introverts (accessed 2 December 2016); McClure, L. (27 October 2014). How to run a brainstorm for introverts (and extroverts too), http://blog.ted.com/how-to-run-a-brainstormfor-introverts-and-extroverts-too/ (accessed 2 December 2016); News-Medical (9 August 2004). Electronic brainstorming has been found to be an effective means of generating many good-quality ideas, http://www.news-medical.net/news/2004/08/09/3941.aspx (accessed 2 December 2016); Chamorro-Premuzic, T. (2 April 2015). Why brainstorming works better online, https://hbr.org/2015/04/why-brainstorming-works-better-online (accessed 2 December 2016); Psy Blog (2009). Social loafing: When groups are bad for productivity, http://www.spring.org.uk/2009/05/social-loafing-when-groups-are-bad-for-productivity. php (accessed 2 December 2016).

CO M M U N I C AT I NG T O P E R S UA D E A ND I NFLUE NCE OTH E RS Communication is not just for conveying information, but also to persuade and influence people. Although communication skills have always been important to managers, the ability to persuade and influence others is even more critical today. The command-and-control mindset of managers telling workers what to do and how to do it is no longer dominant. Key points for practising the art of persuasion include the following:30

◗◗ Establish credibility. A manager’s credibility is based on knowledge, expertise and interpersonal skills. By demonstrating a consistent ability to make well-informed, sound decisions, managers inspire employees to have stronger confidence in the manager’s leadership abilities.

◗◗ Build goals on common ground. To be persuasive, managers should describe the benefits that employees will experience by embracing a new policy or fulfilling a request. An example is the manager who wanted to persuade fast food franchisees to support new pricing discounts desired by headquarters. The manager didn’t just explain that headquarters wanted the policies implemented; he cited research showing that the revised pricing would increase franchisees’ profits.31 When the franchisees saw how they would benefit personally, they were eager to adopt the new policies. If a manager can’t find common advantages, this is typically a good signal that goals and plans need to be adjusted.

◗◗ Connect emotionally. The most effective managers learn to understand others’ emotions and adjust their approach to match the audience’s ability to receive their message. In addition, by looking at how people have interpreted and responded to past events, a manager can get a better grasp on how they might react to new ideas and proposals that the manager wants them to adopt. Use multiple media to send important messages. When a message is highly important, leaders often use redundant communications, sending the same message using different channels. For example, one leader explained a request to an employee in person, then immediately composed a follow-up email to the same employee that summarised the request in writing. For company-wide changes, leaders might hold small group sessions to talk with employees about a new policy, post an article in the newsletter and use social media to make sure that everyone gets the information. By saying the same thing more than once via multiple channels, leaders add weight to the message and keep the issue at the top of employees’ minds.32

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TAKE A MOMENT As a new manager, use stories and metaphors to tap into people’s imagination and emotions. When influencing or persuading, first listen and strive to understand the other person’s point of view. And pay attention to non-verbal communication.

communication apprehension An individual’s level of fear or anxiety associated with real or anticipated communication.

To persuade and influence, managers have to communicate frequently and easily with others. Yet some people find interpersonal communication experiences unrewarding or difficult and thus tend to avoid situations where communication is required. The term communication apprehension describes this avoidance behaviour, and is defined as an individual’s level of fear or anxiety associated with either real or anticipated communication. With training and practice, managers can overcome their communication apprehension and become more effective communicators.

CO M M U N I C AT I NG W I T H C A N D OU R To influence and persuade, managers also have to be frank and straightforward about what they want and need from others. Communicating with candour means being direct, honest and clear about what employees need to do to meet objectives, while also expressing respect for others and not making people feel slighted, controlled or exploited. Unfortunately, communicating with candour is a problem for many managers. Jack Welch, speaker, author, and former CEO of General Electric (GE), says that when he would ask groups of managers how many of them had received candid performance appraisals, only about 10 per cent of people raised their hands. When he asked how many had given candid appraisals to their employees, the results weren’t much better.33

CASE STUDY GENERAL ELECTRIC For more than 17 years, Jack Welch (who is frequently referred to throughout this textbook) led General Electric to one revenue and earnings record after another and helped to increase the market share of GE from US$12 billion in 1981 to about US$280 billion in 1998. Welch, a master at communication, spent more than half his time on what he calls ‘people issues’. He created a sense of informality and sharing that is rare for a huge company such as GE. His preferred form of communication was typically a personal note accompanied by a phone call. He was well known for dashing off handwritten notes to people throughout the company to congratulate them for a job well done or to explain a controversial decision. For example, when Welch vetoed the idea of buying AT&T Universal Card, he sent a note to the manager at GE Capital who had spent hundreds

of hours studying the proposed acquisition. He wanted her to know that, despite his decision, he had been impressed with her analysis and presentation. There were no forms, letters or memos from Welch – not to employees, managers, top executives or even board members. Everything was handled with personal notes, phone calls or face-to-face communication. Welch kicked off each year for GE with a session for the company’s top 500 executives. The meeting gave Welch a chance to set the agenda for the year and to celebrate the company’s newest heroes. Managers from the various businesses could exchange ideas with their counterparts. Informal chat sessions lasted until 2 a.m. or later, with Welch himself participating. His wrap-up talk at the end of the meeting was videotaped, translated into eight different

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languages and dispatched to GE locations around the world, where managers used it to spark communication with their own teams about the issues GE would face in the coming year. Other formal means of communication used at GE are the Corporate Executive Council sessions held each quarter, at which GE’s top 30 executives track progress and swap ideas. These meetings have earned descriptions from executives such as ‘food fights’ or ‘free-for-alls’ because all information – good and bad – is shared openly. At these sessions Welch got unfiltered information. One of the most important forms of communication for Welch was the informal, unscheduled communication in which he participated almost daily. Every week, there were unexpected visits to plants and offices, during which Welch talked directly with GE people at all levels. He regularly scheduled impromptu luncheons with managers several layers below him to get their ideas and perspectives. Indeed, in an average year, Welch directly met and talked with several thousand GE employees. He used a metaphor of the

company as an old-fashioned grocery store, where he could mentally roll up his sleeves, get behind the counter and get to know employees and customers intimately. In September 2001, Jeffrey Immelt took over from Welch what Fortune described as ‘the best-managed, bestregarded company in America’. In 2011, GE continued to receive numerous accolades for its organisational excellence, from winning ‘Best company to work for’, ‘Most Admired Leadership’, ‘Most Inventive Company’, ‘Most Sustainable Company’ and many other awards that could only be accomplished with a high level of motivation in the workforce, from top to bottom! By 2016, GE was ranked tenth on the Forbes list of World’s Most Valuable Brands, eleventh of the Fortune 500 companies, number 90 on the list of World’s Most Innovative Companies (2012), number 228 on America’s Best Employers, and number 68 on Forbes Global 2000: 34th in sales, 383rd in profit, 63rd in assets, and 9th in market value. It had a market capitalisation of US$285.6 billion with 333 000 employees.

Sources: Byrne, J. A. (8 June 1998). Special Report: Jack. BusinessWeek, 91–106; Useem, J. (12 November 2001). What It Takes. Fortune, 126–32; http:// www.ge.com/news/ge_in_the_news/awards.html; http://www.forbes.com/companies/general-electric/ (accessed 2 November 2013); http://money.cnn.com/ magazines/fortune/fortune500/index.html (accessed 2 November 2013); Forbes (2016). General Electric, http://www.forbes.com/companies/general-electric/ (accessed 1 December 2016); Fortune (2016). General Electric, http://beta.fortune.com/fortune500/general-electric-11 (accessed 1 December 2016).

Communicating with candour is a confident, positive approach that lets others know exactly where you stand and what you’re asking of them. The appropriate use of candid communication acknowledges the other person’s perspective and opinion, yet is very specific about what the manager wants and why. Some valuable techniques for communicating with candour include:34

◗◗ Use ‘I statements’. To communicate with candour, you should keep the focus on the specific perception you have, how it makes you feel and the effect it is having on you, rather than accusing or blaming the other person. Suppose that you share office space with a sloppy colleague. Rather than saying, ‘You drive me crazy by leaving food wrappers scattered all over the place,’ you might say, ‘I’m finding it really hard to get our work done with all this clutter on the work table.’

◗◗ Stick to facts rather than judgements. Don’t tell your colleague that she’s a disgusting slob; just let her know that the clutter she’s leaving on the table is interfering with your ability to do your work.

◗◗ Be clear, specific and direct in your requests. Say ‘I’d like for you to keep the work table clean because we both have to use it to get our jobs done’, rather than ‘Why don’t you clean up the mess you leave around here?’ Communicating with candour is an important part of creating an open communication climate. When managers communicate with candour, they encourage others to do the same. In an organisation where candid communication is the norm, everything works faster and better.35 When everyone feels free to open

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up and speak frankly, more people get involved in organisational conversations, which leads to more ideas and faster learning. In addition, candour means that ideas get debated, adapted and acted upon more quickly. Candid communication leads to genuine ongoing conversations and limits common problems such as meaningless meetings, workplace incivility or rancorous silence. For example, at Taunton Press, a special-interest publishing company, the lack of candour led to endless meetings and decreased productivity. In a small, close-knit company like Taunton, people naturally don’t want to offend one another. Yet over time, the culture of ‘terminal niceness’ that evolved sabotaged teamwork. Executives hired consultants from Fierce Inc. to help Taunton leaders and employees see that healthy relationships include both confrontation and appreciation. Over time, Taunton transformed to a culture of candour, collaboration and accountability.36 Carol Bartz, former CEO of Yahoo! and Autodesk, has always been a straight talker. She believes that if a person has an opinion, they should state it, which allows others to either try to change the opinion, to agree with it or to agree to disagree. ‘Agreeing is easy’ she said. ‘Disagreeing takes more guts.’

A S K I NG QU E ST I O N S The traditional model of primarily top-down communication is giving way to a more dynamic form of communication that is characterised by organisational conversations, which involve a give-and-take exchange of information.37 To have successful organisational conversations, managers need to learn to ask questions. Most managers do 80 per cent telling and 20 per cent asking, while it should be the other way around. Glenn Kelman, CEO of online real estate website Redfin in the Unites States, says ‘the most important thing you can do as an executive is to just ask the most basic question, which is, “What should Redfin be doing better?”’ Kelman says people will automatically respond that everything is great, but if you keep asking and show that you’re sincere, they’ll eventually come forward with thoughts and ideas for how to make things better.38 Asking questions can benefit both managers and employees in numerous ways.39

◗◗ Asking questions builds trust and openness between managers and employees. Managers who ask questions encourage their employees to share ideas and offer feedback. Duke Energy’s president and CEO, James E. Rogers, holds listening sessions with groups of 90–100 employees, where he asks questions and offers responses. By engaging with employees in a format that resembles ordinary person-to-person conversation, Rogers is developing a culture built on trust and authenticity.40

◗◗ Asking questions builds critical thinking skills. In one survey, 99 per cent of top managers said critical thinking skills at all levels are crucial to the success of their organisations.41 Asking questions stimulates critical, independent thinking, encourages people to use their creativity and leads to deeper, more lasting learning.

◗◗ Questions stimulate the mind and give people a chance to make a difference. When a manager asks a question of someone, it puts the individual on alert in a way that making a statement does not. People have to think in order to respond to a question. If a plant foreman says, ‘We have to increase production to fill this order’, workers can listen to him or not and try to speed things up or continue working as they have been. If, instead, the foreman asks employees, ‘What can we do to make sure we fill this order on time?’ people can’t ignore him; they have to start looking for solutions. Thus, asking questions gets people to accept responsibility for solving their own problems. Asking questions is an important dimension of the organisational conversation. Consider how Cisco Systems uses powerful technology and instant connectivity to facilitate fluid and open conversations among managers and employees.

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INNOVATIVE WAY CISCO SYSTEMS Organisational conversations occur when managers talk with employees, not just to them. To transform its organisational communication into a two-way conversation between managers and employees, Cisco successfully implemented several innovative strategies that incorporate state-of-the-art technology. First, Cisco uses its own next-generation video conferencing, called Telepresence, to facilitate interactive communication. Telepresence is a three-screen communication system that simulates in-person meetings by beaming video feeds between locations. Telepresence allows for a natural dialogue among people, no matter the time,

place or type of computer system being used. Participants appear life-sized and can look one another in the eye. Cisco continues to expand its product offerings in order to keep up with the changing marketplace. It sees its future in cloud-based technologies that have shaped the way organisations are operating and communicating. As Cisco is a ‘legacy technology company’ it must ensure that it remains relevant well into the future. This was evident in 2016 when Cisco CEO Chuck Robbins acquired many technology companies, including spending more than US$1 billion on Jasper (a connected device software company), US$700 million on Acano (a video conferencing company) and US$260 million on CliQr (a cloud software startup).

Sources: Vanian, J. (27 July 2015). Cisco enters new era after John Chambers steps down, Fortune, http://fortune.com/2015/07/27/cisco-john-chamberschuck-robbins/ (accessed 1 December 2016); Cisco (2016). Immersive TelePresence, http://www.cisco.com/c/en/us/products/collaboration-endpoints/ immersive-telePresence/index.html#~tab-benefits (accessed 1 December 2016); Vanian, J. (13 July 2016). Cisco CEO Chuck Robbins has had a very busy year, Fortune, http://fortune.com/2016/07/13/cisco-chuck-robbins-busy-year/ (accessed 2 December 2016).

L I ST E N I NG Of all the competencies critical to successful managerial communication, listening is at the top of the list. Yet listening seems to be a rare skill among managers, and the inability to listen is one of the key reasons that managers fail. In fact, a startling 67 per cent of new managers fail within 18 months, and it’s because they don’t listen.42 Listening involves the skill of grasping both facts and feelings to interpret a message’s genuine meaning. Only then can the manager provide the appropriate response. Listening requires attention, energy and skill. Although about 75 per cent of effective communication is listening, most people spend only 30 to 40 per cent of their time listening, which leads to many communication errors.43 One of the secrets of highly successful salespeople is that they spend 60 to 70 per cent of a sales call letting the customer talk.44 However, listening involves much more than just not talking. Many people do not know how to listen effectively. They concentrate on formulating what they are going to say next rather than on what is being said to them. Harvard Business Review on Effective Communication cites research indicating that within 48 hours, most people retain only 25 per cent of what they’ve heard.45 Most managers now recognise that important information flows from the bottom up, not the top down, and managers had better be tuned in.46 Some organisations use innovative techniques for finding out what’s on employees’ and customers’ minds. Intuit, for example, instituted an annual employee survey that gives managers an opportunity to listen to employees’ feelings on a range of company practices. Then, during the year, managers are encouraged to meet with subordinates to gather more feedback. Since instituting these listening strategies, turnover at Intuit has dropped from 24 per cent to 12 per cent. ‘Employees know that we are serious about asking for their feedback, and we listen and do something about it,’ said former CEO Stephen Bennett.47

listening The skill of grasping facts as well as feelings to interpret a message’s genuine meaning.

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Done correctly, listening is a vital link in the communication process, shown in the model of communication in EXHIBIT 12.2. Kevin Sharer, recently retired CEO of Amgen, calls it ‘strategic listening’. Listening, Sharer believes, is the greatest sign of respect that you can give someone. ‘Eventually, executives who don’t listen lose the support of their teams and colleagues. And once you’ve lost that support, it’s almost impossible to get it back.’48 Managers at many companies are also tapping into the interactive nature of blogs and social media to stay in touch with employees and customers. Blogs, running web logs that allow people to post opinions, ideas and information, provide a low-cost, always fresh, real-time link between organisations and customers, employees, the media and investors.49 One estimate is that 28 per cent of Fortune 500 companies have a public blog to keep in touch with stakeholders.50 Blogs give managers another way to get valuable feedback.

INNOVATIVE WAY AMGEN INC. Kevin Sharer admits that he was a terrible listener for much of his career. He didn’t mean to be; he just wanted to get ahead in life and believed to do so meant that he had to convince others of his point of view. Then, one day, he heard Sam Palmisano, who guided IBM to record growth and profits before he turned over the CEO position to Virginia Rometty in 2012, talk about why his work in Japan was so important to his leadership development. ‘Because I learned to listen,’ Palmisano said. ‘I learned to listen by having only one objective: comprehension. … I wasn’t listening to critique or object or convince.’ It was an epiphany for Sharer, who realised that being a good leader is less about convincing others of your point

of view and more about respecting and getting the best out of people – and that requires really listening to them. A leader operates in a complex ecosystem, Sharer says, and has to employ strategic listening to get all the signals that give a full picture of what is going on. ‘You’ve got to seek out these signals actively and use every possible means to receive them,’ he says. Sharer began regularly visiting and genuinely listening to people throughout the company. He admits that it wasn’t easy. ‘You have to change,’ he says, ‘and you have to want to change. … There has to be a certain humility to listen well.’

Source: Why I’m a Listener: Amgen CEO Kevin Sharer, (interview), The McKinsey Quarterly, Issue 2 (April 2012): 61–65.

What constitutes good listening? EXHIBIT 12.6 gives 10 keys to effective listening and illustrates a number of ways to distinguish a bad listener from a good listener. A good listener finds areas of interest, is flexible, works hard at listening and uses thought speed to mentally summarise, weigh and anticipate what the speaker says. Good listening means shifting from thinking about self to empathising with the other person, which requires a high degree of emotional intelligence.

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KEYS TO EFFECTIVE LISTENING

POOR LISTENER

GOOD LISTENER

1. Listen actively.

Is passive, laid-back

Asks questions, paraphrases what is said

2. Find areas of interest.

Tunes out dry subjects

Looks for new learning

3. Resist distractions.

Is easily distracted; answers phone or sends text messages

Gives full attention, fights distractions, maintains concentration

4. C  apitalise on the fact that thought is faster.

Tends to daydream

Mentally summarises; weighs the evidence

5. Be responsive.

Avoids eye contact; is minimally involved

Nods and shows interest

6. Judge content, not delivery.

Tunes out if delivery is poor

Judges content; skips over delivery errors

7. Avoid premature judgement.

Has preconceptions

Does not judge until comprehension is complete

8. Listen for ideas.

Listens for facts

Listens to central themes

9. Work at listening.

Shows no energy; forgets what the speaker says

Works hard; exhibits active body state and eye contact

Resists difficult material in favour of light, recreational material

Uses heavier material as exercise for the mind

10. Exercise one’s mind.

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Sources: Adapted from Diann Daniel. (7 September 2004). Seven Deadly Sins of (Not) Listening. CIO, http://www.cio.com/ article/134801/Seven_Deadly_Sins_of_Not_Listening_ (accessed 7 December 2012); Sherman K. Okum. (August 1975). How to Be a Better Listener. Nation’s Business, 62; and Philip Morgan and Kent Baker. (November 1985). Building a Professional Image: Improving Listening Behavior. Supervisory Management, 34–8.

NO N -V E R B A L CO M M U N I C AT I O N Managers should be aware that their body language – facial expressions, gestures, touch and use of space – can communicate a range of messages, from enthusiasm, warmth, and confidence to arrogance, indifference, displeasure and condescension.51 For example, a manager who consistently delivers his or her verbal messages with a scowling expression or a sarcastic look will likely not develop positive interpersonal relationships, no matter how positive the verbal messages are.52 Non-verbal communication refers to messages sent through human actions and behaviour rather than through words.53 Managers should take care to align their facial expressions and body language to support an intended message. When non-verbal signals contradict a manager’s words, people become confused and may discount what is being said and believe the body language instead. Managers are watched, and their behaviour, appearance, actions and attitudes are symbolic of what they value and expect of others. Most of us have heard the saying, ‘Actions speak louder than words’. Indeed, we communicate without words all the time, whether we realise it or not. A significant portion of the shared understanding from communication comes from the non-verbal messages of facial expression, voice, mannerisms, posture and dress. One researcher found three sources of communication cues during face-to-face communication: the verbal, which are the actual spoken words; the vocal, which include the pitch, tone and timbre of a person’s voice; and facial expressions. According to this study, the relative weights of these three factors in message interpretation are as follows: verbal impact, 7 per cent; vocal impact, 38 per cent; and facial impact, 55 per cent.54 To some extent, we are all natural face readers, but at the same time, facial expressions

non-verbal communication A communication transmitted through actions and behaviour rather than words.

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can be misinterpreted, suggesting that managers need to ask questions to make sure that they’re getting the right message. Managers can hone their skills at reading facial expressions and improve their ability to connect with and influence followers. Studies indicate that managers who seem responsive to the unspoken emotions of employees are more effective and successful in the workplace.55

R EMEMBE R THIS ◗◗

Open communication means sharing all types of information throughout the organisation and across functional and hierarchical boundaries.

◗◗

A centralised network is a communication structure in which team members communicate through a single individual to solve problems or make decisions.

◗◗

A decentralised network is a communication structure in which team members freely communicate with one another and arrive at decisions together.

◗◗

Channel richness is the amount of information that can be transmitted during a communication episode.

◗◗

Although communication skills have always been important to managers, the ability to persuade and influence others is even more critical today.

◗◗

Communication apprehension is an individual’s level of fear or anxiety associated with interpersonal communication.

◗◗

Communicating with candour means being direct, honest and clear about what employees need to do to meet objectives, while also expressing respect for others and not making people feel slighted, controlled or exploited.

◗◗

To encourage a give-and-take exchange of information between managers and employees, managers need to learn to ask questions.

◗◗

Listening involves the skill of grasping both facts and feelings to interpret a message’s genuine meaning.

◗◗

Non-verbal communication means communicating through actions, gestures, facial expressions and behaviour rather than through words.

ORGANISATIONAL AND WORKPLACE COMMUNICATION

12.3

Another aspect of management communication concerns the organisation as a whole. Four elements of workplace communication for managers to master are:

1 2 3 4

using social media to improve internal and external communication using informal, personal communication channels establishing formal communication channels developing strategies for crisis communication.

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SOCI AL M E DI A Social media refers to a group of Internet-based applications that allow the creation and exchange of

user-generated content. The term social media covers a broad range of applications, including wikis, blogs, microblogs (e.g. Twitter and China’s Sina Weibo), content communities (e.g. YouTube), social networking sites (e.g. Facebook) and virtual social worlds (e.g. Second Life).56 Various forms of social media are reinventing how people in organisations communicate among themselves and with customers and other stakeholders. In the United States, Dallas-based 7-Eleven Inc. has about 2000 field consultants who use Yammer to share knowledge and learn best practices for how to help franchise owners improve their businesses.57 Starbucks asks customers for ideas on a social media portion of its website and then lets people vote on them, turning criticism into better products. Managers at Aquasana, a home water filtration company, mine the social media interactions of its competitors’ customers to find out what people like and don’t like and create marketing campaigns that win business.58 Companies are embracing social media in a big way.59 So far, social media hasn’t boosted productivity in the United States significantly, but economists such as MIT’s Erik Brynjolfsson say that it takes about five years for a new technology to show its full impact on companies that use it. Social media has been used for only two or three years in most companies, largely for communicating with customers and enhancing employee collaboration.60

LISTENING T O C UST O MERS Managers in companies from small entrepreneurial firms and not-for-profit agencies to huge corporations are using social media to listen to customers. Dr Pepper Snapple Group Inc., a soft drink manufacturer in the United States, for example, uses social media to listen to customers by building an 8.5-million-strong fan base on Facebook. These loyal followers who ‘like’ the Dr Pepper soft drink help the brand hone its marketing message. The company sends out two messages daily on its Facebook fan page and then monitors the fans’ reactions. Using tools from Facebook, Dr Pepper measures how many times a message is viewed, how many times it is shared with other Facebook users and what responses it gets. These data help managers adjust their brand messaging. ‘We mine data to understand what is appreciated, and what is not,’ says Robert Stone, director of interactive media services for Dr Pepper Snapple Group Inc. ‘It helps us shape what we are.’61 The huge health care provider Kaiser Permanente has used social media tools so effectively to listen to customers and improve service that positive media mentions of the organisation have increased close to 500 per cent over five years.62

COMMUNIC AT ING TO C USTOME R S Managers also use social media to communicate corporate news quickly to customers. Domino’s relied on the popularity of online communities to calm jittery customers after a damaging prank video showing two employees defacing pizzas and sandwiches was uploaded to YouTube. Domino’s managers chose to respond with a viral video of their own. The company president apologised and thanked the online community for bringing the issue to his attention. He announced that the wrongdoers would be prosecuted and outlined the steps that Domino’s was taking to ensure that the episode would never happen again. By engaging in an online conversation about the crisis, Domino’s demonstrated concern for its customers and squelched further rumours and fears.63

social media A group of Internet-based applications that allow the creation and exchange of user-generated content. social networking Social networking is the expansion of an individual’s set of business or social contacts, often using Internet-based media.

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ENGA GING EM P LOYEES Using social media can enable people to connect with one another easily across organisational and geographical boundaries based on professional relationships, shared interests, problems or other criteria. Interacting through public websites and corporate networks gives employees opportunities to participate in an online community, sharing personal and professional information and photos, producing and sharing all sorts of ideas and opinions. Social media had become not just a means for connection and collaboration, but also an effective employee engagement tool for companies such as GE.64 GE introduced an internal social network called GE Colab in January 2012, and it has been an astounding success, thanks partly to the efforts of Ron Utterbeck, CIO for GE Corporate, who first introduced it to GE’s ‘power users’ to encourage high levels of activity. ‘Our social media metrics focus largely on engagement [of both employees and customers] because that’s where we connect with people and build the bond of emotional equity,’ said Linda Boff, GE’s executive director of global digital marketing.65 Another company that effectively uses social media for engagement is the Northern European branch of Tupperware, Tupperware Nordic.

INNOVATIVE WAY TUPPERWARE NORDIC Tupperware may seem ‘old school’, but it is cutting-edge when it comes to using social media to engage people and build community. Steve Ove Fenne, former managing director at Tupperware Nordic, used social media to create a high level of employee engagement by building a connected community based on authenticity, pride, attachment and fun. To support authenticity, Fenne began building positive connections with distributors and consultants in the real world and then made sure that messages delivered through social media were consistent with actions in the real world. Previously, individuals operating distribution warehouses and sales consultants were almost never invited to headquarters. Fenne didn’t just invite them – he literally rolled out a

long red carpet as a symbolic gesture. He began regularly visiting all major centres of activity to establish personal relationships. He followed up with blogs, emails, podcasts and other messages on social media. He also personally read every message sent to him by consultants, rather than assigning the job to others, and would respond with oneliners such as ‘WOW! We are so proud of you’ (adding the person’s first name). When his time was limited, he posted messages on his social media page explaining the situation and reaffirming his support of and pride in each and every consultant. By using social media to build a community, Fenne helped people who were often working in isolation feel more attached to one another and to the company as a whole.

Source: Discussed in Huy, Q. and Shipilov, A. (Fall 2012). The Key to Social Media Success Within Organizations. MIT Sloan Management Review, http:// sloanreview.mit.edu/article/the-key-to-social-media-success-within-organizations/ (accessed 1 November 2013).

personal communication channels Communication channels that exist outside the formally authorised channels and do not adhere to the organisation’s hierarchy of authority.

P E R S O NA L CO M M U N I C AT I O N C H A N N E L S Personal communication channels coexist with formal channels within an organisation but may skip hierarchical levels, cutting across vertical chains of command to connect virtually anyone in the organisation. In most organisations, these informal channels are the primary way that information spreads and work gets accomplished. Three important types of personal communication channels are personal networks, the grapevine and written communication.

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DEVELOPING P ERSONA L C OM MUNI C AT I O N NE T W O R K S Personal networking refers to the acquisition and cultivation of personal relationships that cross

departmental, hierarchical and even organisational boundaries. Successful managers consciously develop personal communication networks and encourage others to do so. Consider Nick Chen, who loved his job as a software engineer designing programs for mobile phones. The work was rewarding, the pay was good and the working conditions were excellent. ‘The best part of being a software engineer,’ said Nick, ‘is working with a team of professionals who are excited about finding the next breakthrough in mobile technology’. Nick’s team had recently designed a chipset that would revolutionise the way that people communicate with their mobile phones. Nick’s managers recognised his contributions with a year-end bonus, so he was feeling confident about his future with the company. However, Nick had become eager for more responsibility, so he began looking for a management position. During his one-hour commute to work every morning, he used LinkedIn to strengthen his professional network and explore job openings in the mobile technology industry. His efforts paid off. One morning, while updating his profile, Nick got a message from a former colleague who had recently taken a position at Qualcomm in San Diego. She recommended that Nick apply for a new position as product manager for the Android smartphone. Eager to learn more, Nick became one of the company’s LinkedIn followers, and he found out that Qualcomm had earned a strong reputation as a great place to work and had been named to Fortune magazine’s list of ‘100 Best Companies to Work For’ 14 years in a row. Nick quickly updated his résumé and applied for the position.67 66

Personal networking, enhanced through social and professional networking sites such as LinkedIn, is an important skill for managers because it enables them to get things done more smoothly and rapidly than they could do in isolation. People who have more contacts have greater influence in the organisation and get more accomplished. EXHIBIT 12.7 illustrates a communication network within an organisation. Some people are central to the network while others play only a peripheral role. The key is that relationships are built across functional and hierarchical boundaries. For example, in EXHIBIT 12.7, Sharon has a well-developed personal communication network, sharing information and assistance with many people across the marketing, manufacturing and engineering departments. Contrast Sharon’s contacts with those of Mike or Jasmine, who are on the periphery of the network. Who do you think is more likely to have greater access to resources and more influence in the organisation? Here are a few tips from one expert networker for building a personal communication network:68

◗◗ Build it before you need it. Smart managers don’t wait until they need something to start building a network of personal relationships – by then, it’s too late. Instead, they show genuine interest in others and develop honest connections.

◗◗ Never eat lunch alone. Master networkers make an effort to connect with as many people as possible, and they keep their social as well as business conference and event calendars full. Tim Gutwald created a service called Network Shuffle that randomly assigns members a new connection once a month to make sure that people’s networks are constantly expanding.69

◗◗ Make it win–win. Successful networking isn’t just about getting what you want; it’s also about making sure that other people in the network get what they want.

◗◗ Focus on diversity. The broader your base of contacts, the broader your range of influence. Build connections with people from as many different areas of interest as possible (both within and outside the organisation).

personal networking The acquisition and cultivation of personal relationships that cross departmental, hierarchical and even organisational boundaries.

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EXHIBIT 12.7 An organisational communication network

Marketing

Manufacturing

Engineering

David

Ann

Sharon

Jasmine

Mike

THE GRA PEV INE

grapevine An informal, person-toperson communication network of employees that is not officially sanctioned by the organisation.

Because 90 per cent of employees engage in gossip, every manager eventually will have to contend with its effects in the workplace.70 Although the word gossip has a negative connotation, it may actually be good for a company, especially during times of significant organisational change, such as retrenchments or downsizing. In fact, gossip can be an invaluable tool for managers. Gossip provides an efficient channel to communicate information because it will move more rapidly than through a formal channel. Another advantage of gossip is that managers who tap into the gossip network may find it a useful ‘early warning system’ that helps them learn about internal situations or events that might need their attention. Plus, gossip is one way employees relieve feelings of tension and anxiety, especially during periods of change. Another benefit is that gossip may give marginalised employees an opportunity to have a voice within the organisation.71 Gossip typically travels along the grapevine, an informal, person-to-person communication network that is not officially sanctioned by the organisation.(see EXHIBIT 12.8)72 The grapevine links employees in all directions, ranging from the CEO through middle management, support staff and line employees. The grapevine will always exist in an organisation, but it can become a dominant force when formal channels are closed. In such cases, the grapevine is actually a service because the information that it provides helps make sense of an unclear or uncertain situation. Employees use grapevine rumours to fill in information gaps and clarify management decisions. One estimate is that as much as 70 per cent of all communication in a firm is carried through its grapevine.73 The grapevine tends to be more active during periods of change, excitement, anxiety and sagging economic conditions. Managers often keep silent during times of change because they don’t want to mislead employees by giving out incomplete information.74 However, when people don’t hear about what is going on from managers, the grapevine goes into overdrive. A survey by professional employment services firm Randstad found that about half of all employees reported first hearing of major company changes through the grapevine.75 Surprising aspects of the grapevine are its accuracy and its relevance to the organisation. About 80 per cent of grapevine communications pertain to business-related topics rather than personal gossip. Moreover, from 70 to 90 per cent of the details passed through a grapevine are accurate.76 Managers should be aware that almost five of every six important messages are carried to some extent by the grapevine

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rather than through official channels. In a survey of 22 000 shift workers in varied industries, 55 per cent said that they get most of their information via the grapevine.77 Smart managers understand the company’s grapevine. ‘If a leader has his ear to the ground, gossip can be a way for him to get a sense of what his employees are thinking or feeling,’ says Mitch Kusy, an organisational consultant, psychologist and professor at Antioch University, California.78 In all cases, but particularly in times of crisis, executives need to manage communications effectively so that the grapevine is not the only source of information.79

EXHIBIT 12.8 Two grapevine chains in organisations

Gossip chain (One tells many)

WRITTE N C OM MUNIC ATIO N ‘With the fast pace of today’s electronic communications, one might think that the value of fundamental writing skills has diminished in the workplace,’ said Joseph M. Tucci, president and CEO of EMC Corporation. ‘Actually, the need to write clearly and quickly has never been more important than in today’s highly competitive, technologydriven global economy.’80 Managers who are unable to communicate in writing will limit their opportunities for advancement. ‘Writing is both a “marker” of high-skill, high-wage, professional work and a “gatekeeper” with clear equity implications,’ says Bob Kerrey, president of The New School in New York and chair of the National Commission on Writing in the United States. Managers can improve their writing skills by following these guidelines:81

◗◗ Respect the reader. The reader’s time is valuable; don’t waste it with a

Cluster chain (A few tell selected others) Source: Based on Keith Davis and John W. Newstrom, Human Behavior at Work: Organizational Behavior, 7th edn (New York: McGraw-Hill, 1985).

rambling, confusing memo or email that has to be read several times to make sense of it. Pay attention to your grammar and spelling. Sloppy writing indicates that you think your time is more important than that of your readers. You’ll lose their interest – and their respect.

◗◗ Know your point and get to it. What is the key piece of information that you want the reader to remember? Many people just sit and write, without clarifying in their own mind what it is they’re trying to say. To write effectively, know what your central point is and write to support it.

◗◗ Write clearly rather than impressively. Don’t use pretentious or inflated language, and avoid jargon. The goal of good writing for business is to be understood the first time through. State your message as simply and as clearly as possible.

◗◗ Get a second opinion. When the communication is very important, such as a formal memo to the department or organisation, ask someone you consider to be a good writer to read it before you send it. Don’t be too proud to take their advice. In all cases, read and revise the memo or email a second and third time before you hit the Send button. A former manager of communication services at consulting firm Arthur D. Little Inc. has estimated that around 30 per cent of all business memos and emails are written simply to get clarification about an earlier written communication that didn’t make sense to the reader.82 By following these guidelines, you can get your message across the first time.

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F O R M A L CO M M U N I C AT I O N C H A N N E L S formal communication channels Involve written and verbal ways of exchanging information among people who have recognised status in the organisation.

EXHIBIT 12.9 Downward, upward and horizontal communication in organisations

Formal communication channels are those that flow within the chain of command or task responsibility defined by the organisation. The three formal channels and the types of information conveyed in each are illustrated in EXHIBIT 12.9.83 Downward and upward communications are the primary forms of communication used in most traditional, vertically organised companies. However, many of today’s organisations emphasise horizontal communication, with people continuously sharing information across departments and levels. Electronic communication methods such as email and instant messaging have made it easier than ever for information to flow in all directions.

Upward communication

Downward communication

Problems and exceptions Suggestions for improvement Performance reports Grievances and disputes Financial and accounting information

Implementation of goals, strategies Job instructions and rationale Procedures and practices Performance feedback Indoctrination

Horizontal communication Intradepartmental problem solving Interdepartmental coordination Change initiatives and improvements

Coordinate

Interpret

Influence

DO WNWA RD C OM MU NI C AT I O N downward communication Messages and information sent from top management down to employees.

The most familiar and obvious flow of formal communication, downward communication, refers to the messages and information sent from top management to subordinates in a downward direction. Managers can communicate downward to employees in many ways. Some of the most common are through speeches, videos, blogs, podcasts and company intranets. It is impossible for managers to communicate with employees about everything that goes on in the organisation, so they have to make choices about the important information to communicate.84 Unfortunately, many managers could do a better job of effective downward communication. The results of one survey show that employees want open and honest communication about both the good and the bad aspects of the organisation’s performance. A study of 1500 managers, mostly at first and second management levels, found that 84 per cent of these leaders perceive communication as one of their most important tasks, yet only 38 per cent believe they have adequate communication skills.85 Managers can do a better job of downward communication by focusing on specific areas that require regular communication. Downward communication usually encompasses these five topics:

◗◗ Goals and strategies. Communicating new strategies and goals provides information about specific targets and expected behaviours. It gives direction for lower levels of the organisation. Example: ‘The new quality campaign is for real. We must improve product quality if we are to survive.’

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◗◗ Job instructions and rationale. These directives indicate how to do a specific task and how the job relates to other organisational activities. For high-priority or time-sensitive issues, some managers use Twitter as a preferred channel of downward communication. With a limit of 140 characters, reading and replying to a ‘tweet’ is a lot faster than other forms of communication.86 Example of a Twitter message: ‘Brand managers from Adele will attend our presentation at the Sydney trade show on October 24. We’ll meet Friday at 9 a.m. to outline the presentation.’

◗◗ Procedures and practices. These messages define the organisation’s policies, rules, regulations, benefits and structural arrangements. Example: ‘After your first 90 days of employment, you are eligible to enrol in our company-sponsored savings plan.’

◗◗ Performance feedback. These messages appraise how well individuals and departments are doing their jobs. Example: ‘Joe, your work on the computer network has greatly improved the efficiency of our ordering process.’

◗◗ Coaching and training. These messages are designed to motivate employees to adopt the company’s mission and cultural values and to participate in special ceremonies, such as picnics and United Way campaigns. Example: ‘The company thinks of its employees as family and would like to invite everyone to attend the annual picnic and fair on March 3.’ A major problem with downward communication is drop-off; that is, the distortion or loss of message content. Although formal communications are a powerful way to reach all employees, much information gets lost – 25 per cent or so each time a message is passed from one person to the next. In addition, the message can be distorted if it travels a great distance from its originating source to the ultimate receiver. Information drop-off cannot be avoided completely, but the techniques described in the previous sections can reduce it substantially. Using the right communication channel, consistency between verbal and non-verbal messages, and active listening can maintain communication accuracy as it moves down the organisation.

upward communication Messages that flow from the lower to the higher levels in the organisation’s hierarchy.

UPWAR D C O MM UNIC AT ION

◗◗ Problems and exceptions. These messages describe serious problems with and exceptions to routine performance to make senior managers aware of difficulties. Example: ‘The website went down at 2:00 a.m., and our engineers are currently working to resolve the problem.’

◗◗ Suggestions for improvement. These messages are ideas for improving task-related procedures to increase quality or efficiency.

Source: Getty Images/Stuart O’Sullivan

Formal upward communication includes messages that flow from the lower to the higher levels of the organisation’s hierarchy. Most organisations take pains to build in healthy channels for upward communication. Employees need to air grievances, report progress and provide feedback on management initiatives. Coupling a healthy flow of upward and downward communication ensures that the communication circuit between managers and employees is complete.87 Five types of information communicated upward are the following: Despite the prevalence of email and other forms of electronic communication in organisations, there is often no substitute for face-to-face meetings. All employees need the opportunity to provide feedback to their managers, make suggestions for how to improve work processes, air grievances, and discuss problems and opportunities at work. This is most effective when employees feel they can honestly air their frustrations without expecting recriminations or blame, and communication is encouraged in a spirit of positive improvement.

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Example: ‘I think we should eliminate step 2 in the audit procedure because it takes a lot of time and produces no results.’

◗◗ Performance reports. These messages include periodic reports that inform management how individuals and departments are performing. Example: ‘We completed the audit report for Smith & Smith on schedule but are one week behind on the Jackson report.’

◗◗ Grievances and disputes. These messages are employee complaints and conflicts that travel up the hierarchy for a hearing and possible resolution. Example: ‘After the reorganisation of my district, I am working excessively long hours. I have lost any semblance of a work–life balance.’

◗◗ Financial and accounting information. These messages pertain to costs, accounts receivable, sales

horizontal communication The lateral or diagonal exchange of messages among peers or coworkers.

volume, anticipated profits, return on investment and other matters of interest to senior managers. Example: ‘Costs are 2 per cent over budget, but sales are 10 per cent ahead of target, so the profit picture for the third quarter is excellent.’ Smart managers make a serious effort to facilitate upward communication. For example, Mike Hall, CEO of Borrego Solar Systems, found an effective way to encourage his introverted engineers to speak up and submit ideas for improving the business. To get his staff to offer feedback and suggestions, Hall organised an internal contest he called the Innovation Challenge. All employees were encouraged to submit ideas about improving the business using the company intranet. Once all of the ideas were submitted, employees voted for their favourite idea, and the winner won $500 in cash. Nearly all of Borrego’s employees participated in the contest. ‘We’ve been able to generate a lot of great ideas by tapping everyone’s brains,’ Hall says.88

HO RIZ O NTA L C O MMUNI C AT I O N Horizontal communication is the lateral or diagonal exchange of messages among peers or co-workers. It may occur within or across departments. The purpose of horizontal communication is not only to inform but also to request support and coordinate activities. Horizontal communication falls into one of three categories:

◗◗ Intradepartmental problem solving. These messages take place among members of the same department and concern task accomplishment. Example: ‘Kelly, can you help us figure out how to complete this medical expense report form?’

Source: Getty Images/Maartje van Caspel

◗◗ Interdepartmental coordination. Interdepartmental messages facilitate Workplace communications, often through meetings, can help to coordinate work processes across organisations. Without communication, the left hand of the organisation would not know what its right hand is doing and vice versa. Many organisations have regular meetings: ‘Wednesday morning production planning meetings’ or ‘Monday afternoon production and marketing coordination meetings’. In addition, ad hoc or informal meetings are often held to discuss specific challenges or opportunities facing organisations. Efficiency and effectiveness in conducting and participating at meetings is vital to organisational effectiveness.

the accomplishment of joint projects or tasks. Example: ‘Michael, please ask your team to edit the IBM report using Google Docs by Monday morning.’

◗◗ Change initiatives and improvements. These messages are designed to share information among teams and departments that can help the organisation change, grow and improve. Example: ‘We are streamlining the company travel procedures and would like to discuss them with your department.’ Recall from Chapter 7 that many organisations build in horizontal communications in the form of task forces, committees, or even a matrix or horizontal structure to encourage coordination. At Chicago’s Northwestern

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Memorial Hospital in the United States, two doctors created a horizontal task force to reduce the incidence of hospital-borne infections. The infection epidemic that kills nearly 100 000 people a year is growing worse worldwide, but Northwestern reversed the trend by breaking down communication barriers. Infectious-disease specialists Lance Peterson and Gary Noskin launched a regular Monday morning meeting involving doctors and nurses, lab technicians, pharmacists, computer technicians, admissions representatives and even the maintenance staff. The enhanced communication paid off. Over a threeyear period, Northwestern’s rate of hospital-borne infections plunged 22 per cent and was roughly half the national average.89

See Chapter 7 for a discussion of horizontal communication.

CASE STUDY SUSAN WILLIAMS opportunities for more than 2000 women. The company only hires older women as older women are ‘hardworking, caring, very organised and very good at setting up homes’. The average age of the staff at The Finishing Touch is 58, with staff often working well into their 60s and early 70s. Susan Williams knows how important her staff are to the business and she ensures that her employees are reminded of that: ‘I am constantly looking for examples of great performance in our ladies, to promptly recognise and reward them for this and then widely propagate these scenarios – internally with other staff and externally with our business partners.’

Sources: The Finishing Touch (2015). Our story, http://www.ftouch.com.au/our_story (accessed 2 December 2016); Nicastri, D. (16 July 2014). The Finishing Touch moving service only employs mature-aged women and is looking for women from the north shore. North Shore Times, http://www.dailytelegraph. com.au/newslocal/north-shore/the-finishing-touch-moving-service-only-employs-matureaged-women-and-is-looking-for-women-from-the-north-shore/ news-story/435ca3089c131ae9e3a39323aabf41dc (accessed 2 December 2016); The Beacon (2015, Spring). Move home with The Finishing Touch, http:// beacon.bcna.org.au/2015/11/move-home-with-the-finishing-touch/ (accessed 2 December 2016); Pennington, S. (15 December 2014). Five habits of high achievers. The Sydney Morning Herald, http://www.smh.com.au/small-business/entrepreneur/five-habits-of-high-achievers-20141209-123a2q.html (accessed 2 December 2016).

Source: Fairfax Syndication/Paul Jeffers

Starting out from a kitchen-table in 1994, Susan Williams’ business, called The Finishing Touch, currently employs over 200 women right around Australia and New Zealand who provide home services that help customers to pack and unpack when they move house. Effective communication across this business, which revolves around a diverse group of clients and a geographically spread staff, is a vital ingredient of its success. Before email and the Internet, the cost and difficulty of communicating with staff would have been problematic for this type of business. However, with the provision of forms, schedules, work assignments, shift times, brochures and customer feedback sheets all by email and the Internet, Susan has the business under control. The effectiveness of the Internet and email for communications and transactions has allowed this business to spread its wings and conduct its business with great efficiency. The Finishing Touch proudly boasts that: ‘Our service operates on state-of-the-art systems, meaning we are constantly in touch with our clients and their removalists. Moving is a complicated logistics business and attention to detail is vital. Our company tracks every interaction and staff access this knowledge 24 hours a day via a purpose-built online system.’ By 2016, the company has helped more than 70 000 families move home and has provided employment

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AUSTRALIAN MANAGER PROFILE

Source: Courtesy Jane Evans

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Jane Evans works as a program manager within a Victorian government department overseeing the development and implementation of policy and strategic frameworks that operate across the whole state. Jane has worked in the public service for nearly 20 years at both Commonwealth and state levels, and has also worked in the direct service delivery level. After six years working in the corporate world following university, Jane moved to a job in the Commonwealth public service to fulfil a need to have a job that delivered something to society rather than just maximise profits for shareholders. Jane undertook a Master of Public Health degree and went on to work in a Victorian government department overseeing a large statewide pharmaceutical program, and also working with other states and territories on joint Commonwealth/state legislation. Jane also spent eight years working in a hospital in strategy, planning and quality improvement roles before returning to government to run a statewide program, working with agencies across Victoria. Jane’s current role requires the ability to understand and negotiate the competing priorities of government while developing and delivering a program that meets the needs of the stakeholders who are the service delivery agencies. It also requires working with and influencing the service delivery agencies to achieve the desired program outcomes without direct governance authority over the agencies. The role requires negotiating and communication skills, demonstration of technical knowledge and a strategic approach that translates into direct service delivery and improved outcomes for the public.

Throughout Jane’s career, her passion has been to make service delivery more efficient and effective through pursuing operational excellence and building processes to prioritise and deploy strategy throughout the organisations in which she has worked. Initially, Jane’s role focused on the delivery of ‘quality’ from a primarily compliance perspective combined with strategic and business planning and risk management. This provided an organisation-wide view of operations and identified the need for a holistic systems approach to improvement and change. Jane then expanded this approach to include the principles of business process redesign methodologies as important organisational management tools and now works with service delivery organisations across the state to implement a statewide approach to building improvement capability and measurement of performance outcomes using redesign techniques such as lean, six sigma, theory of constraints and so on. The value of this approach in building high performing organisations is well-known, and evidence in the Victorian context is beginning to emerge. The most interesting part of the job of managing a government program is the challenge of balancing government and political imperatives with the needs and priorities of stakeholders to deliver a program that provides the best outcomes for the public. In the main, all of these things align; but it is the instances where finding a solution to bring competing elements into position is required that provide the best learning experiences as a manager, and are often also the most rewarding.

SOURCE: Contributed by Jane Evans.

C R I S I S CO M M U N I C AT I O N A manager’s skill at communicating becomes even more crucial during times of rapid change, uncertainty or crisis. Over the past few years, the sheer number and scope of crises have made communication a more demanding job for managers. Consider the importance of communication in the success of Robert Dudley, appointed as CEO for BP in the midst of the 2010 oil spill crisis in the Gulf of Mexico. Dudley faced the massive task of helping BP survive one of the greatest environmental disasters in history, caused when a

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rig drilling a well for BP exploded, killing 11 workers and releasing hundreds of millions of gallons of oil into the gulf. Dudley entered his new role facing myriad challenges, all requiring superior communication skills: restoring trust among communities and the public, dealing with the costs and legal consequences of the oil spill, repairing damaged relationships with federal and state authorities, bolstering morale among BP employees and winning back investors. His ability to communicate confidence, concern and stability were critically important. ‘I can’t think of any new chief executive of an oil company stepping into a more complicated situation,’ said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates. ‘BP is going to be in a rebuilding mode, and the aftermath of the spill will go on for a long time.’90 In Australia, BP announced in late 2016 the acquisition of Woolworths’ 527 petrol stations nationwide, signalling a return to business growth and brand prominence. The transaction was large, being of $1.8 billion, and signalled that confidence was returning to BP.91 As a manager, your ability to communicate effectively during a crisis will determine how effectively the organisation survives the upheaval (see Chapter 5, Crisis planning). Consider the mistakes made by the captain of the Costa Concordia, who ran his ship aground in January 2012, causing a disaster that claimed 32 lives. The ship capsized off the coast of the Tuscan island of Giglio after Captain Francesco Schettino allegedly took it off course as part of a stunt, accidentally running it aground. Schettino has been found guilty of multiple manslaughter and of abandoning ship before all the passengers had been evacuated. Schettino is said to have contributed to the crisis by failing to respond for 45 minutes after the crew told him that the ship was flooding and its motors were dead. He issued the ‘abandon ship order’ nearly an hour after the ship had run aground – too late to save many lives. Schettino also failed to step forward, accept responsibility, and explain what happened during the days following the disaster.92 Four primary skills for managers to follow when communicating in a crisis are outlined next. As you read them, consider how (in)effective Captain Schettino was in communicating during and after the cruise ship crisis.93

◗◗ Stay calm, listen hard. Good crisis communicators don’t allow themselves to be overwhelmed by the situation. Calmness and listening become more important than ever. Managers also learn to tailor their communications to reflect hope and optimism as they acknowledge current difficulties.

◗◗ Be visible. Many managers underestimate just how important their presence is during a crisis.94 A manager’s job is to step out immediately, both to reassure employees and respond to public concerns. Face-to-face communication with employees is crucial for letting people know that managers care about them and what they’re going through.

◗◗ Get the awful truth out.95 Effective managers gather as much information as they can, do their best to determine the facts, and tell the truth to employees and the public as soon as possible. Getting the truth out quickly prevents harmful rumours and misunderstandings.

◗◗ Communicate a vision for the future. People need to feel that they have something to work for and look forward to. Moments of crisis present opportunities for managers to communicate a vision of a better future and unite people towards common goals.

See Chapter 5 for a discussion of crisis planning.

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MANAGEMENT IN PRACTICE LEAPING OVER LANGUAGE BARRIERS In today’s global business environment, odds are good that at times you’ll find yourself conversing with an employee, colleague or customer who has limited skills in your native language. Here are some guidelines that will help you speak – and listen – more effectively.

✚✚ Keep your message simple. Be clear about what you want to communicate, and keep to the point.

✚✚ Select your words with care. Don’t try to dazzle with your vocabulary. Choose simple words, and look for opportunities to use cognates – that is, words that resemble words in your listener’s language. Assemble those simple words into equally simple phrases and short sentences. And be sure to avoid idioms, slang, jargon and vague terminology such as soon, often or several.

✚✚ Pay close attention to non-verbals. Effective communicators carefully and clearly notice the body language of those they are speaking to but keep in mind that the meaning of such cues can vary significantly from culture to culture. For example, some people may view eye contact as a sign you’re giving someone your full attention, but the Japanese consider prolonged eye contact rude.

✚✚ Don’t cover your mouth with your hand. Being able to see your lips helps your listener to decipher what you’re saying.

✚✚ Speak slowly and carefully. In particular, avoid running words together. ‘Howyadoin?’ won’t make any sense to someone still struggling with the English language, for example.

✚✚ Allow for pauses. If you are a Westerner, your culture has taught you to avoid silence whenever possible, but pauses give your listener time to take in what you’ve said, ask a question or formulate a response.

✚✚ Fight the urge to shout. Speaking louder doesn’t make it any easier for someone to understand you. It also tends to be intimidating and could give the impression that you’re angry.

✚✚ Check for comprehension frequently, and invite feedback. Stop from time to time and make sure you’re being understood, especially if the other person laughs inappropriately, never asks a question, or continually nods and smiles politely. Ask the listener to repeat what you’ve said in his or her own words. If you find the other person hasn’t understood you, restate the information in a different way instead of simply repeating yourself. Similarly, listen carefully when the other person speaks, and offer feedback so they can check your understanding of his or her message. Above all, when communicating with someone who doesn’t speak your language well, be patient with yourself and the listener, be encouraging and be persistent.

SOURCES: How to Communicate with a Non Native English Speaker. wikiHow, http://www.wikihow.com/Communicate-With-a-Non-Native-English-Speaker; Thiederman, S. Language Barriers: Bridging the Gap. http://www.thiederman.com/articles_detail.php?id=39 (accessed 28 January 2008); Communicating with Non-native Speakers. Magellan Health Services, http://www.magellanassist.com/mem/library/default.asp?TopicId=95&CategoryId=0&ArticleId=5 (accessed 28 January 2008).

Slower and less accurate

EXHIBIT 12.10 Effectiveness of team communication networks Simple tasks

Complex tasks

Faster and more accurate

Centralised = Y

Wheel

Circle

All channel

Decentralised =

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R EMEMBE R THIS ◗◗

Four elements of workplace communication are using social media, using personal communication channels, establishing formal communication channels, and developing strategies for crisis communication.

◗◗

The term social media refers to a group of Internet based applications that allow the creation and sharing of user-generated content.

◗◗

Companies are using social media for enabling employees to communicate among themselves and with managers, communicating with customers and other outsiders, and building employee engagement.

◗◗

Personal communication channels exist outside formally authorised workplace channels and include personal networks, the grapevine and written communication.

◗◗

Personal networking refers to acquiring and cultivating personal relationships that cross departmental, hierarchical and even organisational boundaries.

◗◗

The grapevine carries workplace gossip, a dominant force in workplace communication when official channels are closed.

◗◗

A communication channel that flows within the chain of command is called a formal communication channel.

◗◗

Downward communication refers to messages sent from top management down to subordinates; upward communication includes messages that flow from the lower to the higher levels in the organisation’s hierarchy.

◗◗

Horizontal communication is the lateral or diagonal exchange of messages among peers or co-workers and includes team communication.

◗◗

During a communication crisis, a manager should stay calm and listen carefully, reassure employees and the public, tell the truth and communicate a vision for the future.

There are at least two important aspects of communication that relate to sustainability: communication of sustainability activities and achievements, and the sustainability aspects of an organisation’s communications activities themselves. First, consider the need to communicate the organisation’s policies, strategies and activities regarding sustainability. If a firm is going to do good things for the environment, community and in so doing, for itself, then such achievements need not be kept quiet at all. Indeed, with due consideration of the prevailing culture and style of the organisation, it is useful to let all stakeholders know of these. The benefits of sustainability come from stakeholder empowerment, competitive edge in the market and sheer efficiency, all of which merit reporting widely to stakeholders. An increasing number of organisations in most industries now publish a sustainability report, which in some places is called a corporate social responsibility (CSR) report. There is essentially no downside from reporting achievements in doing good and hence doing well. Now we can consider how to advance sustainability outcomes in the firm’s own communication processes. All organisations spend a lot of time and money doing the work of communication. Every day, many thousands of business managers fly all around the country and world to attend meetings. This consumes time and also means that more planes are flying than would be the case if this was reduced – and it can be reduced! Flights create a large amount of greenhouse gases, and many advanced firms have learned that they can reduce the number of executives they have flying around to meetings. This has environmental benefits and also saves both the direct cost of such travel, as well as the cost of wasted time in transit. Companies are increasingly making use of video conferences, voice over Internet protocol (VOIP) technologies, Skype and other substitutes for the frequent

SUSTAINABLE DEVELOPMENT COMMUNICATIONS AND SUSTAINABILITY

corporate social responsibility (CSR) report The publication of the organisation’s record of activities and performance outcomes on social/community and environmental impacts and outcomes, as well as the usual financial performance report.

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meetings that spur plane travel. For example, a company that has a national monthly face-to-face sales meeting requiring people to travel all over the country might decide to have every second meeting via phone or video conference, thus halving their flight bill and saving greenhouse gas emissions. Telecommuting and working from home is becoming more and more feasible with the superb new technologies now in existence for communication. With the Internet now being generally fast, reliable and secure, many people can work at home or remotely at least one day a week. Having a policy such as this means that fewer cars are being driven, which reduces greenhouse gas production and also leads to more useful time for employees, as time spent in traffic is essentially wasted. And when such people can improve their personal quality of life, perhaps by making less use of childcare, then quality of life in the community improves, too. The amount of paper that most organisations use is enormous. Even though some of it might be recycled, it is always more environmentally sound to use less than more. Many organisations have set goals of using less paper in their communications processes, doing more electronic communications. For example, at the University of Melbourne, hundreds of copies of papers for monthly academic board meetings were printed, with most of them not being read on a regular basis. These are now circulated electronically, and while they can be printed, most board members choose not to do so. This initiative is also happening at other universities and businesses, with an increasing proportion of lecture notes, meeting files and minutes being e-published rather than printed. For external stakeholders, annual reports for listed companies used to be printed and mailed to every stakeholder, often with multiple copies going to the same address. Most companies have now made this element of communication much more efficient and lower in cost, being published online and available for downloading, saving many trees and delivery activities.

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STUDY TOOLS

ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months access to the resources and study tools for this chapter.

Express CO UR SEMAT E EX PR ES S FO R MANAG E M E N T

S E A R C H M E ! M A NAG E M E N T

The CourseMate Express website contains:

Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Management is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, eBooks and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words:

• revision quizzes • video cases • self-assessments • audio summaries • and more!

• Communications

• Open communication

• Workplace communications

• Listening

• Channels of communication Search tip: Search Me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’.

RESPONSE TO THE MANAGEMENT CHALLENGE

JOHN McFARLANE: COMMUNICATE TO BUILD MORALE At ANZ Bank, CEO John McFarlane used a variety of tools to harness employee brainpower and break down communication barriers. Customers as well as employees were frustrated and dissatisfied, and John knew the company needed to open the lines of communication fast to remain competitive in the banking business. A new employee culture emphasising the importance of active listening skills, together with a massive training program called Breakout, refocused organisational

efforts on service through communication. Key elements were improved levels of openness, trust and collaboration, which are all based on effective communications. Upwards as well as downwards communications were strengthened with regular meetings, get-togethers for all employees, and between a manager and employees to brainstorm about problems or opportunities. Committees were set up to encourage crossfunctional communication and understanding. In addition, a monthly newsletter, employee mailboxes, a computer-based ideas system, a telephone hotline and a weekly email update keep information flowing across departmental lines to assure better and faster customer service. Today, information flows throughout the company in all directions, and an employee-run

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team is charged with continuous improvement in internal communications. Customer service measures improved substantially, and employee turnover is among the lowest in the industry. The company has achieved much praise and many awards, but of most importance, it has lifted its employee engagement through improved communications, hence its customer satisfaction, hence its profitability. A key lesson is

that despite all the telecommunications systems and devices that we all have at work and at home, communications is all about people and is aimed at making them more effective in their achievement of their goals. Under its next Chief Executive Mike Smith, ANZ continued to work hard on all aspects of its communications effectiveness and appeared to have improved that aspect of its operation.

DISCUSSION QUESTIONS 1 What are the characteristics of an open communication climate? Describe the organisational benefits of managers cultivating an open communication climate. 2 Describe the elements of the communication model in EXHIBIT 12.2. Give an example of each part of the model as it exists in the classroom during communication between teacher and students. 3 Lana Lowery, a regional manager for a 100-person inside sales staff, notices that the team’s best performer is struggling. Her sales are down 20 per cent from a year ago, and she frequently arrives late for work, looking upset. Lowery needs to find out why her performance is suffering. What advice would you give Lowery for communicating with this employee? Which communication channel should she use? What would be the relative importance of candour, listening and asking questions? Explain. 4 What are the characteristics of an effective listener? How would you rate yourself on those characteristics? 5 Some senior managers believe they should rely on written information and computer reports because these yield more accurate data than do face-to-face communications. Do you agree? Why or why not? 6 During times of significant organisational change, such as downsizing and layoffs, the grapevine becomes more active as anxious employees share organisational news and rumours. As a manager, what communication strategies would you employ during

a time of uncertainty in the workplace? What are the advantages and disadvantages of gossip during a time of uncertainty? 7 Assume that you manage a small online business that sells herbal supplements. Without your knowledge, a disgruntled employee has posted damaging information about your company in the company’s blog, including false information about dangerous ingredients in your best-selling supplement. What specific steps would you take to minimise the impact of this crisis? 8 If you were asked to design a training program to help managers become better communicators, what would you include in the program? 9 Suppose that you manage an employee who is spending too much time using social media at work. The result is that he has missed three important deadlines in one week. You are planning a faceto-face conversation to address this performance problem and your goal is to communicate with candour. Using ‘I statements’ as described in this chapter, how would you begin this conversation? 10 Describe specific ways that an organisation might use social media to communicate with customers. How about with employees? 11 One small business owner said that he had to teach his young employees what a ‘dial tone’ was. Do you have phone aversion? Do you think it is possible to build a solid business relationship with customers using only text messaging, email and social media?

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ETHICAL CHALLENGE

THE VOICE OF AUTHORITY

When Gehan Rasinghe was hired as an account assistant at Werner and Thompson, a business and financial management firm, he was very relieved. He was overqualified for the job with his degree in accounting, but the combination of his accented English and his quiet manner had prevented him from securing any other position. Beatrice Werner, one of the managing partners of the firm, was impressed by his educational credentials and his courtly manner. She assured him he had advancement potential with the firm, but the account assistant position was the only one available. After months of rejections in his job hunt, Rasinghe accepted the position. He was committed to making his new job work at all costs. Account manager Cathy Putnam was Rasinghe’s immediate superior. Putnam spoke with a heavy accent, speaking at a lightning pace to match her enormous workload. She indicated to Rasinghe that he would need to get up to speed as quickly as possible to succeed in working with her. It was soon apparent that Putnam and Rasinghe were at odds. She resented having to repeat directions more than once to teach him his responsibilities. He also seemed resistant to making the many phone calls asking for copies of invoices, disputing charges on credit cards and following up with clients’ staff to get the information necessary to do his job. His accounting work was impeccable, but the public contact part of his job was in bad shape. Even his quiet answer of ‘No problem’ to all her requests was starting to wear thin on Putnam. Before giving Rasinghe his three-month review, Putnam appealed to

GROUP CHALLENGE

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Beatrice Werner for help. Putnam was frustrated at their communication problems and did not know what to do. Werner had seen the problem coming. Although she had found Rasinghe’s bank reconciliations and financial report preparations to be first-rate, she knew that phone work and client contact were a big part of any job in the firm. But as the daughter of German immigrants, Werner also knew that language and cultural barriers could be overcome with persistence and patience. Diversity was one of her ideals for her company, and it was not always easy to achieve. She felt sure that Rasinghe could become an asset to the firm in time. She worried that the time it would take was more than they could afford to give him. W H AT D O YO U D O ? 1 Give Rasinghe his notice, with the understanding that a job that is primarily paperwork would be a better fit for him. Make the break now rather than later. 2 Place him with an account manager who has more time to help him develop his assertiveness and telephone skills and appreciates his knowledge of accounting. 3 Create a new position for him, where he could do the reports and reconciliations for several account managers, while their assistants concentrated on the public contact work. He would have little chance of future promotion, however.

LISTEN LIKE A PROFESSIONAL

The fastest way to become a great listener is to act like a professional listener, such as a clinical psychologist. Psychologists drop the need to interrupt or to express their own point of view in order to concentrate on the client’s point of view. The psychologist focuses intently and listens totally, drawing out information rather than thinking about a response. Step 1. Divide into groups of four students. Within this group, each student selects one partner. Sit face to face with your partner, at a comfortable distance, and hold a steady gaze into your partner’s left eye (not the nose or face, but the left eye) – use a soft gaze, not a hard stare. Step 2. After you are comfortable with the eye contact, one partner should tell of an annoying experience over the last few days. The listener should maintain eye contact and can use facial expression, but

should say nothing – just gaze into the pupil of the left eye. When the talker has finished, the partners should trade roles, with the previous listener now telling about an annoying experience and the new listener maintaining eye contact but not speaking. Step 3. Discuss in your group how it felt to maintain eye contact and to not make any verbal response to what your partner was saying. Step 4. Select a new partner in your group, and follow the same procedure, with the speaker talking about the same annoyance. The only change is that the listener is to paraphrase what the speaker said after the speaker is finished. If the paraphrase is incorrect, the speaker can repeat the annoyance, and the listener can paraphrase a second time to be more accurate.

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Step 5. Discuss in your group how it felt to maintain eye contact and to paraphrase what was said. How did paraphrasing affect your ability to concentrate on what the speaker was saying? Step 6. Select another partner in your group, and follow the same procedure; only this time, instead of paraphrasing at the end, the listener is to ask five questions during the speaker’s story. Each partner takes a turn as speaker and listener.

CASE FOR CRITICAL ANALYSIS

Step 7. Discuss in your group how it felt to ask questions. How did the questions affect your concentration on what the speaker was saying? In addition, discuss in your group the relative importance of each technique (eye contact, paraphrasing and asking questions) for helping you maintain focus and listen like a professional. Your instructor may facilitate a class discussion about which listening techniques are more effective in various listening situations.

WA MANUFACTURING

The president of WA Manufacturing, Richard Langston, wanted to facilitate upwards communication. He believed an open-door policy was a good place to start. He announced that his own door was open to all employees and encouraged senior managers to do the same. He felt this would give him a way to get early warning signals that would not be filtered or redirected through the formal chain of command. Langston found that many employees who used the open-door policy had been with the company for years and were comfortable talking to the president. Sometimes messages came through about inadequate policies and procedures. Langston would raise these issues and explain any changes at the next senior managers’ meeting. The most difficult complaints to handle were those from people who were not getting along with their bosses. One employee, Larry, complained bitterly that his manager had overcommitted the department and put everyone under too much pressure. Larry argued that long hours and low morale were major problems. But he would not allow Richard Langston to bring the manager into the discussion nor to seek out other employees to confirm the complaint. Although Langston suspected that Larry might be right, he could not let the matter sit, and blurted out, ‘Have you considered leaving the company?’ This made Larry realise that a meeting with his immediate boss was unavoidable.

Before the three-party meeting, Langston contacted Larry’s manager and explained what was going on. He insisted that the manager come to the meeting willing to listen and without hostility towards Larry. During the meeting, Larry’s manager listened actively and displayed no ill will. He learned the problem from Larry’s perspective and realised he was over his head in his new job. After the meeting, the manager said he was relieved. He had been promoted into the job from a technical position just a few months earlier and had no management or planning experience. He welcomed Richard Langston’s offer to help him do a better job of planning. QU E S T I O N S 1 What techniques increased Richard Langston’s communication effectiveness? Discuss. 2 Do you think that an open-door policy was the right way to improve upwards communications? What other techniques would you suggest? 3 What problems do you think an open-door policy creates? Do you think many employees are reluctant to use it? Why?

SOURCE: Based on Suters, E. T. (January 1987). Hazards of an Open-Door Policy. Inc., 99–102.

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ON THE JOB VIDEO CASE

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INTERMOUNTAIN HEALTHCARE: MANAGING COMMUNICATION

Watch the following video to see how Intermountain Healthcare approaches its management functions. QUESTIO NS 1 Intermountain Healthcare is a very large organisation with thousands of employees. List at least four methods it uses to communicate with employees. Why do you think this organisation feels the need to use so many different methods to communicate?

2 In the video, Fritz Grohn says that communicating with patients as they are being released from the hospital is not always successful at first. Use this situation (a nurse discharging a patient from the hospital after a surgery or illness) to describe the communication model, and explain where the communication breaks down and why. How do Intermountain’s employees overcome this problem to successfully complete the communication process with patients? 3 How is Intermountain using technology to improve internal communication? Include at least two examples described in the video in your answer.

ENDNOTES 1 Hofschneider, A. (28 August 2013). That Thing with the Buttons and Receiver? Pick It Up. The Wall Street Journal, D1. 2 ‘Capitalizing on Effective Communication: How Courage, Innovation, and Discipline Drive Business Results in Challenging Times,’ Communication ROI Study Report by Watson, Wyatt, Worldwide, 2009/2010, www.towerswatson.com/assets/pdf/670/Capitalizing%20 on%20Effective%20Communication.pdf (accessed 5 September 2012). 3 Henry Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973). 4 Phillip G. Clampitt, Laurey Berk and M. Lee Williams. (May–June 2002). Leaders as Strategic Communicators. Ivey Business Journal, 51–5. 5 A. G. Lafley and Roger Martin, ‘Instituting a Company-Wide Strategic Conversation at Procter & Gamble,’ Strategy & Leadership 41, no. 4 (2013): 4–9. 6 Spencer E. Ante, ‘IBM’s Chief to Employees: Think Fast, Move Faster,’ The Wall Street Journal, 25 April 2013, B1. 7 Communication ROI Study Report. 8 Eric Berkman. (1 March 2002). Skills. CIO, 78–82; Louise van der Does and Stephen J. Caldeira. (27 March 2006). Effective Leaders Champion Communication Skills. Nation’s Restaurant News, 20; and Byron Reimus. (July 1996). Ready, Aim, Communicate. Management Review. 9 Reimus. Ready, Aim, Communicate; and Dennis Tourish. (2005). Critical Upward Communication: Ten Commandments for Improving Strategy and Decision Making. Long Range Planning, 38, 485–503. 10 AMA Enterprise, a division of American Management Association, reported in ‘Employees Are Clueless about What’s Going on at Work,’ T+D ( June 2012): 23. 11 Bernard M. Bass. (1990). Bass & Stogdill’s Handbook of Leadership, 3rd edn (New York: The Free Press). 12 Dana Mattioli. (5 April 2010). As Crisis Eases, CEOs Give Staff Some TLC. The Wall Street Journal, http://online.wsj.com/article/SB10001424052702303450704575159850647117086. html (accessed 21 September 2012). 13 Reported in van der Does and Caldeira. Effective Leaders Champion Communication Skills. 14 Tom Szaky. (8 September 2011). How Much Information Do You Share With Employees? The New York Times, http://boss.blogs.nytimes.com/author/tom-szaky/page/2/ (accessed 5 September 2012). 15 Quint Studer. (April 2010). Case for Transparency. Leadership Excellence, 19. 16 Van der Does and Caldeira. Effective Leaders Champion Communication Skills. 17 Studer. Case for Transparency.

18 E. M. Rogers and R. A. Rogers. (1976). Communication in Organizations (New York: Free Press); and A. Bavelas and D. Barrett. (1951). An Experimental Approach to Organization Communication. Personnel, 27, 366–71. 19 Joel Spolsky. (February 2010). A Little Less Conversation. Inc., 28–9. 20 This discussion is based on Richard L. Daft and Richard M. Steers. (1986). Organizations: A Micro/Macro Approach (New York: Harper Collins). 21 Richard L. Daft and Norman B. Macintosh. (1981). A Tentative Exploration into the Amount and Equivocality of Information Processing in Organizational Work Units. Administrative Science Quarterly, 26, 207–24. 22 Robert H. Lengel and Richard L. Daft. (August 1988). The Selection of Communication Media as an Executive Skill. Academy of Management Executive, 2, 225–32; Richard L. Daft and Robert H. Lengel. (May 1986). Organizational Information Requirements, Media Richness, and Structural Design. Managerial Science, 32, 554–72; and Jane Webster and Linda Klebe Treviño. (1995). Rational and Social Theories as Complementary Explanations of Communication Media Choices: Two Policy-Capturing Studies. Academy of Management Journal, 38:6, 1544–72. 23 Janina Seubert and Christina Regenbogen. (March/April 2012). I Know How You Feel. Scientific American Mind, 54–8. 24 Research reported in (17 September 2000), E-mail Can’t Mimic Phone Calls. Johnson City Press. 25 Raymond E. Friedman and Steven C. Currall. E-Mail Escalation: Dispute Exacerbating Elements of Electronic Communication. http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=459429 (accessed 21 September 2010); Lauren Keller Johnson. (Fall 2002). Does E-Mail Escalate Conflict? MIT Sloan Management Review, 14–15; and Alison Stein Wellner. (September 2005). Lost in Translation. Inc. Magazine, 37–8. 26 Margie Warrell. Hiding Behind E-mail? Four Times You Should Never Use E-mail. Forbes, http://www.forbes.com/sites/margiewarrell/2012/08/27/do-you-hidebehind-email/ (accessed 10 September 2012). 27 Ronald E. Rice. Task Analyzability, Use of New Media, and Effectiveness: A Multi-Site Exploration of Media Richness. Organizational Science 3, no. 4 (November 1992): 475–500; and M. Lynne Markus. (November 1994). Electronic Mail as the Medium of Managerial Choice. Organizational Science, 5:4, 502–27. 28 Richard L. Daft, Robert H. Lengel and Linda Klebe Treviño. (1987). Message Equivocality, Media Selection and Manager Performance: Implication for Information Systems. MIS Quarterly, 11, 355–68.

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29 Mary Young and James E. Post. Managing to Communicate, Communicating to Manage: How Leading Companies Communicate with Employees. Organizational Dynamics (Summer 1993): 31–43. 30 This section is based heavily on Jay A. Conger. (May–June 1998). The Necessary Art of Persuasion. Harvard Business Review, 84–95. 31 This section is based heavily on Conger. The Necessary Art of Persuasion. 32 Paul M. Leonardi, Tsedal B. Neeley, and Elizabeth M. Gerber, ‘How Managers Use Multiple Media: Discrepant Events, Power, and Timing in Redundant Communication,’ Organization Science 23, no. 1 (January–February 2012): 98–117. 33 This discussion is based in part on Jack Welch with Suzy Welch. (2005). Winning (New York: HarperBusiness), Chapter 2. 34 Neeley and Leonardi. Effective Managers Say the Same Thing Twice (and More). 35 Based on Welch, Winning, Chapter 2. 36 Halley Bock, ‘Fierce Communication,’ T+D (November 2012): 80. 37 Boris Groysberg and Michael Slind. (June 2012). Leadership Is a Conversation. Harvard Business Review, 75–84. 38 Adam Bryant, ‘Be Yourself, Even If You’re a Little Goofy’ (Corner Office column, an interview with Redfin’s Glenn Kelman), The New York Times, 25 August 2013, BU2. 39 Many of these benefits are based on (Spring 2005), The Power of Questions. Leader to Leader, 59–60; Quinn Spitzer and Ron Evans. (September–October 1997). The New Business Leader: Socrates with a Baton. Strategy & Leadership, 32–8; and Gary B. Cohen. July–August 2010. Just Ask Leadership: Why Great Managers Always Ask the Right Questions. Ivey Business Journal, http://www.iveybusinessjournal.com/topics/leadership/ just-ask-leadership-why-greatmanagers-always-ask-the-right-questions (accessed 7 March 2011). 40 Groysberg and Slind. Leadership Is a Conversation. 41 Reported in Spitzer and Evans. The New Business Leader: Socrates with a Baton. 42 Kevin Cashman. Powerful Pause: Listening Is Leadership. (January 2012). Leadership Excellence, 5. 43 M. P. Nichols. (1995). The Lost Art of Listening (New York: Guilford Publishing). 44 Benchmarking the Sales Function. A report based on a study of 100 salespeople from small, medium, and large businesses, conducted by the Ron Volper Group, White Plains, New York, as reported in (1 June 1997), Nine Habits of Highly Effective Salespeople. Inc.com, http://www.inc.com/articles/1997/06/12054.html (accessed 23 September 2010). 45 Discussed in John Keyser, ‘Active Listening Leads to Business Success,’ T+D ( July 2013): 26–28. 46 C. Glenn Pearce. Doing Something About Your Listening Ability. (March 1989). Supervisory Management, 29–34; and Tom Peters. Learning to Listen. (Spring 1988). Hyatt Magazine, 16–21. 47 Kelley Holland. (5 November 2006). Under New Management; The Silent May Have Something to Say. The New York Times. 48 ‘Why I’m a Listener: Amgen CEO Kevin Sharer,’ (interview), The McKinsey Quarterly, Issue 2 (April 2012): 61–65. 49 Debbie Weil. (2006). The Corporate Blogging Book (New York: Penguin Group), p. 3. 50 Reported in Arik Hanson, ‘5 Inspiring Corporate Blogs to Emulate,’ Ragan.com, 9 April 2013, http://www.ragan.com/Main/Articles/5_inspiring_corporate_blogs_to_emulate_46503.aspx (accessed 31 October 2013). 51 This discussion is based in part on Carol Kinsey Goman. (17 July 2009). Body Language: Mastering the Silent Language of Leadership (The Leadership Playlist column), The Washington Post Online, http://views.washingtonpost.com/leadership/leadership_ playlist/2009/07/body-language-masteringthe-silent-language-of-leadership.html (accessed 17 July 2009). 52 ‘Management Tip of the Day: Leaders, Stop These Behaviors Now,’ Harvard Business Review, 30 August 2013, http://hbr.org/tip/2013/08/30/leaders-stop-these-behaviors-now (accessed 31 October 2013). 53 Goman, ‘Body Language’; and I. Thomas Sheppard, ‘Silent Signals,’ Supervisory Management (March 1986): 31–33. 54 Albert Mehrabian. (1971). Silent Messages (Belmont, CA: Wadsworth); and Albert Mehrabian. (September 1968). Communicating Without Words. Psychology Today, 53–5. 55 Meridith Levinson. (1 December 2004). How to Be a Mind Reader. CIO, 72–6; Mac Fulfer. (Spring 2001). Non-verbal Communication: How to Read What’s Plain as the Nose . . . Journal of Organizational Excellence, 19–27; and Paul Ekman. (2003). Emotions Revealed:

Recognizing Faces and Feelings to Improve Communication and Emotional Life (New York: Time Books). 56 Andreas M. Kaplan and Michael Haenlein, ‘Social Media: Back to the Roots and Back to the Future,’ Journal of Systems and Information Technology 14, no. 2 (2012): 101–104. 57 Shayndi Raice, ‘Social Networking Heads to the Office,’ The Wall Street Journal, 2 April 2012, http://online.wsj.com/article/SB10001424052702304459804577285354046601614.html (accessed 18 September 2012). 58 Scott Martin, ‘Small-Business Customer Service Tools: Social Media, Surveys,’ USA TODAY, 26 August 2012, http://usatoday30.usatoday.com/money/smallbusiness/story/2012-08-26/ efficient-small-business-online-ecommerce/57291490/1 (accessed 1 November 2013). 59 Tim Mullaney, ‘Social Media Is Reinventing How Business Is Done,’ USA TODAY, 31 August 2012, www.usatoday.com/money/economy/story/2012-05-14/social-mediaeconomy-companies/55029088/1 (accessed 5 September 2012). 60 Ibid. 61 Geoffrey A. Fowler, ‘Are You Talking to Me?’ The Wall Street Journal, 25 April 2011, http:// online.wsj.com/article/SB10001424052748704116404576263083970961862.html (accessed 18 September 2012). 62 Vince Golla, interviewed by David Kiron, ‘Social Business at Kaiser Permanente: Using Social Tools to Improve Customer Service, Research, and Internal Collaboration,’ MIT Sloan Management Review, 6 March, http://sloanreview.mit.edu/article/kaiser-permanente-usingsocial-tools-to-improve-customer-service-research-and-internal-collaboration/ (accessed 1 November 2013). 63 Richard S. Levick, ‘Domino’s Discovers Social Media,’ BusinessWeek, 21 April 2009, www. businessweek.com/print/managing /content/apr2009/ca20090421_555468.htm (accessed 21 April 2009). 64 Ron Utterbeck, interviewed by Robert Berkman, ‘GE’s Colab Brings Good Things to the Company,’ MIT Sloan Management Review, November 2012, http://sloanreview.mit.edu/ article/ges-colab-brings-good-things-to-the-company/ (accessed 1 November 2013); Meenu Bhatnagar, ‘General Electric: Engaging Employees through Social Media,’ Case Study 413-103-1, Amity Research Centers, Bangalore, India, Distributed by The Case Centre, 2013; and Giselle Abramovich, ‘Inside General Electric’s Digital Strategy’ (an interview with GE’s Linda Boff ) Digiday, 21 May 2012, http://digiday.com/brands/insidegeneral-electrics-digital-strategy/ (accessed 1 November 2013). 65 Quoted in Abramovich, ‘Inside General Electric’s Digital Strategy. ’The relationship between internal social media and emotional capital is discussed in Quy Huy and Andrew Shipilov, ‘The Key to Social Media Success Within Organizations,’ MIT Sloan Management Review (Fall 2012), http://sloanreview.mit.edu/article/the-key-to-social-media-success-withinorganizations/ (accessed 1 November 2013). 66 This discussion of informal networks is based on Rob Cross, Nitin Nohria, and Andrew Parker, ‘Six Myths About Informal Networks,’ MIT Sloan Management Review (Spring 2002): 67–75; and Rob Cross and Laurence Prusak, ‘The People Who Make Organizations Go—or Stop,’ Harvard Business Review (June 2002): 105–112. 67 Careercast.com website, ww.careercast.com/jobs-rated/10-best-jobs-2012 (accessed 21 September 2012); George Anders, ‘LinkedIn’s Edge: The 7 Habits of a Well-Run Social Network,’ Forbes, 3 August 2012, www.forbes.com/sites/georgeanders/2012/08/03/linkedinsedge-the-7-habits-of-a-well-run-social-network/ (accessed 3 September 2012); CNNmoney. com website, http://money.cnn.com/magazines/fortune/best-companies/2012/full_list/. 68 Tahl Raz. (January 2003). The 10 Secrets of a Master Networker. Inc. 69 Laura Vanderkam, ‘What Successful People Do During Lunch,’ Fast Company 29 July 2013, http://www.fastcompany.com/3014909/how-to-be-a-success-at-everything/whatsuccessful-people-do-during-lunch (accessed 1 November 2013). 70 Travis J. Grosser et al. (2012). Hearing It Through the Grapevine: Positive and Negative Workplace Gossip. Organizational Dynamics, 41, 52–61. 71 Grant Michelson, Ad van Iterson, and Kathryn Waddington, ‘Gossip in Organizations: Contexts, Consequences, and Controversies,’ Group & Organizational Management 35, no. 4 (2010): 371–390. 72 Keith Davis and John W. Newstrom, Human Behavior at Work: Organizational Behavior, 7th ed. (New York: McGraw-Hill, 1985). 73 Suzanne M. Crampton, John W. Hodge and Jitendra M. Mishra. (Winter 1998). The Informal Communication Network: Factors Influencing Grapevine Activity. Public Personnel Management, 27:4, 569–84. 74 N. DiFonzo and P. Bordia, ‘A Tale of Two Corporations: Managing Uncertainty During Organizational Change,’ Human Resource Management 37, 3–4 (1998): 295–303.

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75 Survey results reported in Jared Sandberg. (29 October 2003). Ruthless Rumors and the Managers Who Enable Them. The Wall Street Journal. 76 Donald B. Simmons. (November 1985). The Nature of the Organizational Grapevine. Supervisory Management, 39–42; and Davis and Newstrom, Human Behavior at Work. 77 Barbara Ettorre. (November 1997). Hellooo. Anybody Listening? Management Review, 9. 78 Eilene Zimmerman. (3 February 2008). Gossip Is Information by Another Name. The New York Times, http://www.nytimes.com/2008/02/03/jobs/03career.html?scp=1&sq=Gossip%20 Is%20Information%20by%20Another%20Name&st=cse (accessed 3 February 2008). 79 Lisa A. Burke and Jessica Morris Wise. (May–June 2003). The Effective Care, Handling, and Pruning of the Office Grapevine. Business Horizons, 71–4; They Hear It Through the Grapevine. Cited in Michael Warshaw. (April–May 1998). The Good Guy’s Guide to Office Politics. Fast Company, 157–78; and Carol Hildebrand. (15 July 1998). Mapping the Invisible Workplace. CIO Enterprise, section 2, 18–20. 80 The National Commission on Writing. (14 September 2004). Writing Skills Necessary for Employment, Says Big Business, http://www.writingcommission.org/pr/writing_for_employ. html (accessed 8 April 2008). 81 Based on Michael Fitzgerald. (15 October 2005). How to Write a Memorable Memo. CIO, 85–7; and Jonathan Hershberg. (May 2005). It’s Not Just What You Say. Training, 50. 82 Mary Anne Donovan. (November 2002). E-Mail Exposes the Literacy Gap. Workforce, 15. 83 Daft and Steers, Organizations; and Daniel Katz and Robert Kahn. (1978). The Social Psychology of Organizations, 2nd edn (New York: Wiley). 84 Phillip G. Clampitt, Robert J. DeKoch and Thomas Cashman. (2000). A Strategy for Communicating about Uncertainty. Academy of Management Executive, 14:4, 41–57. 85 Reported in van der Does and Caldeira. Effective Leaders Champion Communication Skills. 86 Alexandra Samuel. Better Leadership Through Social Media. The Wall Street Journal, http:// online.wsj.com/ article/SB10001424052970203753704577255531558650636.html (accessed 12 September 2012).

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87 Michael J. Glauser. (1984). Upward Information Flow in Organizations: Review and Conceptual Analysis. Human Relations, 37, 613–43; and (October 1985). Upward/Downward Communication: Critical Information Channels. Small Business Report, 85–8. 88 Darren Dahl. Pipe Up People! Rounding Up Staff. Inc. (February 2010): 80–81. 89 Thomas Petzinger. (8 May 1998). A Hospital Applies Teamwork to Thwart an Insidious Enemy. The Wall Street Journal. 90 Julia Werdiger and Jad Mouawad. (26 July 2010). Road to New Confidence at BP Runs Through U.S. The New York Times, http://www.nytimes.com/2010/07/27/business/27dudley. html?_r=1&sq=BP%20Hayward&st=cse&adxnnl=1&scp=7&adxnnlx=1280315332P6V5i9wUaL40EYFeOSH52w (accessed 27 July 2010). 91 (29 December 2016.) Woolworths’ sale of petrol stations means you could pay more. news.com.au, http://www.news.com.au/finance/money/costs/woolworths-sale-of-petrolstations-means-you-could-pay-more/news-story/2675803bc981c83df948d743e3cca0e7 (accessed 12 January 2017). 92 Stacy Meichtry, Arian Camp-Flores, and Leslie Scism, ‘Cruise Company Blames Captain,’ The Wall Street Journal, 17 January 2012, http://online.wsj.com/article/SB10001424052970203 735304577165290656739300.html (accessed 19 September 2012). 93 This section is based on Leslie Wayne and Leslie Kaufman, ‘Leadership, Put to a New Test,‘ The New York Times, 16 September 2001; Ian I. Mitroff, ’Crisis Leadership,’ Executive Excellence (August 2001): 19; Jerry Useem, ‘What It Takes,’ Fortune (12 November 2001): 126–132; Andy Bowen, ‘Crisis Procedures That Stand the Test of Time,’ Public Relations Tactics (August 2001): 16; and Matthew Boyle, ‘Nothing Really Matters,’ Fortune (15 October 2001): 261–264. 94 Stephen Bernhut. (January–February 2002). Leadership, with Michael Useem (interview). Ivey Business Journal, 42–3. 95 Ian I. Mitroff. (August 2001). Crisis Leadership. Executive Excellence, 19.

CHAPTER 13 L E A DING T E A M S

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define what a team is and understand the contributions that teams can make

2 identify the various types of teams in organisations

3 discuss the dilemma of teamwork 4 understand the model of work team effectiveness

5 understand how characteristics such

6 understand team processes, explain the general stages of team development and the concepts of team cohesiveness, team norms and their relationship to team performance

7 understand the causes of conflict within and among teams and how to reduce conflict, including the importance of negotiation.

as size, diversity and member roles influence teams

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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NEC IN MULGRAVE: TEAMS THAT WORK NEC, a large Japanese-owned company, was operating a significant manufacturing facility on Springvale Road in suburban Mulgrave in Melbourne. One of its major telephone products involved electronic circuit boards, but unfortunately, at the facility, both productivity and quality were below international standards. The factory was laid out so that the many products and component circuit boards were organised into three main departments: pre-production, where the electronic components were readied for soldering onto circuit boards; production (soldering); and testing and assembly. People in each of these three departments hardly knew those who did the next process step on their product, who might be working as close as 70 metres away. When errors were made, such as the soldering of the wrong parts onto a circuit

board, feedback to those who did the soldering was slow, so the error was often repeated many times before it was corrected. Large batches of defective parts were moved to the assembly department, who tested the work and returned defective batches. Feedback often came in the form of a rude note from one department to another accompanying the defective work and requesting reworking. Relations between staff across the departments were generally not positive, and the business imperatives to improve quality and productivity were pressing. At first, managers thought the problem was technical, and that the answer would be based around new technology and better process equipment. QU E S T I O N What would you recommend to improve quality and productivity at NEC’s Mulgrave factory? How might the formation of teams help as part of the answer?

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NEW MANAGER SELF-ASSESSMENT HOW DO YOU LIKE TO WORK? Your approach to your job or university work may indicate whether or not you thrive in a team. Answer the questions below about your work preferences. Please answer whether each item below is Mostly true or Mostly false for you. MOSTLY TRUE MOSTLY FALSE

1 I prefer to work on a team rather than do individual tasks. 2 Given a choice, I try to work by myself rather than face the hassles of group work. 3 I enjoy the personal interaction when working with others. 4 I prefer to do my own work and let others do theirs. 5 I get more satisfaction from a group victory than an individual victory. 6 Teamwork is not worthwhile when people do not do their share. 7 I feel good when I work with others, even when we disagree. 8 I prefer to rely on myself rather than others to do an assignment. Scoring and Interpretation: Give yourself one point for each odd-numbered item you marked as Mostly true and one point for each even-numbered item you marked Mostly false. An important part of a new manager’s job is to be both part of a team and to work alone. These items measure your preference for group work. Teamwork can be both frustrating and motivating. If you scored two or fewer points, you definitely prefer individual work. A score of seven or above suggests that you prefer working in teams. A score of three to six indicates comfort working alone and in a team. A new manager needs to do both. Source: Stark, E. M., Shaw, J. D. and Duffy, M. K. (December 2007). Preference for Group Work, Winning Orientation, and Social Loafing Behavior in Groups. Group & Organization Management, 32:6, 699–723.

The problems faced by NEC also confront many other organisations. How can they get people to work together more effectively, and to be more flexible and responsive in an increasingly competitive environment? A quiet revolution has been taking place in organisations around the world as organisations respond by using employee teams. From the assembly line to the executive office, from large companies such as ANZ Bank, BP and 3M to government agencies such as the Victorian Transport Accident Commission and Australia Post, teams are becoming the basic building blocks of organisations. Many people get their first management experience in a team setting, and you probably will sometimes have to work in a team as a new manager. You may have already experienced the challenges of teamwork as a student, where you’ve had to give up some of your independence and rely on the team to perform well in order to earn a good grade. For example, at Boeing, managers were facing a problem they knew it was good to have: demand for the company’s 737 jetliner was soaring. But they had to find a way to keep pace with the demand without jeopardising Boeing’s future with a rapid expansion of factories and operating costs. How to produce more aircraft without expanding became the driving question at Boeing – and cross-functional teams provided

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the innovative answers. One team made up of engineers, mechanics and other employees came up with a new process for assembling the hydraulic tubes that go into the landing gear wheel-well of the 737. The new process saves about 30 hours of mechanics’ time (and a lot of money) on each system. Another team redesigned the workspace so that four engines rather than three could be produced at a time. Boeing has about 1300 of these ‘innovation teams’ across its commercial jet programs. Each team of seven to 10 workers typically focuses on a specific part of a jet; teams meet each week to work on problems or come up with new processes. Overall, Boeing’s teams have come up with ideas that boosted 737 output to 35 jets a month in early 2012, up from 31, and to 42 a month in 2014. Boeing is hoping to boost 737 output to 52 per month by 2018.1 Airline operations are safer these days than ever. Part of that comes from better engineering, but part of it also comes from better teamwork, says Patrick Smith, a commercial pilot who writes a blog called ‘Ask the Pilot’ and recently wrote a book titled Cockpit Confidential: Everything You Need to Know About Air Travel: Questions, Answers, and Reflections. ‘You no longer have that strict hierarchical culture in the cockpit, where the captain was king and everyone blindly followed his orders,’ Smith says. Crew training today for most airlines is team-oriented, with everyone working together to ensure safety. Pilots don’t rely just on their own instincts and abilities; instead, they draw knowledge from the cabin crew, people on the ground, dispatchers, meteorologists and others.2 Perhaps the most recent awe-inspiring example of flawless teamwork in the airline industry was the landing of US Airways Flight 1549 on the Hudson River in January 2009. Captain Chesley ‘Sully’ Sullenberger says that he knew he wanted to be a pilot at the age of five, and he spent the rest of his life in the pursuit of excellence in his chosen field. After 40 years of pursuing excellence, there couldn’t have been anyone better prepared to be in control. Yet Sullenberger’s passion for learning also meant that he was a proponent of continuous training for every member of a flight crew, and he instilled in his crew members a commitment to teamwork and safety. Sullenberger gave credit to every member of the team for the safe landing of Flight 1549.3 Many people get their first management experience in a team setting, and you probably will have to work on a team sometimes as a new manager. Many companies have discovered that teams have real advantages, but it can be tough to work in a team. You may have already experienced the challenges of teamwork as a student, where you’ve had to give up some of your independence and rely on a team to perform well in order to earn a good grade. Good teams can produce amazing results, but teams aren’t always successful. In a survey of manufacturing organisations in the United States, about 80 per cent of respondents reported using some kind of team, but only 14 per cent of those companies rated their teaming efforts as highly effective. Just over half of the respondents said their efforts were only ‘somewhat effective’, and 15 per cent considered their efforts not effective at all.4 This chapter focuses on teams and their applications within organisations. We define what a team is, look at the contributions that teams can make and define various types of teams. Then we discuss the dilemma of teamwork and present a model of work team effectiveness, explore the stages of team development, and examine how characteristics such as size, cohesiveness, diversity and norms influence team effectiveness. The chapter also looks at the roles that individuals play on teams, discusses techniques for managing team conflict, and describes how negotiation can facilitate cooperation and teamwork. Teams are a central aspect of organisational life, and the ability to manage them is a vital component of manager and organisation success.

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13.1

THE VALUE OF TEAMS

Why aren’t organisations just collections of individuals going their own way and doing their own thing? Clearly, teamwork provides benefits; otherwise companies wouldn’t continue to use it as a structural mechanism. Think of surgical teams, comprising surgeons, nurses, anaesthetists and many other specialists, all coordinating their actions to achieve a shared goal – successful surgical outcomes – when the effectiveness of their teamwork can make the difference between life or death. It is not enough for these professionals to be individually skilled and motivated: they must also work cooperatively to achieve the desired outcome. Although their missions might not involve life or death, all organisations are made up of various individuals and groups that have to work together and coordinate their activities to accomplish objectives. Much work in organisations is interdependent, which means that individuals and departments rely on other individuals and departments for information or resources to accomplish their work. When tasks are highly interdependent, a team can be the best approach to ensuring the level of coordination, information sharing and exchange of materials necessary for successful task accomplishment.

CASE STUDY THE TEAM’S THE THING Managers at Subaru Indiana Automotive (SIA) in Lafayette, Indiana put the company’s desire to reduce, reuse and recycle waste squarely on the line with television ads boasting ‘zero-landfill’. SIA was not hedging, maintaining that ‘zero means zero’, and managers placed confidence in every member of every team in every manufacturing process to hit the target. And the teams proved to be up to the challenge. SIA achieved their ‘zero landfill’ status in 2004, celebrating more than 10 continuous years as a ‘lean,

clean and green’ industry leader, and employs a number of techniques to prepare its waste for reuse or recycling. For example, separating food waste for composting; sending the dust produced from weld slag to a recycling facility where copper and other metals are reclaimed; and sending back packaging for the engines that come from the Japanese plant to be reused. Since 2000, SIA has reduced waste per unit by 55 per cent and currently recycles 99.99 per cent of its waste.

Sources: National Parks Conservation Association (8 June 2015). Subaru to share zero landfill expertise with National Park Service to reduce park waste, https://www.npca.org/articles/808-subaru-to-share-zero-landfill-expertise-with-national-park-service-to (accessed 2 December 2016); Markham, D. (14 May 2015). Subaru celebrates 10 years of zero landfill manufacturing, http://www.treehugger.com/corporate-responsibility/subaru-celebrates-10-years-zerolandfill-manufacturing.html (accessed 2 December 2016).

W H AT I S A T E A M ? team A unit of two or more people who interact and coordinate their work to accomplish a specific goal.

A team is a unit of two or more people who interact and coordinate their work to accomplish a common goal to which they are committed and hold themselves mutually accountable.5 The definition of a team has three components. First, two or more people are required. Second, people in a team interact regularly. People who do not interact (for example, people standing in line at a lunch counter or riding in a lift) do not compose a team. Third, people in a team share a performance goal, whether it is to design a new tablet, build an engine or complete a class project. EXHIBIT 13.1 explains the differences between a group and a team.

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GROUP

TEAM

Has a designated strong leader

Shares or rotates leadership roles

Holds individuals accountable

Holds team members accountable to each other

Sets identical purpose for group and organisation

Sets specific team vision or purpose

Has individual work products

Has collective work products

Runs efficient meetings

Runs meetings that encourage open-ended discussion and problem solving

Measures effectiveness indirectly by influence on business (such as financial performance)

Measures effectiveness directly by assessing collective work

Discusses, decides, and delegates work to individuals

Discusses, decides and shares work

Source: Adapted from Jon R. Katzenbach and Douglas K. Smith. (March–April 1995). The Discipline of Teams. Harvard Business Review, 111–20.

CO N T R I B U T I O N S O F T E A M S Teamwork requires bringing together the right set of personalities, specialties and skills; clearly defining roles and responsibilities; focusing everyone on a well-defined mission; establishing clear channels of communication and information sharing so that team members communicate their objectives and needs in all directions; and getting everyone to sublimate their individual egos and pull together in the same direction. Trust is a crucial aspect of teamwork. People have to be willing to collaborate and sometimes sacrifice their individual objectives for the sake of the larger goal, which requires that they believe that others are willing to do the same thing. David Novak, CEO of Yum Brands (including KFC, Pizza Hut and Taco Bell), has built the world’s largest restaurant company based on teamwork. Since Yum was spun off from PepsiCo in 1997, its stock has returned 16.5 per cent compounded annually, versus the S&P 500’s 3.9 per cent over that same period. When he was first put in charge of running KFC, the US division hadn’t met its profit target for ages. Headquarters blamed the franchisees; the franchisees blamed headquarters. Novak embarked on a team-building crusade that is still going on today. KFC resumed growing, and its profits nearly doubled in three years. ‘What really made the difference,’ Novak says, ‘was the idea that if we trusted each other, we could work together to make something happen that was bigger than our individual capabilities.’6 Effective teams can provide many advantages in organisations, as illustrated in EXHIBIT 13.2. These contributions of teams lead to stronger competitive advantage and higher overall organisational performance.

◗◗ Creativity and innovation. Because teams include people with diverse skills, strengths, experiences and perspectives, they contribute to a higher level of creativity and innovation in the organisation.7 One factor that has been overlooked in the success of Apple, for instance, is that the late Steve Jobs built a top management team of superb technologists, marketers, designers and others who kept the company’s innovative juices flowing. Most of Jobs’s top management team worked with him for a decade or more.8

◗◗ Improved quality. One criterion for organisational effectiveness is whether products and services meet customer requirements for quality. Perhaps nowhere is this more essential than in health care. The days when a lone physician could master all the skills, keep all the information in his or her head, and manage everything required to treat a patient are long gone. Medical organisations that provide

EXHIBIT 13.1 Differences between groups and teams

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the highest quality of patient care are those in which teams of closely coordinated professionals provide an integrated system of care.9

◗◗ Speed of response. Tightly integrated teams can manoeuvre incredibly fast. Apple, again, provides an appropriate example. Apple’s close-knit team has changed pricing as late as 48 hours before the launch of a new product, which would be inconceivable at most companies.10 In addition to making those kinds of decisions quickly, teams can speed product development (as we discussed in Chapter 7), respond more quickly to changing customer needs and solve cross-departmental problems more quickly.

See Chapter 7 for a discussion of product development.

◗◗ Higher productivity and lower costs. Effective teams can unleash enormous energy from employees.

social facilitation The effect of other people on raising one’s effort and organisational motivation.

Social facilitation refers to the tendency for the presence of others to enhance one’s performance. Simply being around others has an energising effect.11 In addition, the blend of perspectives enables creative ideas to percolate. As described earlier in the chapter, teams at Boeing have come up with numerous ideas that have helped them to build planes faster and at lower cost.

◗◗ Enhanced motivation and satisfaction. As described in Chapter 11, people have needs for See Chapter 11 for a discussion of people’s needs for belongingness and affiliation.

belongingness and affiliation. Working in teams can meet these needs and create greater camaraderie across the organisation. Teams also reduce boredom, increase people’s feelings of dignity and selfworth, and give people a chance to develop new skills. Individuals who work in an effective team cope better with stress, enjoy their jobs more, and have a higher level of motivation and commitment to the organisation.

EXHIBIT 13.2 Five contributions teams make

Creativity

Quality Competitive advantage Contributions of teams

Speed

Higher organisational

Productivity/

performance

lower costs Employee satisfaction

R EMEMBE R THIS ◗◗

A team is a unit of two or more people who interact and coordinate their work to accomplish a goal to which they are committed and hold themselves mutually accountable.

◗◗

Teams provide distinct advantages in the areas of innovation, quality, speed, productivity and employee satisfaction.

◗◗

Social facilitation is the tendency for the presence of other people to influence an individual’s motivation and performance.

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13.2

TYPES OF TEAMS

Organisations use many types of teams to achieve the advantages discussed in the previous section. Two common types of teams in organisations are functional and cross-functional, as illustrated in EXHIBIT 13.3 and described in the following sections. Organisations also use self-managed teams to increase employee participation.

F U N C T I O NA L T E A M S A functional team is composed of a manager and his or her subordinates in the formal chain of command. Sometimes called a command team, the functional team in some cases may include three or four levels of hierarchy within a functional department. Typically, the team includes a single department in an organisation. For example, a financial analysis department, a quality control department, an engineering department and a human resource department are all functional teams. Each is created by the organisation to attain specific goals through members’ joint activities and interactions.

functional team A team composed of a manager and his or her subordinates.

President

Project Control

Finance

Engineering

Production

Marketing

Cross-functional team for L21 modification project Functional engineering team

C RO S S - F U N C T I O NA L T E A M S A cross-functional team is composed of employees from about the same hierarchical level, but from different areas of expertise. One type of cross-functional team is a task force, which is a group of employees from different departments formed to deal with a specific activity and existing only until the task is completed. In Australia, Ford Motor Company learned the hard way that the best way to design a new model of car is to form and use a cross-functional team from the initial design phases, with people from engineering, design, manufacturing, human resources, marketing, sales, service and cost accounting participating. Previously at Ford, these functions were performed by separate groups of people, and some disastrous results occurred, due to lack of coordination. A particular model of a Ford Falcon was designed by

EXHIBIT 13.3 Functional and crossfunctional teams in an organisation

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special-purpose team A team created from outside the formal organisational structure to undertake a project of special importance or creativity.

designers, technically specified by the engineers and by the time the marketing and sales people saw the prototype and declared that the car was visually unappealing, the design was ‘frozen’ and couldn’t be changed. This lack of coordination across single function teams has been solved by forming crossfunctional teams who work together from start to finish of a product design project. Another type of cross-functional team, the special-purpose team, is created outside the formal organisation structure to undertake a project of special importance or creativity.12 Sometimes called a project team, a special-purpose team still is part of the formal organisation structure, but members perceive themselves as a separate entity. Special-purpose teams are often created for developing a new product or service. To again use the example of the Ford Motor Company – this time, in America – in 2008, Ford created a special-purpose team to solve a problem that could determine whether the organisation survived the turmoil in the automotive industry. This special-purpose team played a critical role in helping Ford prevent a supply breakdown – and ultimately in helping CEO Alan Mulally and other managers revive the company.

S E L F- M A NAG E D T E A M S self-managed team A team that consists of multiskilled employees who rotate jobs to produce an entire product or service, often led by an elected team member.

The fourth common type of team used in organisations is designed to increase the participation of workers in decision making and the conduct of their jobs, with the goal of improving performance. Self-managed teams typically consist of five to 20 multiskilled workers who rotate jobs to produce an entire product or service, or at least one complete aspect or portion of a product or service (for example, engine assembly or insurance claim processing). The central idea is that the teams themselves, rather than managers or supervisors, take responsibility for their work, make decisions, monitor their own performance, and alter their work behaviour as needed to solve problems, meet goals and adapt to changing conditions.13 At the software firm 37signals, for example, customer service is run by a self-managed team that handles everything associated with providing service and support. The role of team leader rotates each week. Customer service, support and satisfaction have improved since the company started using a selfmanaged team. ‘We’ve measured the difference, and we know it works,’ says co-founder Jason Fried. Today, 37signals is run almost entirely by self-managed teams.14 Self-managed teams are related to the trend toward the bossless organisation. At Ciplex, a web design and marketing company, founder Ilya Pozin did away with all the bosses and reorganised the whole company into self-managed teams who have full freedom to accomplish their goals. Pozin says that employees are happier and more productive since he smashed the hierarchy.15 Self-managed teams are permanent teams that typically include the following characteristics:

◗◗ The team includes employees with several skills and functions, and the combined skills are sufficient to perform a major organisational task. For example, in a manufacturing facility, a team may include members from the foundry, machining, grinding, fabrication and sales departments, with members cross-trained to perform one another’s jobs. The team eliminates barriers among departments, enabling excellent coordination to produce a product or service.

◗◗ The team is given access to resources such as information, equipment, machinery and supplies needed to perform the complete task.

◗◗ The team is empowered with decision-making authority, which means that members have the freedom to select new members, solve problems, spend money, monitor results and plan for the future. Self-managed teams can enable employees to feel challenged, find their work meaningful and develop a stronger sense of identity with the organisation.

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To people, a sense of purpose, recognition and training are often more valuable than financial reward. These offerings attract loyal, hungry disciples. These qualities can be more important to the entrepreneur than skill or raw talent. Talented, skilled employees know their worth, and can be poached by a business with better capacity to pay. It is especially important here at the start, just as it is into the future, to find employees who match your business’ stage in the life cycle. Not all employees want the same thing. Find out what it is that your employees want. Once you have your employees, structure your system to continually inform them about your expectations for their work. Like businesses, people require certainty. Develop structures that allow the goals of your business to be easily identifiable to your employees. This is also the most cost-effective way of ensuring the alignment of shareholder goals with employee action. Reward, recognise and continue to enrich their skills. Seeing people gain satisfaction from this is one of the most rewarding parts of being an employer. Not only do you see the roles grow and develop according to your vision, but you see people grow and prosper from that success. You have the vision. Let others do the inventing. Together, you can innovate.

AUSTRALIAN MANAGER PROFILE

Source: Courtesy Peter Richardson

As an Arts graduate, a traditional career path was never ordained for me; nor, as it turns out, would my personality ever have accommodated one. I ended up working for a small but technologically focused medical and travel assistance company called IMAN. Ten years of overseas travel assistance, including emergency medical repatriations, strengthened my ability as a decision maker. For the last decade I have worked in the family business Doorstep organics. In that time, both Doorstep and the market around it have matured and grown, allowing me to further my passion for technology and process-based innovation. To invent something takes an idea, a lot of work and endless refinement. This can be done on your own. However, to truly innovate and realise success, one must be prepared to extend this process. You must assemble a team of mini inventors, all of whom are committed to working towards your endlessly shifting goal posts. Employees will not, however, blindly follow your lead; they require information about where they are going and why. It is essential that you share your vision and knowledge with those around you. This is especially important at the start of the journey. At the start of a venture, this may be all you have to offer.

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SOURCE: Contributed by Peter Richardson.

V I RT UA L T E A M S An exciting new approach to teamwork has resulted from advances in information technology, shifting employee expectations and the globalisation of business. A virtual team is a group made up of geographically or organisationally dispersed members who are linked primarily through advanced information and telecommunications technologies.16 A virtual team can be local, national or global, with members coming from one firm or many. A 2016 survey of employees at multinational corporations found that 85 per cent of respondents belong to virtual teams.17 In a virtual team, members use groupware, email, instant messaging, telephone and text messaging, wikis and blogs, videoconferencing, and other technological tools to collaborate and perform their work, although they also might meet face to face at times. Although some virtual teams are made up of only organisational members, virtual teams often include contingent workers, members of partner organisations, customers, suppliers, consultants or other outsiders. Many virtual teams are also global teams. A global team is a cross-border team made up of members of different nationalities whose activities span multiple countries.18

virtual team A team that uses computer technology and groupware so that geographically distant members can collaborate on projects and reach common goals.

global team A cross-border team that is made up of different nationalities whose activities span multiple countries.

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One of the primary advantages of virtual teams is the ability to assemble the most talented group of people to complete a complex project, solve a particular problem or exploit a specific strategic opportunity. The diverse mix of people can fuel creativity and innovation. On a practical level, organisations can save employee time and cut travel expenses when people meet in virtual rather than physical space. IBM reported that it saved more than US$50 million in travel-related expenses in one year alone by using virtual teams.19 However, virtual teams also present unique challenges. EXHIBIT 13.4 lists some critical areas that managers should address when leading virtual teams. Each of these areas is discussed in more detail in the following list:20

◗◗ Using technology to build trust and relationships is crucial for effective virtual teamwork. Leaders first select people who have the right mix of technical, interpersonal and communication skills to work in a virtual environment, and then make sure that they have opportunities to get to know one another and establish trusting relationships. Encouraging online social networking, where people can share photos and personal biographies, is one key to virtual team success. One study suggests that higher levels of online communication increase team cohesiveness and trust.21 Leaders also build trust by making everyone’s roles, responsibilities and authority clear from the beginning, by shaping norms of full disclosure and respectful interaction, and by providing a way for everyone to stay up to date. In a study of which technologies make virtual teams successful, researchers found that roundthe-clock virtual work spaces, where team members can access the latest versions of files, keep track of deadlines and timelines, monitor one another’s progress and carry on discussions between formal meetings, got top marks.22

◗◗ Shaping culture through technology reinforces productive norms. This involves creating a virtual environment in which people feel safe to express concerns, admit mistakes, share ideas, acknowledge fears or ask for help. Leaders reinforce a norm of sharing all forms of knowledge, and they encourage people to express ‘off-the-wall’ ideas and ask for help when it’s needed. Team leaders set the example by their own behaviour. Leaders also make sure that they bring diversity issues into the open and educate members early on regarding possible cultural differences that could cause communication problems or misunderstandings in a virtual environment. Leaders address conflicts immediately because virtual conflicts can escalate quickly.

◗◗ Monitoring progress and rewarding members keep the team progressing towards goals. Leaders stay on top of the project’s development and make sure that everyone knows how the team is progressing towards meeting its goals. Posting targets, measurements and milestones in the virtual workspace can make progress explicit. Leaders also provide regular feedback, and they reward both individual and team accomplishments through avenues such as virtual award ceremonies and recognition at virtual meetings. They are liberal with praise and congratulations, but criticism or reprimands are handled individually, rather than in the virtual presence of the team. As the use of virtual teams grows, there is growing understanding of what makes them successful. At Spring Company, a large consumer goods company with a virtual team of engineers working in the United States and India, leaders took care to help the team develop rapport at the beginning of the project.

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PRACTICE

HOW IT’S DONE

Use technology to build relationships

Bring attention to and appreciate diverse skills and opinions Use technology to enhance communication and trust Ensure timely responses online Manage online socialisation

Shape culture through technology

Create a psychologically safe virtual culture Share members’ special experience/strengths Engage members from cultures where they may be hesitant to share ideas

Monitor progress and rewards

Scrutinise electronic communication patterns Post targets and scorecards in virtual work space Reward people through online ceremonies, recognition

Sources: Based on Table 1, ‘Practices of Effective Virtual Team Leaders’, in Arvind Malhotra, Ann Majchrzak and Benson Rosen. Leading Virtual Teams. (February 2007). Academy of Management Perspectives, 21:1, 60–9; and Table 2, ‘“Best Practices” Solutions for Overcoming Barriers to Knowledge Sharing in Virtual Teams’, in Benson Rosen, Stacie Furst and Richard Blackburn. Overcoming Barriers to Knowledge Sharing in Virtual Teams. (2007). Organizational Dynamics, 36:3, 259–73.

INNOVATIVE WAY SPRING COMPANY When top executives at Spring Company decided to move some aspects of supply chain process development to one of the company’s Indian facilities, one of their key concerns was making sure that the engineers in the United States and the ones in India came together quickly around a shared mission and a focus on key performance goals, putting the success of the team ahead of individual interests. Company managers, team leaders, and consultants held a series of team-building activities, during which team members together created a shared vision, developed specific team norms and agreements, built virtual relationships, clarified roles and responsibilities, and established expectations for the team’s work. Cultural education and exercises on virtual communication were also a part of the process. By the end of the team-building activities, members were laughing together and eager to get on with their work. A follow-up by webinar and phone found that the team was on track toward meeting its goals; moreover, everyone was still having a good time working together.

The time spent building rapport and trust paid off in smooth team interactions for the Spring Company virtual team. Many experts suggest that leaders bring people together face to face at the beginning of a project so that people can begin building trusting relationships. Others also suggest that managers solicit volunteers as much as possible for virtual teams, and interviews with virtual team members and leaders support the idea that members who truly want to work as a virtual team are more effective. In a study of 52 virtual teams in 15 leading multinational companies, London Business School researchers found that Nokia’s teams were among the most effective, even though they were made up of people working in several different countries, across time zones and cultures. What makes Nokia’s teams so successful? One key is that many of Nokia’s virtual teams consist of people who volunteered for the task. The company also tries to make sure that some members of a team have worked together before, providing a base for trusting relationships.

EXHIBIT 13.4 What effective virtual team leaders do

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Global teams, such as the ones at Nokia and Spring Company, present even greater challenges for team leaders, who have to bridge gaps of time, distance, and culture. Different cultural attitudes can affect work pacing, team communications, decision making, the perception of deadlines, and other issues, and provide

rich soil for misunderstandings and conflict. No wonder when the executive council of CIO magazine asked global chief information officers (CIOs) to rank their greatest challenges, managing virtual global teams ranked as the most pressing issue.

Sources: Gratton, L. (18 June 2007). Working Together . . . When Apart. The Wall Street Journal; Bradley L. Kirkman et al. (2002). Five Challenges to Virtual Team Success: Lessons from Sabre, Inc. Academy of Management Executive 16, no. 3: 67–79.; Engardio, P. (20 August 2007). A Guide for Multinationals: One of the Greatest Challenges for a Multinational Is Learning How to Build a Productive Global Team. BusinessWeek: 48–51; and Gratton, Working Together . . . When Apart; Reported in Pastore, R. (23 January 2008). Global Team Management: It’s a Small World After All. CIO, www.cio.com/ article/174750/Global_Team_Management_It_s_a_Small_World_After_All (accessed 20 May 2008).

CASE STUDY THE ACONEX TEAM IN MELBOURNE Teamwork plays a big part in virtually every business organisation, but is particularly important in fast-growing businesses. From the Melbourne suburb of Carlton, Aconex founders and directors Leigh Jasper and Rob Philpott work on their software platform that provides the web-based infrastructure to support document exchange and communication infrastructure for building projects. Jasper and Leigh are in their thirties, and strongly tapped into the opportunities that the digital age can bring to traditional industries such as building and construction. Their software links designers, architects, engineers, builders and subcontractors to a single centralised communications hub, and their platforms have now become ‘the world’s most widely used online project solutions for the construction, infrastructure, power, mining and oil and gas industries’. It logs all emails and documents that are sent, and hence keeps an audit trail of communication, keeping the project management under control for large and complex projects. Aconex has managed projects worth US$800 billion with over 430 000 users in 65 countries including nearly all of the Fortune 500 construction and engineering companies. One such project involved IKEA’s expansion into China, which required thousands of documents to be exchanged between team members in China and IKEA’s European headquarters. The platform enables documents to be shared

quickly and efficiently and it allows tasks to be tracked so that ‘who did what and when’ can be monitored. Another was the Westpac headquarters building in Sydney, in which one million documents have been exchanged efficiently using Aconex software, saving the many contributors to this project significant amounts of time and money. Aconex works with teams using teams. The company won the ‘Overall Best’ in the SmartCompany Awards and continues to grow and globalise from an Australian base. Aconex operates from 43 locations worldwide and provides document management and online collaboration services for mega projects such as those being conducted in the Middle East. Those projects can generate 500 000 documents and 200 000 emails in a year. Teamwork is an important theme in this fast-moving company, starting with the founders who run it, and throughout the technical and business development staff down the line. Effective teamwork is critical to ensuring that the various activities going on in the company are well coordinated. The top team of this company has had to give away some of the ownership of the company to attract financing for its growth, although they retain half of the shares and managerial control. One of the best indicators that their team is getting things right for clients is the repeat business: ‘Clients keep coming back.’

Sources: Myer, R. (19 February 2005). Fortune Awaits as Duo Cut to the Paperchase. The Age, B2; http://www.aconex.com (accessed 6 November 2013).

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A functional team is composed of a manager and his or her subordinates in the formal chain of command.

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A cross-functional team is made up of employees from about the same hierarchical level but from different areas of expertise.

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Cross-functional teams include task forces and special purpose teams.

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A special-purpose team is a team created outside the formal structure to undertake a project of special importance, such as developing a new product.

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A self-managed team consists of multiskilled employees who rotate jobs to produce an entire product or service, often led by an elected team member.

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Self-managed teams take responsibility for their work, make decisions, monitor their own performance, and alter their work behaviour as needed to solve problems and meet goals.

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A virtual team is a team made up of members who are geographically or organisationally dispersed, rarely meet face to face, and interact to accomplish their work primarily using advanced information and telecommunications technologies.

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A global team is a group made up of employees who come from different countries and whose activities span multiple countries.

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Virtual teams provide many advantages, but they also present new challenges for leaders, who must learn to build trusting relationships in a virtual environment.

A task force is a group of employees from different departments who deal with a specific activity and exist as a team only until the task is completed.

13.3

THE DILEMMA OF TEAMS

When David Ferrucci was trying to recruit scientists to join a team at IBM to build a computer smart enough to beat grand champions at the game of Jeopardy, he learned first-hand that teamwork presents a dilemma for many people. To be sure, building ‘Watson’ was an unusual project, and its results would be put to the test in a televised ‘human versus machine’ competition. If the computer failed, it would be a public relations fiasco that would hurt the credibility of everyone involved. And if it succeeded, the hero would be the team, not any individual team member. Many of the scientists Ferrucci approached preferred to work on their individual projects, where the success would be theirs alone. Eventually, though, he pulled together a core team of people willing to take the risk. ‘It was a proud moment, frankly, just to have the courage as a team to move forward,’ Ferrucci says.23 In organisations all over the world, some people love the idea of teamwork, others hate it, and many people have both positive and negative emotions about being part of a team. There are three primary reasons that teams present a dilemma for many people:

◗◗ We have to give up our independence. When people become part of a team, their success depends on the team’s success; therefore, they must depend on how well other people perform, not just on their own individual initiative and actions. Most people are comfortable with the idea of making sacrifices to achieve their own individual success, yet teamwork demands that they make sacrifices for group success.24 The idea is that each person should put the team first, even if it hurts the individual at times.

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Many employees, particularly in individualistic cultures, have a hard time appreciating and accepting that concept. For example, a recent study suggests that Americans have become increasingly focused on the individual over the group since 1960, reflecting ‘a sea change in American culture towards more individualism’.25 Other countries, including Japan, have had greater success with teams, because their culture values the group over the individual. Australian business cultures are usually thought to lie somewhere in the middle of these (Japanese and American) extremes.

◗◗ We have to put up with free riders. Teams are sometimes made up of people who have different free rider A person who benefits from team membership but does not make a proportionate contribution to the team’s work.

work ethics. The term free rider refers to a team member who attains benefits from team membership but does not actively participate in and contribute to the team’s work. You might have experienced this frustration in a university group assignment, where one group member put little effort into the project but benefited from the hard work of others when grades were handed out. Free riding is sometimes called social loafing, because some members do not exert equal effort.26

◗◗ Teams are sometimes dysfunctional. Some companies have had great success with teams, but there are also numerous examples of how teams in organisations fail spectacularly.27 ‘The best groups will be better than their individual members, and the worst groups will be worse than the worst individual,’ says organisational psychologist Robert Sutton.28 A great deal of research and team experience over the past few decades has produced significant insights into what causes teams to succeed or fail. The evidence shows that the way teams are managed plays the most critical role in determining how well they function.29 EXHIBIT 13.5 lists five dysfunctions that are common in teams and describes the contrasting desirable characteristics that effective team leaders develop.

TAKE A MOMENT The Group challenge on page 625 of this chapter gives you a chance to evaluate and discuss various team member behaviours.

EXHIBIT 13.5 Five common dysfunctions in teams

DYSFUNCTION

EFFECTIVE TEAM CHARACTERISTICS

Lack of trust – People don’t feel safe to reveal mistakes, share concerns or express ideas.

Trust – Members trust one another on a deep emotional level; feel comfortable being vulnerable with one another.

Fear of conflict – People go along with others for the sake of harmony; don’t express conflicting opinions.

Healthy conflict – Members feel comfortable disagreeing and challenging one another in the interest of finding the best solution.

Lack of commitment – If people are afraid to express their true opinions, it’s difficult to gain their true commitment to decisions.

Commitment – Because all ideas are put on the table, people can achieve genuine buy-in around important goals and decisions.

Avoidance of accountability – People don’t accept responsibility for outcomes; engage in fingerpointing when things go wrong.

Accountability – Members hold one another accountable rather than relying on managers as the source of accountability.

Inattention to results – Members put personal ambition or the needs of their individual departments ahead of collective results.

Results orientation – Individual members set aside personal agendas; focus on what’s best for the team. Collective results define success.

Sources: Based on Patrick Lencioni, The Five Dysfunctions of a Team (New York: John Wiley & Sons, 2002); and P. Lencioni. (October 2009). Dissolve Dysfunction: Begin Building Your Dream Team. Leadership Excellence, 20.

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Teams present a dilemma for most people because individual success depends on how well others perform; there are common dysfunctions that afflict teams, and there is a potential for free riders.

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A free rider is a person who benefits from team membership but does not make a proportionate contribution to the team’s work.

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Five common dysfunctions of teams are lack of trust, fear of conflict, lack of commitment, avoidance of accountability and inattention to results.

13.4

MODEL OF TEAM EFFECTIVENESS

Smoothly functioning teams don’t just happen. Stanford sociologist Elizabeth Cohen studied group work among young schoolchildren and found that only when teachers took the time to define roles, establish norms and set goals did the groups function effectively as teams.30 In organisations, effective teams are built by managers who take specific actions to help people come together and perform well as a team. Some of the factors associated with team effectiveness are illustrated in EXHIBIT 13.6. Work team effectiveness is based on three outcomes: productive output, personal satisfaction, and the capacity to adapt and learn.31 Satisfaction pertains to the team’s ability to meet the personal needs of its members and hence maintain their membership and commitment. Productive output pertains to performance and the quality and quantity of task outputs as defined by team goals. Capacity to adapt and learn refers to the ability of teams to bring greater knowledge and skills to job tasks and enhance the potential of the organisation to respond to new threats or opportunities in the environment. The model of team effectiveness shown in EXHIBIT 13.6 provides a structure for this chapter. The factors that influence team effectiveness begin with the organisational context.32 The organisational context in which the team operates is described in other chapters, and includes such matters as overall leadership, strategy, environment, culture, and systems for controlling and rewarding employees. Within that context, managers define teams. Important team characteristics are the type of team, the team structure and team composition. Managers must decide when to create permanent self-managed teams and when to use a temporary task force or special-purpose team. The diversity of the team, in terms of task-related knowledge and skills, can have a tremendous impact on team processes and effectiveness. In addition, diversity in terms of gender and race can affect a team’s performance, as will be discussed later in this chapter.33 Team size and roles also are important. These team characteristics influence processes that are internal to the team, which, in turn, affect output, satisfaction and the team’s contribution to organisational adaptability. Good team leaders understand and manage stages of team development, cohesiveness, norms and conflict to build an effective team. These processes are influenced by team and organisational characteristics and by the ability of members and leaders to direct these processes in a positive manner.

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Team type Formal Self-managed Virtual/global

Organisational context Leadership Environment Culture Strategy Reward, control systems

Team characteristics Size Diversity Roles

Team processes Stages of development Cohesiveness Norms Conflict resolution

Work team effectiveness Productive output Personal satisfaction Capacity to adapt and learn

Team composition Knowledge and skills Benefits and costs

EXHIBIT 13.6 Work team effectiveness model

MANAGEMENT IN PRACTICE HOW TO BE A GREAT TEAM LEADER Perhaps no single factor plays a greater role in determining team effectiveness than the team leader. Teams fail when leaders try to manage them in traditional command-and-control fashion. There are four specific ways in which leaders contribute to team success:

✚✚ Rally people around a compelling purpose. It is the leader’s responsibility to articulate a clear, compelling purpose, one of the key elements of effective teams. This ensures that everyone is moving in the same direction rather than floundering around, wondering why the team was created and where it’s supposed to be going. Effective leaders also establish clear goals and timelines.

✚✚ Share control to spur commitment and motivation. Overly controlling leaders sabotage team effectiveness. Good team leaders share power, information, control and genuine responsibility. When Todd Conger became a team leader at Morton International, he felt the impulse to jump in as soon as the project started falling behind schedule. But the more work he did, the less work seemed to be accomplished – and the less motivated team members became. Conger’s ‘helping’ was actually hurting the team, because its members interpreted it as criticism and felt no control over their work.

Sharing power and control requires that the leader have faith that team members will make good decisions, even if those decisions might not be the ones that the leader would make.

✚✚ Clarify norms and expectations. Leaders should define roles and expectations clearly from the start, so that everyone knows what they should be doing and what they can expect from their teammates. Team members who are confused about their roles will be unproductive, which will spark resentment from other members. Sometimes a leader might need to meet with each team member individually to make sure that each person understands and accepts his or her obligations.

✚✚ Admit ignorance. Often, people appointed to lead teams find that they don’t know nearly as much as their teammates know. Good team leaders aren’t afraid to admit their ignorance and ask for help. This serves as a fallibility model that lets people know that lack of knowledge, problems, concerns, and mistakes can be discussed openly without fear of appearing incompetent. Although it’s hard for many managers to believe, admitting ignorance and being willing to learn from others can earn the respect of team members faster than almost any other behaviour.

SOURCES: Based on J. Richard Hackman, Leading Teams: Setting the Stage for Great Performances (Boston, MA: Harvard Business School Press, 2002); Lee G. Bolman and Terrence E. Deal. (August 1992). What Makes a Team Work? Organizational Dynamics, 34–44; Amy Edmondson, Richard Bohmer and Gary Pisano. (October 2001). Speeding up Team Learning. Harvard Business Review, 125–32; Jeanne M. Wilson, Jill George and Richard S. Wellings, with William C. Byham, Leadership Trapeze: Strategies for Leadership in Team-Based Organizations (San Francisco: Jossey-Bass, 1994); Sarah Fister Gale. (October 2007). The Turn Around Artist. PM Network, 28–35; and Eric Matson. (June–July 1997). Congratulations, You’re Promoted (Now What?). Fast Company, 116–30.

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Team effectiveness is concerned with productive output, personal satisfaction, and the capacity to adapt and learn.

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Managers should form teams with careful consideration of team characteristics: the type of team, the team structure and team composition.

13.5

TEAM CHARACTERISTICS

After deciding which type of team to use, the next issue of concern to managers is designing the team for greatest effectiveness. Team characteristics of particular concern are size, diversity and member roles.

SIZE More than 30 years ago, psychologist Ivan Steiner examined what happened each time the size of a team increased, and ultimately proposed that a team’s performance and productivity peaked when it had about five members – a quite small number. He found that adding members beyond five caused a decrease in motivation, an increase in coordination problems and a general decline in performance.34 Since then, numerous studies have found that smaller teams perform better, although most researchers say that it’s impossible to specify an optimal team size. One investigation of team size based on data from 58 software development teams found that the best-performing teams ranged in size from three to six members.35 Teams need to be large enough to incorporate the diverse skills needed to complete a task, enable members to express good and bad feelings, and aggressively solve problems. However, they also should be small enough to permit members to feel an intimate part of the team and to communicate effectively and efficiently. The ability of people to identify with the team is an important determinant of high performance.36 At Amazon.com, CEO Jeff Bezos established a ‘two-pizza rule’. If a team gets so large that members can’t be fed with two pizzas, it should be split into smaller teams.37 In general, as a team increases in size, it becomes harder for each member to interact with and influence the others. Subgroups often form in larger teams, and conflicts among them can occur. Turnover and absenteeism are higher because members feel less like an important part of the team.38 Although the Internet and advanced technologies are enabling larger groups of people to work more effectively in virtual teams, studies show that members of smaller virtual teams participate more actively, are more committed to the team, are more focused on team goals and have higher levels of rapport than larger virtual teams.39

DIVE RSITY Because teams require a variety of skills, knowledge and experience, it seems likely that heterogeneous teams would be more effective than homogeneous ones. In general, research supports this idea, showing that diverse teams produce more innovative solutions to problems.40 Diversity in terms of functional area and skills, thinking styles and personal characteristics is often a source of creativity. In addition, diversity may contribute to a healthy level of disagreement that leads to better decision making. Research studies have confirmed that both functional diversity and demographic

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diversity can have a positive impact on work team performance.41 For example, modern research suggests that gender diversity, particularly with more women on a team, leads to better performance.42 Ethnic, national and racial diversity sometimes can hinder team interaction and performance in the short term, but with effective leadership, the problems fade over time.43

M E M B E R RO L E S For a team to be successful over the long run, it must be structured so as to both maintain its members’ social wellbeing and accomplish its task. To understand the importance of members fulfilling various roles on a team, consider the 33 miners who were trapped underground after a copper mine collapsed in San José, Chile, in August 2010. With little food, scant water, dusty conditions and frayed nerves, the situation could have led to chaos. However, the miners organised into several teams in charge of critical activities, such as communication with rescue workers, the transport of supplies from above ground, rationing and distribution of food, managing health concerns and securing the mine to prevent further collapses. Some team members were focused on helping the trapped miners to meet their needs for physical survival; some focused on helping people coordinate their activities; and still others focused on the group’s psychological and social needs, helping people to maintain hope and a sense of solidarity as the ordeal stretched to a harrowing 69 days. Experts agree that teamwork and leadership were key to the miners’ survival.44

TAKE A MOMENT If you haven’t already done so, complete the New manager self-assessment ‘How do you like to work?’ at the beginning of this chapter to see how you contribute as a team member.

task specialist role A role in which the individual devotes personal time and energy to helping the team accomplish its task.

socio–emotional role A role in which the individual provides support for team members’ emotional needs and social unity.

In successful teams, the requirements for task performance and social satisfaction are met by the emergence of two types of roles: task specialist and socio-emotional.45 People who play a task specialist role spend time and energy helping the team reach its goal. They often display the following behaviours:

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Initiate ideas. Propose new solutions to team problems. Give opinions. Offer judgements on task solutions; give candid feedback on others’ suggestions. Seek information. Ask for task-relevant facts. Summarise. Relate various ideas to the problem at hand; pull ideas together into a brief overview. Energise. Stimulate the team into action when interest drops.46

People who adopt a socio–emotional role support team members’ emotional needs and help strengthen the social entity. They display the following behaviours:

◗◗ Encourage. Are warm and receptive to others’ ideas; praise and encourage others to draw forth their contributions.

◗◗ ◗◗ ◗◗ ◗◗

Harmonise. Reconcile group conflicts; help disagreeing parties reach agreement. Reduce tension. Tell jokes or diffuse emotions in other ways when the group atmosphere is tense. Follow. Go along with the team; agree to other team members’ ideas. Compromise. Will shift own opinions to maintain team harmony.47

Teams with mostly socio–emotional roles can be satisfying, but they also can be unproductive. At the other extreme, a team made up primarily of task specialists will tend to have a singular concern for

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CASE STUDY ESPRESSO Michael Allpress credits his success to his loyal staff and teamwork, which in turn attracts loyal customers. Says Allpress, ‘At Allpress it’s always about flavour… starting at coffee farms and finishing in your cup. Our obsession with the best tasting coffee involves selecting top grade Arabica beans, using innovative roasting technology, training baristas and the expertise of our people. Enjoy every brew knowing you are in the best possible hands.’ This focus has led Allpress to supply more than 350 cafes, espresso bars and restaurants in New Zealand and more than 260 in Australia, employing 40 staff members in New Zealand and 50 in Australia.

Source: Courtesy Allpress Espresso

Allpress Espresso was created by Michael Allpress in 1986 in Victoria Park Market, Auckland. The concept behind his business was born from Allpress’ time in Seattle in the United States and his desire to bring an ‘authentic espresso’ back to his home country of New Zealand. He initially started out as a mobile espresso cart business and in 1996 opened his first Allpress Espresso Bar café in Victoria Park West, Auckland. In 1999, Allpress partnered with lifelong friend Tony Papas to bring his coffee business to Sydney, Australia. Melbourne was next in 2006 and the refurbished open-plan roaster and café in Collingwood was unveiled in November, 2013. Allpress also operates a roastery and café in both Tokyo, Japan and Shoreditch, London.

Sources: Allpress Espresso (2016). History, http://au.allpressespresso.com/our-story/history/ (accessed 2 December 2016); NAB (28 August 2014). Allpress Espresso: The perfect cup, http://business.nab.com.au/allpress-espresso-the-perfect-cup-7756/ (accessed 2 December 2016); Bean Scene Magazine (2010, December). From cart to king of quality, http://www.beanscenemag.com.au/icon/article/from-cart-to-king-ofquality (accessed 2 December 2016).

task accomplishment. This team will be effective for a short period of time, but will not be satisfying for members over the long run. Effective teams have people in both task specialist and socio–emotional roles. A well-balanced team will do best over the long term because it will be personally satisfying for team members, as well as permit the accomplishment of team tasks.

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Issues of particular concern to managers for team effectiveness are selecting the right type of team for the task, balancing the team’s size and diversity, and ensuring that both task and social needs are met.

◗◗ ◗◗

Small teams are typically more productive and more satisfying to their members than are large teams.

◗◗

The socio–emotional role is a team role in which an individual provides support for team members’ emotional needs and helps strengthen social unity.

The task specialist role is a team role in which an individual devotes personal time and energy to helping the team accomplish its activities and reach its goal.

13.6

TEAM PROCESSES

Now we turn our attention to internal team processes. Team processes pertain to those dynamics that change over time and can be influenced by team leaders. In this section, we discuss stages of development, cohesiveness and norms. The fourth type of team process, conflict, will be covered in the next section.

STAG E S O F T E A M D E V E L O P M E N T After a team has been created, it develops by passing through distinct stages. New teams are different from mature teams. Recall a time when you were a member of a new team, such as a sporting team, a university, a committee, or a small group formed to do a class assignment. Now consider how, over time, the team changed. In the beginning, team members had to get to know one another, establish roles and norms, divide the labour, and clarify the team’s task. In this way, each member became part of a smoothly operating team. The challenge for leaders is to understand the stages of development and take action that will lead to smooth functioning. Research findings suggest that team development is not random, but evolves over definitive stages. One useful model for describing these stages is shown in EXHIBIT 13.7. Each stage confronts team leaders and members with unique problems and challenges.48

FORMING forming The stage of team development characterised by orientation and acquaintance.

storming The stage of team development in which individual personalities and roles, and resulting conflicts, emerge.

The forming stage of development is a period of orientation and getting acquainted. Members break the ice and test one another for friendship possibilities and task orientation. Uncertainty is high during this stage, and members usually accept whatever power or authority is offered by either formal or informal leaders. During this initial stage, members are concerned about questions such as ‘What is expected of me?’, ‘What behaviour is acceptable?’ and ‘Will I fit in?’ During the forming stage, the team leader should provide time for members to get acquainted with one another and encourage them to engage in informal social discussions.

STORMING During the storming stage, individual personalities emerge. People become more assertive in clarifying their roles and what is expected of them. This stage is marked by conflict and disagreement. People may disagree over their perceptions of the team’s goals or how to achieve them. Members may jockey for position, and coalitions or subgroups based on common interests may form. Unless teams can successfully

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move beyond this stage, they may get bogged down and never achieve high performance. Think of the Australian Olympic swimming team that underperformed at the 2012 London Olympics. They had trouble achieving a cohesive team spirit because the team was loaded with superstar athletes with disparate personalities and expectations. After the Olympics and some serious team reflection, the team started to come together and show signs of solidarity only when it became clear that they couldn’t win unless they did. Yet this proved harder than expected, and even though improvements were made, the 2016 Olympics in Rio de Janeiro were quite disappointing again for the Australian swimming team. During the storming stage, the team leader should encourage participation by each team member. Members should propose ideas, disagree with one another, and work through the uncertainties and conflicting perceptions about team tasks and goals. The expression of emotions, even negative ones, helps to build camaraderie and a shared understanding of goals and tasks.49

Adjourning

EXHIBIT 13.7 Five stages of team development

Performing

Norming Cooperation, problem solving

Storming

Forming

Task completion

Establishment of order and cohesion

Conflict, disagreement

Orientation, breaking the ice Sources: Based on the stages of small group development in Bruce W. Tuckman. (1965). Developmental Sequence in Small Groups. Psychological Bulletin, 63, 384–99; and B. W. Tuckman and M. A. Jensen. (1977). Stages of Small Group Development Revisited. Group and Organizational Studies, 2, 419–27.

NORMING During the norming stage, conflict is resolved and team harmony and unity emerge. Consensus develops on who has the power, who the leaders are, and what members’ roles are. Members come to accept and understand one another. Differences are resolved, and members develop a sense of team cohesion. During the norming stage, the team leader should emphasise unity within the team and help to clarify team norms and values.

norming The stage of team development in which conflicts developed during the storming stage are resolved and team harmony and unity emerge.

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PERFO RM ING performing The stage of team development in which members focus on problem solving and accomplishing the team’s assigned task.

During the performing stage, the major emphasis is on problem solving and accomplishing the assigned task. Members are committed to the team’s mission. They are coordinated with one another and handle disagreements in a mature way. They confront and resolve problems in the interest of task accomplishment. They interact frequently and direct their discussions and influence towards achieving team goals. During this stage, the leader should concentrate on managing high task performance. Both socio–emotional and task specialist roles contribute to the team’s functioning.

A DJOURNING adjourning The stage of team development in which members prepare for the team’s disbandment.

The adjourning stage occurs in committees and teams that have a limited task to perform and are disbanded afterward. During this stage, the emphasis is on wrapping up and gearing down. Task performance is no longer a top priority. Members may feel heightened emotionality, strong cohesiveness, and depression or regret over the team’s disbanding. At this point, the leader may wish to signify the team’s disbanding with a ritual or ceremony, perhaps giving out plaques and awards to signify closure and completeness. These five stages typically occur in sequence, but in teams that are under time pressure, they may occur quite rapidly. The stages may also be accelerated for virtual teams. For example, at a large consumer goods company with a virtual team of engineers working in the United States and India, leaders started the project with a couple of days of team building to help the team move rapidly through the forming and storming stages, as described in the Innovative Way box earlier in the chapter.

T E A M CO H E S I V E N E S S team cohesiveness The extent to which team members are attracted to the team and motivated to remain in it.

Another important aspect of the team process is cohesiveness. Team cohesiveness is defined as the extent to which members are attracted to the team and motivated to remain in it.50 Members of highly cohesive teams are committed to team activities, attend meetings and are happy when the team succeeds. Members of less cohesive teams are less concerned about the team’s welfare. High cohesiveness is normally considered to be a desirable feature of teams.

DETERM INA NTS O F TE A M C O HE S I V E NE S S Several characteristics of team structure and context influence cohesiveness. First is team interaction. When team members have frequent contact, they get to know one another, consider themselves a unit and become more committed to the team.51 Second is the concept of shared goals. If team members agree on purpose and direction, they will be more cohesive. Third is personal attraction to the team, meaning that members have similar attitudes and values and enjoy being together. Two factors in the team’s context also influence cohesiveness. The first is the presence of competition. When a team is in moderate competition with other teams, its cohesiveness increases as it strives to win. Finally, team success and the favourable evaluation of the team by outsiders add to cohesiveness. When a team succeeds in its task and others in the organisation recognise the success, members feel good and their commitment to the team will be high.

C O NSEQUENC ES O F TE A M C O HE S I V E NE S S The outcome of team cohesiveness can fall into two categories – morale and productivity. As a general rule, morale is higher in cohesive teams because of increased communication among members, a friendly

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team climate, maintenance of membership because of commitment to the team, loyalty, and member participation in team decisions and activities. High cohesiveness has almost uniformly positive effects on the satisfaction and morale of team members.52 With respect to the productivity of the team as a whole, research findings suggest that teams in which members share strong feelings of connectedness and generally positive interactions tend to perform better.53 Thus, a friendly, positive team environment contributes to productivity, as well as member satisfaction. Among call centre teams at Bank of America, for example, productivity rose 10 per cent when leaders scheduled more face-to-face interaction time outside of formal meetings. Simply interacting with others in a positive way has an energising effect. Alex ‘Sandy’ Pentland, a professor at the Massachusetts Institute of Technology (MIT), and his colleagues at MIT’s Human Dynamics Laboratory studied teams across diverse industries to identify what gives some teams the energy, creativity and shared commitment that leads to high productivity. They found positive patterns of communication to be the most important predictor of a team’s success – as significant as individual intelligence, personality, skill and the substance of discussions combined.54 Other research indicates that the degree of productivity in cohesive teams may depend on the relationship between management and the work team. One study surveyed more than 200 work teams and correlated job performance with their cohesiveness.55 Highly cohesive teams were more productive when team members felt management support and less productive when they sensed management hostility and negativism.

T E A M NO R M S

team norm A standard of conduct that is shared by team members and guides their behaviour.

A team norm is an informal standard of conduct that is shared by team members and guides their behaviour.56 Norms are valuable because they provide a frame of reference for what is expected and acceptable. Norms begin to develop in the first interactions among members of a new team. EXHIBIT 13.8 illustrates four common ways in which norms develop.57 Sometimes the first behaviours that occur in a team set a precedent. For example, at one company, a team leader began his first meeting by raising an issue and then ‘leading’ team members until he got the solution he Critical events Primacy: firstwanted. The pattern became ingrained so quickly into an unproductive in team’s history behaviour precedents team norm that members dubbed meetings the ‘Guess What I Think’ game.58 Other influences on team norms include critical events in Team the team’s history, as well as behaviours, attitudes and norms that norms members bring with them from outside the team. Team leaders play an important role in shaping norms that Explicit statements Carryover from will help the team be effective. For example, research shows that from leader other experiences or members when leaders have high expectations for collaborative problem solving, teams develop strong collaborative norms.59 Making explicit statements about desired team behaviours is a powerful way that leaders influence norms. EXHIBIT 13.8 Four ways team norms develop

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MANAGEMENT IN PRACTICE TEAM LEADER QUALITIES ‘We’re going to be implementing teams, and each of you will serve as facilitator for your team.’ Those words can send traditional managers into near panic. Few understand what the transition to teams involves. In addition, managers can be confused about their role as coach and facilitator rather than supervisor, and are reluctant to share information and power with lower-level workers. Many are suspicious that the move to teams is simply a fancy way to eliminate their jobs. In the traditional hierarchical structure, career paths were clear, and the ambitious moved from shop floor to line supervisor and, potentially, into management by developing clearly defined skills. But under the team concept, a new set of skills is called for – the so-called soft skills, which include communication, conflict resolution, motivation, sharing and trust building. Development of successful teams begins with development of confident team leaders; organisations should not merely toss the ball to managers and expect them to automatically become experts in team leadership. Training can help managers to define and learn how to be effective team leaders. There are a number of points team leaders should remember:

✚✚ Team leaders do not have to know everything. This can be especially daunting in leading cross-functional teams. The leader should determine his or her own strengths and how those can benefit the entire group.

✚✚ Team leaders embrace the concept of teamwork in deeds as well as words. That means sharing power and information in order to empower team members and reach goals.

✚✚ Team leaders enable members to find answers for themselves by asking questions and encouraging balanced participation.

✚✚ Team leaders coordinate team activities and avoid wasting time on details that can be better handled through transfer of responsibility to the team.

✚✚ Team leaders accept the concept of continuous, on-the-job learning. Following these guidelines can help you become an effective team leader. For example, after seven years as a manufacturing engineer, Boeing’s Bruce Moravec knew he had mastered his technical discipline, but when he was appointed to lead the 757 Stretch Program team, he had to lead people who worked in areas he knew little about. Moravec knew better than to pretend he had all the answers: ‘That dooms you to failure. I tell all my people we have different roles. My job is to pull things together. They’re the experts.’ Boeing has a series of training programs, from workshops to an intranet site offering instructional materials and diagnostic tools, to teach people how to be effective team leaders. Phil Polizatto leads a workshop that has a waiting list of 340 eager team leaders who understand the importance of their new roles. ‘Just as a flight crew is dependent on the captain’s behaviour,’ Polizatto says, ‘the work of a team is dependent on its leader’s behaviour.’

SOURCES: Caminiti, S. (20 February 1995). What Team Leaders Need to Know. Fortune, 93–100; Holpp, L. (March 1995). New Roles for Leaders: An HRD Reporter’s Inquiry. Training & Development, 46–50; Matson, E. (June–July 1997). Congratulations, You’re Promoted. Fast Company, 116–30; Boeing website, http://www.boeing.com.

R EMEMBE R THIS ◗◗ ◗◗

The forming stage of team development is a period of orientation and getting acquainted.

◗◗

Norming refers to the stage of development in which conflicts are resolved and team harmony and unity emerge.

◗◗

The performing stage is the stage in which members focus on problem solving and accomplishing the team’s assigned task.

Storming is the stage of team development in which individual personalities and roles emerge, along with resulting conflicts.

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◗◗ ◗◗

Adjourning is the stage during which members of temporary teams prepare for the team’s disbanding.

◗◗

Morale is almost always higher in cohesive teams, and cohesiveness can also contribute to higher productivity.

◗◗

A team norm is an informal standard of conduct that is shared by team members and guides their behaviour.

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Team cohesiveness refers to the extent to which team members are attracted to the team and motivated to remain a part of it.

13.7

MANAGING TEAM CONFLICT

The final characteristic of team process that must be consciously managed is team conflict. Conflict can arise among members within a team or between one team and another. Conflict refers to antagonistic interaction in which one party attempts to block the intentions or goals of another.60 Whenever people work together in teams, some conflict is inevitable. Bringing conflicts into the open and effectively resolving them is one of the team leader’s most challenging, yet most important, jobs. Effective conflict management has a positive impact on team cohesiveness and performance.61

T Y P E S O F CO N F L I C T Two basic types of conflict that occur in teams are task conflict and relationship conflict.62 Task conflict refers to disagreements among people about the goals to be achieved or the content of the tasks to be performed. Two shop foremen might disagree over whether to replace a valve, or let it run despite the unusual noise that it is making. Or two members of a top management team might disagree about whether to acquire a company or enter into a joint venture as a way to expand globally. Relationship conflict refers to interpersonal incompatibility that creates tension and personal animosity among people. For example, in one team at a company that manufactures and sells upscale children’s furniture, team members found their differing perspectives and working styles to be a significant source of conflict during crunch times. Members who needed peace and quiet were irked at those who wanted music playing in the background. Compulsively neat members found it almost impossible to work with those who liked working among stacks of clutter.63 In general, research suggests that task conflict can be beneficial because it leads to better decision making and problem solving. On the other hand, relationship conflict is typically associated with negative consequences for team effectiveness.64 One study of top management teams, for example, found that task conflict was associated with higher decision quality, greater commitment and more decision acceptance, while the presence of relationship conflict significantly reduced those same outcomes.65

B A L A N C I NG CO N F L I CT A N D CO O P E R AT I O N There is evidence that mild conflict can be beneficial to teams.66 A healthy level of conflict helps to prevent groupthink, a phenomenon already discussed in Appendix to Chapter 6, in which people are so committed to a cohesive team that they are reluctant to express contrary opinions. When people in work teams go

task conflict Conflict that results from disagreements about the goals to be achieved or the content of the tasks to be performed. relationship conflict Conflict that results from interpersonal incompatibility that creates tension and personal animosity among people.

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Team performance

High

Low Low

EXHIBIT 13.9 Balancing conflict and cooperation

See Appendix to Chapter 6 for a discussion of the phenomenon ‘groupthink’.

along with an idea simply for the sake of harmony, problems typically result. Thus, a degree of conflict leads to better decision making because multiple viewpoints are expressed. However, conflict that is too strong, that is focused on personal rather than work issues or that is not managed appropriately can be damaging to the team’s morale and productivity. Too much conflict can be destructive, tear relationships apart and interfere with the healthy exchange of ideas and information.67 Team leaders have to find the right balance between conflict and Moderate High cooperation, as illustrated in EXHIBIT 13.9. Too little conflict can decrease team performance because the team doesn’t benefit Amount of conflict from a mix of opinions and ideas – even disagreements  – that might lead to better solutions or prevent the team from making mistakes. At the other end of the spectrum, too much conflict outweighs the team’s cooperative efforts and leads to a decrease in employee satisfaction and commitment, hurting team performance. A moderate amount of conflict that is managed appropriately typically results in the highest levels of team performance.

C AU S E S O F CO N F L I CT Several factors can lead to conflict.68 One of the primary causes of conflict is competition over resources, such as money, information or supplies. When individuals or teams must compete for scarce or declining resources, conflict is almost inevitable. In addition, conflict often occurs simply because people are pursuing differing goals. Goal differences are natural in organisations. For instance, individual salespeople’s targets may put them in conflict with one another or with the sales manager. Moreover, the sales department’s goals might conflict with those of manufacturing, and so forth. Conflict may also arise from communication breakdowns. Poor communication can occur in any team, but virtual and global teams are particularly prone to communication breakdowns. In one virtual team developing a custom polymer for a Japanese manufacturer, the marketing team member in the United States was frustrated by a Japanese team member’s failure to provide her with the manufacturer’s marketing strategy. The Japanese team member, in turn, thought that her teammate was overbearing and unsupportive. She knew that the manufacturer hadn’t yet developed a clear marketing strategy, and that pushing for more information could damage the relationship by causing the customer to ‘lose face’.69 Trust issues can be a major source of conflict in virtual teams if members feel that they are being left out of important communication interactions.70 In addition, the lack of non-verbal cues in virtual interactions leads to more misunderstandings.

ST Y L E S T O H A N D L E CO N F L I CT Teams as well as individuals develop specific styles for dealing with conflict, based on the desire to satisfy their own concern versus the other party’s concern. A model that describes five styles of handling conflict is shown in EXHIBIT 13.10. The two major dimensions are the extent to which an individual is assertive versus cooperative in his or her approach to conflict.71

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◗◗ The dominating style (my way) reflects assertiveness to get one’s

Assertive

own way, and should be used when quick, decisive action is vital on important issues or unpopular actions, such as during emergencies or urgent cost cutting.

◗◗ The avoiding style (no way) reflects neither assertiveness nor cooperativeness. It is appropriate when an issue is trivial, when there is no chance of winning, when a delay to gather more information is needed or when a disruption would be costly.

◗◗ The compromising style (halfway) reflects a moderate amount of both assertiveness and cooperativeness. It is appropriate when the goals on both sides are equally important, when opponents have equal power and both sides want to split the difference, or when people need to arrive at temporary or expedient solutions under time pressure.

Dominating (my way)

Collaborating (our way)

Compromising (halfway)

Assertiveness

Avoiding (no way)

Accommodating (your way)

Unassertive Uncooperative

Cooperativeness

Cooperative

Sources: Adapted from Kenneth Thomas, ‘Conflict and Conflict Management’, in Handbook of Industrial and Organizational Behavior, ed. M. D. Dunnette (New York: John Wiley, 1976), p. 900; and Nan Peck. (20 September 2005). Conflict 101: Styles of Fighting. North Virginia Community College website, http://www.nvcc.edu/home/npeck/ conflicthome/conflict/Conflict101/conflictstyles.htm (accessed 13 April 2011).

◗◗ The accommodating style (your way) reflects a high degree of cooperativeness, which works best when people realise that they are wrong, when an issue is more important to others than to oneself, when building social credits for use in later discussions and when maintaining harmony is especially important.

◗◗ The collaborating style (our way) reflects a high degree of both assertiveness and cooperativeness. The collaborating style enables both parties to win, although it may require substantial bargaining and negotiation. The collaborating style is important when both sets of concerns are too important to be compromised, when insights from different people need to be merged into an overall solution and when the commitment of both sides is needed for a consensus. An example of the collaborating style comes from the 2008 Summer Olympics in Beijing. When building the Beijing National Aquatics Center (typically called the ‘Water Cube’), two architectural firms – one Chinese and the other Australian – developed designs that were totally different. Although this created some tension, instead of fighting for their own ideas, the two sides came up with a totally new concept that excited everyone. The resulting award-winning building is spectacular.72 Each of the five styles is appropriate in certain cases, and effective team members and leaders vary their style to fit the specific situation.

INNOVATIVE WAY McDEVITT STREET BOVIS Rather than the typical construction project characterised by conflicts, frantic scheduling and poor communications, McDevitt Street Bovis (which later became a subsidiary of the Australian based Lendlease group) wanted its collection of contractors, designers, suppliers and other partners to function like a true team – putting the success of the project ahead of their own individual interests. The team-building process at Bovis is designed to take teams to the performing

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stage as quickly as possible by giving everyone an opportunity to get to know one another; explore the ground rules; and clarify roles, responsibilities and expectations. The team is first divided into separate groups that may have competing objectives – such as the clients in one group, suppliers in another, engineers and architects in a third and so forth – and asked to come up with a list of their goals for the project. Although interests sometimes vary widely

EXHIBIT 13.10 A model of styles to handle conflict

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in purely accounting terms, common themes almost always emerge. By talking about conflicting goals and interests, as well as what all the groups share, facilitators help the team gradually come together around a common purpose and begin to develop shared values that will guide the project. After jointly writing a mission statement for the team, each party says what it expects from the others, so that roles and responsibilities can be clarified. The intensive team-building session helps take members quickly through the forming

and storming stages of development. ‘We prevent conflicts from happening,’ says former facilitator Monica Bennett. Leaders at McDevitt Street Bovis believe building better teams builds better buildings. As part of Lendlease group, this organisation has won numerous awards for its sound approach to management of its workplace teams, such as 2016 awards for Gender Equality, LGBTI inclusion and Reconciliation.

Sources: Petzinger, T. Jr. (21 March 1997). Bovis Team Helps Builders Construct a Solid Foundation. The Wall Street Journal, B1., LendLease, Diversity and Inclusion, http://www.lendlease.com/au/company/about-us/diversity-and-inclusion/ (accessed 1 May 2016).

N E GO T I AT I O N negotiation Involves people engaging in give-and-take discussions and considering various alternatives to reach a joint decision that is acceptable to both parties. integrative negotiation A collaborative approach based on a win–win assumption, whereby the parties want a creative solution that benefits both sides of the conflict. distributive negotiation A competitive and adversarial approach in which each party strives to get as much as it can, usually at the expense of the other party.

One distinctive type of conflict management is negotiation, whereby people engage in give-and-take discussions and consider various alternatives to reach a joint decision that is acceptable to both parties. Negotiation is used when a conflict is formalised, such as between a union and management.

TYP ES O F NEGO T IAT ION Conflicting parties may embark on negotiation from different perspectives and with different intentions, reflecting either an integrative approach or a distributive approach. Integrative negotiation is based on a win–win assumption, in that all parties want to come up with a creative solution that can benefit both sides. Rather than viewing the conflict as a win–lose situation, people look at the issues from multiple angles, consider tradeoffs, and try to ‘expand the pie’ (meaning to create additional value) rather than divide it. With integrative negotiation, conflicts are managed through cooperation and compromise, which fosters trust and positive long-term relationships. Distributive negotiation, on the other hand, assumes that the size of the ‘pie’ is fixed, and each party attempts to get as much of it as they can. One side wants to win, which means the other side must lose. With this win–lose approach, distributive negotiation is competitive and adversarial, rather than collaborative, and does not typically lead to positive long-term relationships.73 Most experts emphasise the value of integrative negotiation for today’s collaborative business environment. That is, the key to effectiveness is to see negotiation not as a zero-sum game, but as a process for reaching a creative solution that benefits everyone.74

RULES FO R REA C HING A W I N– W I N S O L UT I O N Achieving a win–win solution through integrative negotiation is based on four key strategies:75

◗◗ Separate the people from the problem. For successful integrative negotiation, people stay focused on the problem and the source of conflict, rather than attacking or attempting to discredit each other.

◗◗ Focus on interests, not current demands. Demands are what each person wants from the negotiation, whereas interests represent the ‘why’ behind the demands. Consider two sisters arguing over the last orange in the fruit bowl. Each insisted she should get the orange and refused to give up (demands). If one sister had asked the other why she wanted the orange (interests), the sisters

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would have discovered that one wanted to eat it, and the other wanted the peel to use for a project. By focusing on interests, the sisters would have been able to arrive at a solution that gave each what she wanted.76 Demands create yes-or-no obstacles to effective negotiation, whereas interests present problems that can be solved creatively.

◗◗ Listen and ask questions. A good strategy for most negotiations is to listen and ask questions. You can learn more about your opponent’s position, their constraints and their needs by being quiet or asking questions. Smart negotiators want to learn the other side’s constraints so that they can help overcome them. Don’t dismiss the opposing party’s limitation as unreasonable or think ‘That’s their problem’. You can take it on as your own problem and try to come up with a solution for your opponent so that you can get closer to an agreement.

◗◗ Insist that results be based on objective standards. Each party in a negotiation has its own interests and naturally would like to maximise its outcomes. Successful negotiation requires focusing on objective criteria and maintaining standards of fairness rather than using subjective judgements about the best solution.

R EMEMBE R THIS ◗◗

Conflict refers to antagonistic interaction in which one party attempts to block the intentions or goals of another.

◗◗ ◗◗

Some conflict, particularly task conflict, can be beneficial to teams.

◗◗

Relationship conflict results from interpersonal incompatibility that creates tension and personal animosity among people.

◗◗

Causes of conflict include competition over resources, goal differences and communication breakdowns.

◗◗

Teams and individuals use a variety of styles for dealing with conflict, including the dominating style, the avoiding style, the compromising style, the accommodating style and the collaborating style, and each can be effective under certain circumstances.

◗◗

Negotiation is a conflict management strategy whereby people engage in give-and-take discussions and consider various alternatives to reach a joint decision that is acceptable to all parties.

◗◗

Integrative negotiation is a collaborative approach that is based on a win-win assumption, whereby the parties want to come up with a creative solution that benefits both sides of the conflict.

◗◗

Distributive negotiation is a competitive and adversarial approach in which each party strives to get as much as it can, usually at the expense of the other party.

Task conflict is conflict that results from disagreements about the goals to be achieved or the content of the tasks to be performed.

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SUSTAINABLE DEVELOPMENT IMPLEMENTING SUSTAINABLE DEVELOPMENT THROUGH TEAMWORK

The concepts of sustainable development are a response to the new complexities in the business environment. Gone are the ‘good old days’ – which were actually bad old days – of last century, when managers were able to get away with still making money while polluting the environment and treating many stakeholders badly. Achieving maturity in sustainable development means balancing short-term goals with medium- and long-term goals. And it means doing so in a multidimensional world of financial goals, environmental goals and societal goals, in which life has become more complex for managers. So, when it comes time to formulate a sustainability strategy, the task is complex, and no single person is likely to know all the answers. We should use a team-based approach! The top team of the organisation, often known as the leadership team, can indeed work together to design the strategy and formulate and authorise the practices, initiatives and operations that result in sustainable development. When the team does this, ownership and commitment is strongly built in, and each of these executives will then have a shared belief and ability to sell the strategy around the organisation. At the implementation level, on the ‘shop floor’, people are then expected to implement the sustainability projects and practices. An example is to reduce the use of electricity or paper. Another is to implement more flexible human resources policies, or to improve an employee health plan, or safety system. Is this implementation best done by single individuals or by collectives? Almost always, a project team will do a better job than an individual, especially if the initiative and its implementation project are not simple. A team can bring different perspectives to bear, different types of expertise, and a team can achieve motivation levels and commitment to other team members which help get the job done. Finally, consider the ‘spirit’ underpinning teamwork, and compare it to sustainability at the organisational level. Teamwork requires engagement and collaboration between people and joint goals, and sustainable development is concerned with collaboration and win-win practices and outcomes between stakeholder groups. The concepts are complementary, and are philosophically overlapping. Executives and organisations which are likely to perceive and drive for the benefits of teamwork, are likely to be ‘sympathetic’ to and disposed towards being proactive in their sustainability practices. So in summary, what is the best way to formulate and then implement this rather complex thing called sustainable development? Get an enthusiastic, expert team! The right team of people, given a vision, will be able to create a strategy, and the initiatives that go with it, and then organise implementation. Team composition for sustainability strategy formulation should probably best be quite senior people, but for implementing specific initiatives, can be a slice of people from various functions and levels of the organisation, as needed (see EXHIBIT 13.2).

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RESPONSE TO THE MANAGEMENT CHALLENGE

NEC IN MULGRAVE: TEAMS THAT WORK At NEC’s Australian operation in Melbourne, described at the beginning of this chapter, one brave manager suggested that the company discard its traditional way of organising its operations, and bring the segregated workers physically together, as a team. This meant bringing staff from the pre-production process, the electronic testing and the final assembly tasks to work closely together as a single team-based work cell. As you will recall, they had previously been spread around the large factory. The experiment worked better than

anyone could have forecast. Within a short period, the group had formed a cohesive team, and moved from communicating by rude notes to helping each other achieve record levels of productivity and quality. The people who had previously been working on the same parts went from being strangers to workmates, took their lunch and tea breaks together, and solved production problems together; some even became friends. Both personal and work outcomes were improved. The reorganisation of the whole factory followed, transforming NEC from departments doing similar processes, passing work from one remote department to another, to teams of people working together on products in closely knit cellular teams.

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DISCUSSION QUESTIONS 1 One company had 40 per cent of its workers and 20 per cent of its managers resign during the first year after reorganising into teams. What might account for this dramatic turnover? How might managers ensure a smooth transition to teams? 2 Have you experienced any of the five contributions of teams shown in EXHIBIT 13.2 with a team you have participated in? Describe your experience and why you think the team was able to make that specific contribution. 3 Suppose that you are the leader of a team that has just been created to develop a new registration process at your college or university. How can you use an understanding of the stages of team development to improve your team’s effectiveness? How would you guard against the downsides of teamwork? 4 Imagine yourself as a potential member of a team responsible for designing a new package for a breakfast cereal. Do you think interpersonal skills would be equally important if the team is organised face to face versus a virtual team? Why or why not? Might different types of interpersonal skills be required for the two types of teams? Be specific.

differences among team members, what would you do? How might you use the various conflict-resolution techniques described in the chapter? 6 Experts say that for teams to function well, members have to get to know one another in some depth. What would you do if some people in a team just didn’t get on with each other? 7 Think of your favourite sport team, or observe a sport team training or playing at university. Can you identify which team members seem to play task-specialist roles and who might play socio–emotional roles? What behaviours did you observe for each type of role? 8 Some people argue that the presence of an outside threat correlates with a high degree of team cohesion. Would you agree or disagree with this assertion? Explain your answer. 9 Discuss how the dilemmas of teamwork might be intensified in a virtual team. What dilemmas do you encounter when you have to do class assignments as part of a team? Discuss. 10 If you were the leader of a newly formed team, what might you do to make sure that the team developed norms of high performance?

5 If you were the leader of a special-purpose team developing a new computer game and conflicts arose related to power and status

ETHICAL CHALLENGE

CONSUMER SAFETY OR TEAM COMMITMENT?

Nancy was part of a pharmaceutical team developing a chemical substance called loperamide, a liquid treatment for diarrhoea for people unable to take solid medicine – namely infants, children and the elderly. Loperamide contained 44 times the amount of saccharin allowed in a soft drink, but there were no regulations governing saccharin content in medication. Nancy was the only medical member of the seven-person project team. The team made a unanimous decision to reduce the saccharin content before marketing loperamide, and so the team initiated a threemonth effort for reformulation. In the meantime, management was pressuring the team to allow human testing with the original formula

until the new formula became available. After a heated team debate, all the team members except Nancy voted to begin testing with the current formula. Nancy believed it was unethical to test on old people and children a drug she considered potentially dangerous. As the only medical member of the team, she had to sign the forms allowing testing. She refused and was told that unless she signed, she would be removed from the project, demoted and seen as a poor team player, non-promotable, lacking in judgement and unable to work with marketing people. Nancy was aware that no proof existed that high saccharin would be directly harmful to potential users of loperamide.

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WHAT DO YO U D O ? 1 Refuse to sign. As a medical doctor, Nancy must stand up for what she believes is right. 2 Resign. There is no reason to stay in this company and be punished for ethically correct behaviour. Testing the drug will become someone else’s responsibility.

3 Sign the form. The judgement of other team members cannot be all wrong. The loperamide testing is not illegal and will move ahead anyway, so it would preserve team unity and company effectiveness to sign.

SOURCE: Based on Beauchamp, T. L. (1983). Ethical Theory and Business, 2nd edn (Englewood Cliffs: Prentice-Hall).

GROUP CHALLENGE

FEEDBACK EXERCISE

Step 1. Divide into groups of three to four students. Think back to recent experiences working in a team, either at work or school. Write down your answers to the following questions. • What behaviours by other team members did you most appreciate? • What behaviours of other team members did you least appreciate? • What do you think the team members appreciated about you? • What actions of yours might the team members have appreciated least?

CASE FOR CRITICAL ANALYSIS

Step 2. Take turns sharing your answers with other members of your group. Make notes about common themes for answers to each of the above questions. What is the single most important theme for each of these answers? Step 3. What are the implications of these answers for you as a member of a future team? How might you change your behaviour to make a larger contribution to a team?

ARE WE A TEAM?

Suppose that you are the newly appointed CIO of a medium-sized technology company. Your company recruits top graduates from schools of business and engineering. Talent, intellect, creativity – it’s all there in your team. If you lined up this crowd for a group photo, credentials in hand, the ‘wow’ factor would be there. Your company has offices in every Australian state and territory, with headquarters in Sydney. The talent pool is amazing across the board, both in information technology (IT) and the rest of the company. But when the CEO hires you, he says, ‘The company is performing nowhere near its potential. On the surface, we are doing fine. But we should be a Fortune 500 organisation. With this much talent, we should be growing at a much faster rate.’ The CEO also says that you are inheriting ‘a super team with disappointing performance’. His task for you is to pull the IT stars into a cohesive team that will meet company needs for new IT systems and services much faster and more effectively.

Without making your superstars feel that they were being critiqued and second-guessed, or indicating that ‘there’s a real problem here’, you want to gather as much information and feedback as possible from the 14 team members (regional CIOs and department heads) who report to you. You hold one-on-one meetings in order to give a voice to each person, allowing each individual to provide an honest assessment of the team as well as areas for improvement and a vision for the future of team efforts. You are surprised by the consistency of remarks and opinions. For example, a picture emerges of the previous CIO, Bob, who was obviously awed by the talent level of team members. Comments such as, ‘Bob pretty much let us do what we wanted’, and ‘Bob would start the meeting and then just fade into the background, as if he found us intimidating’ are typical. The most disturbing comment, ‘Bob always agreed with me’, is expressed by most of the team members at some point in your conversations. It is as if the regional heads believe that

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your predecessor wanted them to succeed by doing as they thought best for themselves. You query team members about the level of cooperation during meetings and uncover areas of concern, including the complaint that others at the table constantly check their iPads and BlackBerrys during meetings. One department head tells you, ‘You could turn off the sound while watching one of our meetings and just by the body language and level of attention tell who is aligned with whom and who wishes the speaker would just shut up. It would be comical if it weren’t so distressing.’ Such remarks are indicative of a lack of trust and respect and a breakdown of genuine communication. One team member tells you, ‘I recently encountered a problem that a department head from another region had successfully solved, but the information was never shared, so here I am reinventing the wheel and wasting valuable time.’ It is apparent that these so-called ‘high performers’ are territorial, and that the ‘each division for itself’ attitude is becoming a cultural norm; unchecked, this has been slowing the team’s response to line departments and customers. You are also struck by the similarity of the regional IT leaders in their backgrounds, comments and attitudes, which presents a whole

ON THE JOB VIDEO CASE

new dilemma: How do you create diversity, jump-start ideas and reignite passion? This looks like a group of individualists who don’t know how to play as a team. You don’t want to diminish the individual talent, but you are concerned by the lack of cohesion. You need to find a way to help people think less about themselves and more about sharing work and information and achieving collective results for the good of the company. Team building is an art, anchored by trust and communication, and committed to mutual success. What you’re seeing instead looks like team dysfunction. Now, you have to determine the steps necessary to build a cohesive, visionary team. QU E S T I O N S 1 What type of team do you, the new CIO, have? What do you see as the key problem with the team? 2 How do you think the team evolved to this low level of cooperation and cohesiveness? 3 What would you do to help turn this collection of individual regional and department heads into a top-performing team?

TOUGH MUDDER: LEADING TEAMS

Watch the following video to see how Tough Mudder approaches its management functions. QU E S T IO NS 1 Alex Patterson notes that our educational system is often focused on individual achievement, but when we go out into the work world as adults, almost all of us are required to work in teams. In what ways does this early focus on individual work make it difficult for us to work in teams? What should an individual do to become a good team member, according to Patterson?

2 These Tough Mudder employees appear to be members of a highly cohesive team. What are some of the qualities described in the video that indicate strong cohesiveness? Include at least two specific examples in your answer. 3 Patterson describes the benefits and challenges of working in an open-plan, collaborative workspace. Do you think you would enjoy working in this type of team-centric environment? Explain why or why not in your answer.

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ENDNOTES   1 Boeing (15 June 2011) Press release: Boeing to Boost 737 Production Rate to 42 Airplanes per Month in 2014, http://boeing.mediaroom.com/2011-06-15-Boeing-to-Boost-737Production-Rate-to-42-Airplanes-per-Month-in-2014 (accessed 1 March 2017); Aboulafia, R. (20 January 2016). ‘For Airbus, there’s virtue in ‘unrealistic’ output goals for new A320neo. Forbes, http://www.forbes.com/sites/richardaboulafia/2016/01/20/airbus-a320-output-thevirtue-of-talk/#36b5d6491582 (accessed 2 December 2016).   2 Emily Brennan, ‘A Pilot’s Views on Flight Safety’ (an interview with Patrick Smith), The New York Times, 17 July 2013, http://www.nytimes.com/2013/07/21/travel/a-pilots-views-on-flightsafety.html (accessed 21 July 2013); Patrick Smith, Cockpit Confidential: Everything You Need to Know About Air Travel: Questions, Answers, and Reflections (Naperville, IL: Sourcebooks, Inc., 2013).   3 Betsy Myers, Take the Lead: Motivate, Inspire, and Bring Out the Best in Yourself and Everyone Around You (New York: Atria, 2011).   4 Industry Week/Manufacturing Performance Institute’s Census of Manufacturers for 2004, reported in Traci Purdum, ‘Teaming, Take 2,’ Industry Week (May 2005): 41–43.   5 Carl E. Larson and Frank M. J. LaFasto, TeamWork (Newbury Park, CA: Sage, 1989); J. R. Katzenbach and D. K. Smith, The Wisdom of Teams (Boston: Harvard Business School Press, 1993); and Dawn R. Utley and Stephanie E. Brown, ‘Establishing Characteristic Differences Between Team and Working Group Behaviors,’ Institute of Industrial Engineers Annual Conference Proceedings (2010): 1–6.   6 Geoff Colvin, ‘Great Job! Or How Yum Brands Uses Recognition to Build Teams and Get Results,’ Fortune (12 August 2013): 62–66.   7 Some of the advantages in this section are discussed in ‘The Rewards of Teaming’ sidebar in Amy C. Edmondson. (April 2012). Teamwork on the Fly. Harvard Business Review, 72–80.   8 Geoff Colvin. (21 May 2012). First: Team Players Trump All-Stars. Fortune, 46–7.   9 See the excellent discussion in Atul Gawande. (26 May 2011). Cowboys and Pit Crews. 2011 Harvard Medical School commencement address, The New Yorker, http://www. newyorker.com/online/blogs/newsdesk/ 2011/05/atul-gawande-harvard-medical-schoolcommencement-address.html (accessed 26 September 2012). 10 Colvin. First: Team Players Trump All-Stars. 11 R. B. Zajonc. (1969). Social Facilitation. Science, 145, 269–74. 12 Susanne G. Scott and Walter O. Einstein. (2001). Strategic Performance Appraisal in TeamBased Organizations: One Size Does Not Fit All. Academy of Management Executive, 15:2, 107–16. 13 The discussion of self-managed teams is based on Ruth Wageman. (Summer 1997). Critical Success Factors for Creating Superb Self-Managing Teams. Organizational Dynamics, 49–61; James H. Shonk. (1992). Team-Based Organizations (Homewood, IL: Business One Irwin); Thomas Owens. (February 1991). The Self-Managing Work Team. Small Business Report, 53–65. 14 Jason Fried. (April 2011). Get Real: When the Only Way Up is Out. Inc., 35–6. 15 Lindsay Blakely, ‘The Right Man for the Job (Sometimes),’ Inc., 2 July 2012, http://www.inc. com/30under30/lindsay-blakely/ilya-pozin-founder-of-ciplex.html (accessed 5 November 2013); and Ilya Pozin, ‘Want Happier Employees? Get Rid of the Bosses,’ Inc., 18 June 2012, http://www.inc.com/ilya-pozin/want-happier-employees-get-rid-of-the-bosses.html/1 (accessed 2 October 2013). 16 The discussion of virtual teams is based on Phillip L. Hunsaker and Johanna S. Hunsaker. (2008). Virtual Teams: A Leader’s Guide. Team Performance Management, 14:1–2, 86ff; Chris Kimble. (January–February 2011). Building Effective Virtual Teams: How to Overcome the Problems of Trust and Identity in Virtual Teams. Global Business and Organizational Excellence, 6–15; Wayne F. Cascio and Stan Shurygailo. (2002). E-Leadership and Virtual Teams. Organizational Dynamics, 31:4 362–76; Anthony M. Townsend, Samuel M. DeMarie and Anthony R. Hendrickson. (August 1998). Virtual Teams: Technology and the Workplace of the Future. Academy of Management Executive, 12:3, 17–29; Deborah L. Duarte and Nancy Tennant Snyder. (1999). Mastering Virtual Teams (San Francisco: Jossey-Bass). 17 Culture Wizard (2016). Trends in global virtual teams: Virtual teams survey report – 2016, http://cdn.culturewizard.com/PDF/Trends_in_VT_Report_4-17-2016.pdf (accessed 2 December 2016). 18 Vijay Govindarajan and Anil K. Gupta. (Summer 2001). Building an Effective Global Business Team. MIT Sloan Management Review, 42:4, 63–71.

19 Jessica Lipnack and Jeffrey Stamps. (January– February 1999). Virtual Teams: The New Way to Work. Strategy & Leadership, 14–19; Golnaz Sadri and John Condia. (January–February 2012). Managing the Virtual World. Industrial Management, 21–5. 20 This discussion is based on Arvind Malhotra, Ann Majchrzak and Benson Rosen. (February 2007). Leading Virtual Teams. Academy of Management Perspectives, 21:1, 60–9; Benson Rosen, Stacie Furst and Richard Blackburn. (2007). Overcoming Barriers to Knowledge Sharing in Virtual Teams. Organizational Dynamics, 36:3, 259–73; Marshall Goldsmith. (31 May 2007). Crossing the Cultural Chasm; Keeping Communication Clear and Consistent with Team Members from Other Countries Isn’t Easy, Says Author Maya Hu-Chan. BusinessWeek Online, http://www.businessweek.com/careers/content/may2007/ca20070530_521679.htm (accessed 24 August 2007); Bradley L. Kirkman et al. (2002). Five Challenges to Virtual Team Success: Lessons from Sabre, Inc. Academy of Management Executive, 16:3, 67–79. 21 Darl G. Kolb, Greg Prussia and Joline Francoeur. (May 2009). Connectivity and Leadership: The Influence of Online Activity on Closeness and Effectiveness. Journal of Leadership and Organizational Studies, 15:4, 342–52. 22 Ann Majchrzak et al. (May 2004). Can Absence Make a Team Grow Stronger? Harvard Business Review, 82:5, 131. 23 David A. Ferrucci. (7 January 2012). Building the Team That Built Watson. The New York Times, http://www.nytimes.com/2012/01/08/jobs/building-the-watsonteam-of-scientists. html?_r=0 (accessed 1 October 2012). 24 Study by G. Clotaire Rapaille, reported in Karen Bernowski. (January 1995). What Makes American Teams Tick? Quality Progress, 28:1, 39–42. 25 Study by Jean Twenge and colleagues, reported in Sharon Jayson. (10 July 2012). What’s on Americans’ Minds? Increasingly ‘Me’. USA Today, http://usatoday30.usatoday.com/LIFE/ usaedition/2012-07-11-Individualism--Twenge----_ST_U.htm (accessed 2 October 2012). 26 Avan Jassawalla, Hemant Sashittal and Avinash Malshe. (2009). Students’ Perceptions of Social Loafing: Its Antecedents and Consequences in Undergraduate Business Classroom Teams. Academy of Management Learning and Education, 8:1, 42–54; Robert Albanese and David D. Van Fleet. (1985). Rational Behavior in Groups: The Free-Riding Tendency. Academy of Management Review, 10, 244–55. 27 See David H. Freedman. (September 2006). The Idiocy of Crowds (‘What’s Next’ column). Inc., 61–2. 28 Quoted in Jason Zweig. (25 April 2009). The Intelligent Investor: How Group Decisions End Up Wrong-Footed. The Wall Street Journal. 29 Why Some Teams Succeed (and So Many Don’t). (October 2006). Harvard Management Update, 3–4; Frederick P. Morgeson, D. Scott DeRue and Elizabeth P. Karam. (January 2010). Leadership in Teams: A Functional Approach to Understanding Leadership Structure and Processes. Journal of Management, 36:1, 5–39; and Patrick Lencioni. (October 2009). Dissolve Dysfunction: Begin Building Your Dream Team. Leadership Excellence, 20. 30 Reported in Jerry Useem. (12 June 2006). What’s That Spell? Teamwork! Fortune, 65–6. 31 Eric Sundstrom, Kenneth P. DeMeuse and David Futtrell. (February 1990). Work Teams. American Psychologist, 45, 120–33; María Isabel Delgado Piña, Ana María Romero Martínez and Luis Gómez Martínez. (2008). Teams in Organizations: A Review on Team Effectiveness. Team Performance Management, 14:1–2, 7–21; Morgeson, DeRue and Karam. Leadership in Teams. 32 Deborah L. Gladstein. (1984). Groups in Context: A Model of Task Group Effectiveness. Administrative Science Quarterly, 29, 499–517. For an overview of research on team effectiveness, see John Mathieu et al. (June 2008). Team Effectiveness 1997–2007: A Review of Recent Advancements and a Glimpse into the Future. Journal of Management, 34:3, 410–76. 33 Sujin K. Horwitz and Irwin B. Horwitz. (December 2007). The Effects of Team Diversity on Team Outcomes: A Meta-Analytic Review of Team Demography. Journal of Management, 33:6, 987–1015; Dora C. Lau and J. Keith Murnighan. (1998). Demographic Diversity and Faultlines: The Compositional Dynamics of Organizational Groups. Academy of Management Review, 23:2, 325–40. 34 Reported in Jia Lynn Yang. (12 June 2006). The Power of Number 4.6. Part of a special series. Secrets of Greatness: Teamwork. Fortune, 122. 35 Martin Hoegl. (2005). Smaller Teams – Better Teamwork: How to Keep Project Teams Small. Business Horizons, 48, 209–14. 36 Stephanie T. Solansky. (2011). Team Identification: A Determining Factor of Performance. Journal of Managerial Psychology, 26:3, 247–58.

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37 Reported in Yang. The Power of Number 4.6. 38 For research findings on group size, see Erin Bradner, Gloria Mark and Tammie D. Hertel. (March 2005). Team Size and Technology Fit: Participation, Awareness, and Rapport in Distributed Teams. IEEE Transactions on Professional Communication, 48:1, 68–77; M. E. Shaw. (1981) Group Dynamics, 3rd edn (New York: McGraw-Hill); G. Manners. Another Look at Group Size, Group Problem-Solving, and Member Consensus. (1975). Academy of Management Journal, 18, 715–24; Martin Hoegl. Smaller Teams – Better Teamwork. 39 Bradner, Mark and Hertel. Team Size and Technology Fit: Participation, Awareness, and Rapport in Distributed Teams; Sadri and Condia. Managing the Virtual World. 40 Warren E. Watson, Kamalesh Kumar and Larry K. Michaelsen. (1993). Cultural Diversity’s Impact on Interaction Process and Performance: Comparing Homogeneous and Diverse Task Groups. Academy of Management Journal, 36, 590–602; Gail Robinson and Kathleen Dechant. (1997). Building a Business Case for Diversity. Academy of Management Executive, 11:3, 21–31; David A. Thomas and Robin J. Ely. (September– October 1996). Making Differences Matter: A New Paradigm for Managing Diversity. Harvard Business Review,79–90. 41 D. van Knippenberg and M. C. Schippers. (2007). Work Group Diversity. Annual Review of Psychology, 58, 515–41; J. N. Cummings. (2004). Work Groups: Structural Diversity and Knowledge Sharing in a Global Organization. Management Science, 50:3, 352–64; J. Stuart Bunderson and Kathleen M. Sutcliffe. (2002). Comparing Alternative Conceptualizations of Functional Diversity in Management Teams: Process and Performance Effects. Academy of Management Journal, 45:5, 875–93; and Marc Orlitzky and John D. Benjamin. (2003). The Effects of Sex Composition on Small Group Performance in a Business School Case Competition. Academy of Management Learning and Education, 2:2, 128–38. 42 Anita Woolley and Thomas Malone. (June 2011). Defend Your Research: What Makes a Team Smarter? More Women. Harvard Business Review, http://hbr.org/2011/06/defend-yourresearch-what-makes-a-teamsmarter-more-women/ar/1 (accessed 1 October 2012). 43 Watson et al. Cultural Diversity’s Impact on Interaction Process and Performance; and D. C. Hambrick et al. (1998). When Groups Consist of Multiple Nationalities: Towards a New Understanding of the Implications. Organization Studies, 19:2, 181–205. 44 Matt Moffett. (25 August 2010). Trapped Miners Kept Focus, Shared Tuna – Foiled Escape, Bid to Organize Marked First Two Weeks Underground in Chile. The Wall Street Journal; Lessons on Leadership and Teamwork – From 700 Meters Below the Earth’s Surface. Universia Knowledge@Wharton, 22 September 2010, http://www.wharton.universia.net/ index.cfm?fa=viewArticle&id=1943&language=english (accessed 29 September 2010). 45 R. M. Belbin. (1983). Team Roles at Work (Oxford, UK: Butterworth Heinemann); Tony Manning, R. Parker and G. Pogson. (2006). A Revised Model of Team Roles and Some Research Findings. Industrial and Commercial Training, 38:6, 287–96; George Prince. (April 1989). Recognizing Genuine Teamwork. Supervisory Management, 25–36; K. D. Benne and P. Sheats. (1948). Functional Roles of Group Members. Journal of Social Issues, 4, 41–9; R. F. Bales. (1980). SYMOLOG Case Study Kit (New York: Free Press). 46 Robert A. Baron. (1986). Behavior in Organizations, 2nd edn (Boston: Allyn & Bacon). 47 Ibid. 48 Bruce W. Tuckman and Mary Ann C. Jensen. (1977). Stages of Small-Group Development Revisited. Group and Organizational Studies, 2, 419–27; Bruce W. Tuckman. (1965). Developmental Sequences in Small Groups. Psychological Bulletin, 63, 384–99. See also Linda N. Jewell and H. Joseph Reitz. (1981). Group Effectiveness in Organizations (Glenview, IL: Scott Foresman). 49 Oluremi B. Ayoko, Alison M. Konrad, and Maree V. Boyle, ‘Online Work: Managing Conflict and Emotions for Performance in Virtual Teams,’ European Management Journal 30 (2012): 156–174. 50 M. E. Shaw. (1981). Group Dynamics, 3rd edn (New York: McGraw-Hill). 51 Daniel C. Feldman and Hugh J. Arnold. (1983). Managing Individual and Group Behavior in Organizations (New York: McGraw-Hill). 52 Amanuel G. Tekleab, Narda R. Quigley and Paul E. Tesluk. (April 2009). A Longitudinal Study of Team Conflict, Conflict Management, Cohesion, and Team Effectiveness. Group & Organization Management, 34:2, 170–205; Dorwin Cartwright and Alvin Zander. (1968). Group Dynamics: Research and Theory, 3rd edn (New York: Harper & Row); and Elliot Aronson. (1976). The Social Animal (San Francisco: W. H. Freeman). 53 Vishal K. Gupta, Rui Huang and Suman Niranjan. (2010). A Longitudinal Examination of the Relationship Between Team Leadership and Performance. Journal of Leadership and Organizational Studies, 17:4, 335–50; Marcial Losada and Emily Heaphy. (February 2004). The Role of Positivity and Connectivity in the Performance of Business Teams. American Behavioral Scientist, 47:6, 740–65.

54 Bank of America example from Rachel Emma Silverman, ‘Tracking Sensors Invade the Workplace; Devices on Workers, Furniture Offer Clues for Boosting Productivity,’ The Wall Street Journal, 7 March 2013, http://online.wsj.com/article/SB100014241278873240348045783 44303429080678.html (accessed 3 May 2013); and Alex ‘Sandy’ Pentland, ‘The New Science of Building Great Teams,’ Harvard Business Review (April 2012): 61–70. 55 Stanley E. Seashore. (1954). Group Cohesiveness in the Industrial Work Group (Ann Arbor, MI: Institute for Social Research). 56 J. Richard Hackman. (1976). Group Influences on Individuals. In Handbook of Industrial and Organizational Psychology, ed. M. Dunnette (Chicago: Rand McNally). 57 These are based on Daniel C. Feldman. (1984). The Development and Enforcement of Group Norms. Academy of Management Review, 9, 47–53. 58 Jeanne M. Wilson et al. (1994). Leadership Trapeze: Strategies for Leadership in Team-Based Organizations (San Francisco: Jossey-Bass), p. 12. 59 Simon Taggar and Robert Ellis. (2007). The Role of Leaders in Shaping Formal Team Norms. The Leadership Quarterly, 18, 105–20. 60 Stephen P. Robbins. (1974). Managing Organizational Conflict: A Nontraditional Approach (Englewood Cliffs, NJ: Prentice Hall). 61 Tekleab, Quigley and Tesluk. A Longitudinal Study of Team Conflict, Conflict Management, Cohesion, and Team Effectiveness. 62 Based on K. A. Jehn. (1995). A Multimethod Examination of the Benefits and Determinants of Intragroup Conflict. Administrative Science Quarterly, 40, 256–82; K. A. Jehn. (1997). A Qualitative Analysis of Conflict Types and Dimensions in Organizational Groups. Administrative Science Quarterly, 42, 530–57. 63 Linda A. Hill. (28 August 1995). A Note for Analyzing Work Groups. Harvard Business School Cases; revised 3 April 1998, Product # 9-496-026, ordered at http://hbr.org/search/ linda+a+hill/4294934969/. 64 A. Amason. (1996). Distinguishing the Effects of Functional and Dysfunctional Conflict on Strategic Decision Making: Resolving a Paradox for Top Management Teams. Academy of Management Journal, 39:1, 123–48; Jehn. A Multimethod Examination of the Benefits and Determinants of Intragroup Conflict; K. A. Jehn and E. A. Mannix. (2001). The Dynamic Nature of Conflict: A Longitudinal Study of Intragroup Conflict and Group Performance. Academy of Management Journal, 44, 238–51. 65 Amason. Distinguishing the Effects of Functional and Dysfunctional Conflict on Strategic Decision Making. 66 Dean Tjosvold et al. (2003). Conflict Values and Team Relationships: Conflict’s Contribution to Team Effectiveness and Citizenship in China. Journal of Organizational Behavior, 24, 69–88; C. De Dreu and E. Van de Vliert. (1997). Using Conflict in Organizations (Beverly Hills, CA: Sage); Kathleen M. Eisenhardt, Jean L. Kahwajy and L. J. Bourgeois III. (Winter 1997). Conflict and Strategic Choice: How Top Management Teams Disagree. California Management Review, 39:2, 42–62. 67 Kenneth G. Koehler. (19 July 1989). Effective Team Management. Small Business Report, 14–16; Dean Tjosvold. (June 1984). Making Conflict Productive. Personnel Administrator, 29, 121. 68 This discussion is based in part on Richard L. Daft. (1992).Organization Theory and Design (St Paul, MN: West), Chapter 13; Paul M. Terry. (1996). Conflict Management. Journal of Leadership Studies, 3:2, 3–21. 69 Some of the advantages in this section are discussed in ‘The Rewards of Teaming’ sidebar in Amy C. Edmondson. (April 2012). Teamwork on the Fly. Harvard Business Review, 72–80. 70 Yuhyung Shin. Conflict Resolution in Virtual Teams. Organizational Dynamics 34, no. 4 (2005): 331–345. 71 This discussion is based on K. W. Thomas. Towards Multidimensional Values in Teaching: The Example of Conflict Behaviors. Academy of Management Review 2 (1977): 487. 72 Some of the advantages in this section are discussed in ‘The Rewards of Teaming’ sidebar in Amy C. Edmondson. Teamwork on the Fly. 73 Negotiation Types. (9 June 2010). The Negotiation Experts, http://www.negotiations.com/ articles/negotiationtypes/ (accessed 28 September 2010). 74 Rob Walker. (August 2003). Take It or Leave It: The Only Guide to Negotiating You Will Ever Need. Inc., 75–82. 75 Ibid. 76 This familiar story has been reported in many publications, including The Six Best Questions to Ask Your Customers. Marketing and Distribution Company Limited, http://www.madisco. bz/articles/The%20Six%20Best%20Questions%20to%20Ask%20Your%20Customers.pdf (accessed 28 September 2010).

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PART 5 CONTINUING CASE

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TOYOTA’S BEHAVIOUR AND TEAMWORK

The success of Toyota around the world, substantially due to its Toyota Production System (TPS) and more recent ‘Toyota Way’ approach to work, was based on many common sense principles, including ‘standardised work’ and continuous improvement. Many organisations, especially in manufacturing industries, had been trying to implement these powerful concepts for years, but only a few had succeeded in making them stick in a sustainable way. A core reason for Toyota’s ability to implement with such relative success was its deep-held ‘Respect for People’ principle. Many organisations have found that it is not enough to merely specify the standard operating procedures; the real challenge being to have people work to those standards consistently and sustainably. This capability is critical, especially in process work contexts of repetitive manufacturing or services, to achieving high levels of productivity and quality, with low levels of defects and waste. Adherence to standardised work procedures had taken Toyota in Australia quite a few years to achieve, yet it was firmly in place. This was seen by employees at all levels to bring significant benefits to everyone, including themselves, in terms of safety and the certainty and comfort of knowing how and what to do at work. Further to having the strong sense of stability of work processes, this company achieved the enviable position of having more than half of its workforce, at all levels, strongly engaged in work process improvement. Toyota employees uses the term ‘problem solving’ with great regularity, as its key mechanism for moving towards ever higher levels of performance, and ‘pursuing perfection’. This continuous improvement work was regularly done in problemsolving teams. Whatever the problem (or opportunity), it was usual practice to set up a group of people, and go through a well-defined process of identifying the issue/problem, validating it with observation and supportive data, then examining alternatives for creating improvements and solutions, followed by implementation of these solutions. These groups of people would forge themselves into a team with a shared goal of solving the problem and making progress that was measurable. This problem-solving work is usually above and beyond the normal course of work for team members at Toyota, who spend their normal work time assembling cars or in support of such assembly. The problem-solving work is usually performed during non-standard work hours, whether that is before or after their work shift, or on weekends. Employees derive a number of benefits from such work, including the extra pay that comes from the overtime hours put in, and the job satisfaction that is palpable from their achievement of solving problems.

There are hundreds of such problem-solving teams and processes going on at any one time in this company, using a standardised approach that is broadly understood across the company. Participation levels in such teams is certainly not universal in Toyota, but it is very widespread. Benefits to the company are in all aspects of operating and business performance. The team approach to problem solving often involves people who come from different areas of the company, who come together to bring different perspectives or knowledge and expertise to the problem. It might involve team members (factory workers), maintenance tradespeople, engineers and others. Issues can be related to equipment reliability, vehicle quality, component quality, or administrative issues such as work rosters, and a host of other matters. Toyota employees know that solutions to problems have to be demonstrably robust, because there is no point making a change to a process that solves a problem if it causes problems elsewhere. They also know that solutions must be stable and ‘foolproof’, meaning that the solution can be converted into a change to a new standardised work process definition, that will be implemented and adhered to by all who conduct that process, out into the future. These high standards of accomplishment and ambition for Toyota’s problem-solving teams require a good deal of process knowledge, from understanding how to interpret data, how to interact in groups and teams, how to brainstorm solutions, how to manage conflict, and how to communicate and present ideas effectively. It also requires maturity of thinking about multiple stakeholders, from various units within the company, to customers and suppliers, and the environment. It requires knowledge of quality assurance. It is important to note that this approach at Toyota is a company-wide approach, used as much in departments such as sales and corporate services, as in manufacturing plants and maintenance operations. Apart from a myriad of problem-solving teams attacking major and minor opportunities to improve the work process, the manufacturing organisation at Toyota Australia’s Altona plant created a network structure of Action Learning Teams (ALTs), that met regularly with the purpose of understanding and responding to the needs and concerns of all employees. Toyota had a central ALT at Altona, and each manufacturing plant or Service Division (Press, Welding, Painting, Assembly, Quality Control and Engineering, etc.) had its own local ALT group, that met as a forum for bringing up people issues of any kind and finding ways to resolve these. These systems of ALTs provide a forum for heathy dialogue, listening to each other’s view point,

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checking the effectiveness of the communication and developing solutions to the issues identified. The membership of ALTs consists of managers, employees at different levels, union representatives, corporate services and human resources representatives. All such ALTs were well-supported by senior management. They saw this as a very important initiative and network architecture for identifying, analysing and resolving human-related issues, especially for managing the plant’s closure. These were formally constituted teams (central ALT had some 15 members, including a Director from Corporate Services as a sponsor). Each team had clear objectives, behavioural rules, meeting agendas and minutes. All the questions raised were documented and answers were provided through a Q&A system where all answers were broadcast company-wide. It was a very transparent process. Toyota found them to be well worth the time and effort required in and beyond meetings, because of the problem solving that was driven by the energy and initiative of these teams.These ALTs allowed managers to keep abreast of issues bubbling up from the shop floor, and allowed worker representatives to keep their finger on the pulse of managerial intent and strategies. They provided a very useful ‘soft infrastructure’ (without the use of formal authority) for building alignment, resolving conflict and developing balanced solutions between meeting the employees’ needs and company needs. Employees at Toyota are given a lot of information, involving many communications, and this includes regular and quite frequent meetings (e.g. scheduled monthly plant with management, and daily fiveminute meeting before the start up), that are run with great discipline to avoid wasting time. This aims to ensure that people are ‘in the know’ generally and that they also have all the information they need to do their jobs effectively. Despite this formality of process and the structured nature of meetings which include a sense of urgency, Toyota employees often speak about the culture that feels like ‘a family’. Unlike many other large organisations, there is a friendly atmosphere in this business. The ‘Respect for People’ principle is not just how the employer

treats its employees, but also manifests in how employees treat each other. Many Toyota employees have brought family members or friends into the workforce as opportunities have arisen. Even though the manufacturing operations are set to close, when we interviewed over 120 staff in preparing these case studies, Toyota employees mostly expressed being very grateful for the opportunity they have had, whether they are ‘stayers’ or ‘leavers’, to have worked in this business. Employees at Toyota tend to stay ‘forever’ once they get past the first year and ‘acclimatise’ to the unique culture, yet some do leave in the first year, because the culture and work processes seem quite demanding. Indeed, with this strong and positive culture, a possible ‘gap’ for Toyota employees who left in late 2017, is that they will be unprepared for the very different cultures they will encounter across the economy. QU E S T I O N S 1 Explain the facilitating role of Toyota’s ALTs, and the gap that they effectively fill. 2 If you were to work at Toyota, what would you be expected to do apart from your primary job? 3 Explain the term ‘standardised work’ and its benefits, and discuss whether it impedes or fits with continuous improvement and innovation. 4 What types of knowledge and capabilities does Toyota’s approach impart to its employees? 5 Discuss why the approach that is in a mature state in Toyota is much less mature in most other organisations. 6 The strong systems approach in Toyota of standardised work and continuous improvement can at first seem to be independent of the human resource: discuss this statement. 7 Do you think that the high engagement culture of Toyota is universally well-suited to everybody in the economy?

PART SIX C ON T ROL L ING

Chapter 14

Managerial and quality control

Capstone Chapter Making effective management happen

Just as in sport, there are winners and losers in business and political life. And winners today had better be on their mettle, because whatever the field – sport or business – today’s winners are  always targeted and benchmarked by the rest of the competitors, who aim to knock them off their pedestal. The use of high-performance equipment, such as graphite tennis racquets and titanium golf clubs, is equally important to elite sportspeople and suburban amateurs even though they compete at such different levels. Few people want to play tennis today with wooden racquets because advanced materials improve performance for players at all levels. The ability to implement and control operations, achieve consistent quality of output and measure performance are hallmarks of great sports performances and business organisations alike. And, just as a professional tennis player, footballer or golfer plays for consistency – known as ‘playing the percentages’ – so is a business like McDonald’s organised to produce consistent product and service quality all day, every day and in thousands of places. Information technology is important to many sports. To be competitive, ocean-racing yachts

need excellent, real-time information on weather conditions. Formula 1 cars are very technically sophisticated – indeed, they are right on the cutting edge in their engines, tyres and other technical developments, where performance, design and human elements are enhanced with technology. They use telecommunications to relay all kinds of data to and from the car, to the mechanics in the pits and tactical instructions to the driver. When Sebastian Vettel won the Melbourne Grand Prix in March 2017, his efforts capped a technological and human effort brought to fruition by a large team that worked together like clockwork to achieve the highest possible level of performance, yet keep the car under control. Similarly, all businesses need information systems to allow them to measure and control operations, and to inform strategy processes. Technology plays a major role in controlling organisations. Part six discusses the importance of quality control and productivity, information systems and technology, and operations and service management to managerial excellence. Quality controls make certain that goals are still being met, products are being made to specification, customers are getting the desired service,

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and employees are upholding company ethics and standards. But changing technology requires innovation and imagination, both in applying technology to solve problems and in addressing problems that come along with the new technology. So, along with the efficiencies gained by the computer age, managers must also address concerns such as inappropriate emails or employees misusing access to the Internet. The 2008–10 global financial crisis and the ongoing financial difficulties in Greece, Spain, Italy and other impaired economies are clear examples of what can happen when one of the world’s biggest systems constructed by humans, the global economy, goes essentially out of control. The results included

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bankruptcies, from the giant General Motors to thousands of small businesses, as well as large increases in unemployment almost all over the world, with governments needing to bail out institutions, companies and industries. There is an ongoing price to pay for the aberrations that led the global economy into this state: many people who lost their jobs during this period of instability have still not found work in Europe and the United States. It is an important part of management that operating systems, whether they comprise a single piece of machinery in a factory, a Formula 1 vehicle hurtling along at 300 km/h or the global economy, are able to consistently and sustainably perform to their specifications.

CHAPTER 14 M A N AGE R I A L A N D Q UA L I T Y C ON T ROL

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 define organisational control and explain why it is a key management function

2 explain the four steps in the feedback control process and the benefits of using the balanced scorecard to track the organisation’s performance and control

3 explain the methods of budgetary control for planning and tracking all money flows and supporting good managerial decisions

4 discuss the use of financial statements, financial analysis and budgeting as management controls

and decentralised methods of control and identify the benefits of openbook management

6 describe the concept of total quality management (TQM) and major TQM techniques, such as quality circles, benchmarking, Six Sigma principles, quality partnering and continuous improvement

7 identify current trends in quality and financial control, including ISO 9000 and corporate governance, and discuss their impact on organisations

8 identify the qualities of effective control systems.

5 recognise the changing philosophy of control: contrast the hierarchical

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources.

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MANAGEMENT CHALLENGE

CONTROLLING AN EMPIRE AT DELL Michael Dell was 19 years old when he started his computer company from his room at the University of Texas in 1984. He had no way to push his computers through traditional distribution channels, so he took US$1000 of his personal savings and advertised in various publications that he was selling computer components through the mail. Dell’s success in selling made-to-order PCs directly to consumers is now legendary. At the beginning, Dell focused on growth – wooing large corporate customers by offering an unprecedented level of service for the PC industry and taking its direct-sales model global. But within a few years, the company was in trouble because top management had failed to implement effective control systems. Most of Dell’s managers did not have experience running a large company. Top executives soon learned that a single-minded focus on growth and the failure to measure other performance indicators was hurting profitability. For

example, the company had expanded its product line to include notebook computers on the assumption that any growth was good, but it wound up with poorly designed, unreliable machines that had to be withdrawn from the market. Dell also experimented with selling through retail stores. Although sales grew to US$2.8 billion in one year, Dell actually suffered a net loss of US$36 million. ‘Any one strength used to excess becomes a weakness,’ notes Thomas J Meredith, formerly Dell’s chief financial officer, who joined the company from Sun Microsystems in 1993. Meredith needed to work with Michael Dell to implement an effective overall control system that could keep Dell both growing and profitable. Source: Fisher, L. M. (First Quarter 1998). Inside Dell Computer Company. Strategy and Business, 10, 68–75.

QU E S T I O N If you were a consultant to Dell, what would you have recommended to top managers? How can the company broaden its control strategies to strengthen its position in the computer industry?

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NEW MANAGER SELF-ASSESSMENT IMPROVEMENT ATTITUDE Instructions: Respond to each statement below based on how you think and act in a typical situation of work accomplishment at school or on the job. Mark whether each statement is Mostly true or Mostly false for you. There are no right or wrong answers, so answer honestly. MOSTLY TRUE MOSTLY FALSE

1 I spend time developing new ways of approaching old problems. 2 So long as things are done correctly and efficiently, I prefer not to take on the hassle of changing them. 3 I believe the effort to improve something should be rewarded, even if the final outcome is disappointing. 4 A single change that improves things 30 per cent is much better than 30 improvements of 1 per cent each. 5 I frequently compliment other people on changes that they have made. 6 I let people know in a variety of ways that I need to be on my own to do my job efficiently. 7 I am typically involved in several improvement projects at one time. 8 I try to be a good listener and to be patient with what people say, except when it is a stupid idea. 9 I am frequently proposing unconventional techniques and ideas to improve things. 10 I usually do not take the risk of proposing an idea that might fail. Scoring and Interpretation: Score one point for each Mostly true answer to the odd-numbered items and one point for each Mostly false answer to the even-numbered items. Total score _____________ . In organisations, continuous improvement in quality sometimes competes with managerial desires for production efficiency. Efficiency can be maximised by eliminating changes and quality improvements. Continuous improvement, however, is an attitude that productivity can always get better and each employee can take responsibility to improve it. This is appropriate for quality-conscious managers. Introducing frequent, small changes that may temporarily reduce efficiency is the best path to continuous improvement. A score of 7 or higher indicates that you may take personal responsibility for improving activities on which you work. A score of 3 or lower indicates that you may prefer stable and efficient work. A score of 4 to 6 suggests that you are balanced between efficiency and continuous improvement.

When terrible floods hit the city of Brisbane and nearby towns in January 2011, closely followed by cyclones and floods in other parts of Queensland and in Victoria, political and community leaders worked very hard to keep matters ‘in control’. They worked hard to prepare in advance, which is a form of ‘feedforward’ control. They kept communications open and coordinated all emergency services effectively to maintain as good as possible real-time control during the events, and they also marshalled and coordinated clean-up resources after the weather events as response or feedback controls. Although there was extensive property damage, very few lives were lost. This was in stark contrast to the disastrous bushfires in Victoria some two years prior, in which nearly 200 lives were lost when planning and control

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of those fires was lost, and chaotic, uncoordinated responses led to much worse outcomes than might otherwise have been the case. Similarly chaotic lack of control occurred in the United States when Hurricane Katrina swept through New Orleans in 2005. Business organisations need to be concerned about keeping their financial and operational systems well under control. During times of rapid growth, especially when successful, managers need to ensure that their organisation doesn’t ‘run off the rails’. Groupon is a popular online-coupon company that advertises and promotes discounted gift certificates for local and national companies. The company earns a percentage of the revenue generated from the featured discounts. For example, for a $10 purchase at a sandwich shop, Groupon might make $5 and give the rest to the merchant. When Groupon was founded in November 2008 in the United States, few would have anticipated its stunning success. In 2010, Forbes reported that this technology start-up was the world’s fastest-growing company, on pace to make an astonishing US$1 billion in sales. However by 2016, despite revenues of over US$1.5 billion, the company saw a net loss of US$104 million owing to significantly higher marketing expenses. Groupon has also cut more than 1100 employees and ceased operations in many international markets, reducing its coverage from 27 countries to 15.1 But in its first quarter as a public company, Groupon reported unsettling news to investors. Managers were unprepared to handle the high rate of returns during the 2011 holiday period, and as a result, they were forced to drive down reported fourth-quarter revenue by $14 million and earnings by about 3 per cent. Sandra Peters, head of financial reporting policy for the CFA Institute, said, ‘It really demonstrates, for a [new public company], were they really ready to go? Did they have the financial systems? Did they have the processes and procedures in place?’ Groupon grew so fast that its accounting and control systems were unable to keep up, creating havoc for managers and investors.2 As a manager, you will use a variety of measures to monitor performance and keep track of the organisation’s finances. Many of these measures will involve control issues, including controlling work processes, regulating employee behaviour, setting up basic systems for allocating financial resources, developing human resources, analysing financial performance and evaluating overall profitability. This chapter introduces basic mechanisms for controlling the organisation. We begin by defining organisational control and summarising the four steps in the control process. Then we discuss the use of the balanced scorecard to measure performance and methods for controlling financial performance, including the use of budgets and financial statements. The next sections examine the changing philosophy of control, today’s approach to total quality management (TQM), and trends such as International Organization for Standardization (ISO) certification and corporate governance.

14.1

THE MEANING OF CONTROL

Organisational control refers to the systematic process of regulating organisational activities to make

them consistent with the expectations established in plans, targets and standards of performance. In a classic article on the control function, Douglas S. Sherwin summarises the concept as follows: ‘The essence of control is action which adjusts operations to predetermined standards, and its basis is information in the hands of managers.’3 Thus, effectively controlling an organisation requires information about performance standards and actual performance, as well as actions taken to correct any deviations from the standards. Managers must decide what information is essential, how they will obtain that information, and how they can and should respond to it. Having the correct data is essential. Managers decide which

organisational control The systematic process through which managers regulate organisational activities to make them consistent with expectations established in plans, targets and standards of performance.

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standards, measurements and metrics are needed to monitor and control the organisation effectively and set up systems for obtaining that information. If a hospital, for example, carefully monitors and controls its health care services, patients should receive safe, high-quality health care. Unfortunately, medical mistakes happen, many of which go unreported. Without data that describe these mistakes, it’s often difficult to correct common problems such as drug mix-ups, radiation overdoses and surgical blunders. However, a well-run organisation must be able to measure key aspects of performance so that it will be alerted to deviations from accepted standards. This aspect of organisational control is often referred to as ‘management by exception’. This chapter’s Management in practice describes an innovative reporting system for individuals, called auto-analytics, which can provide information that may lead to personal and professional growth.

TAKE A MOMENT The Group challenge on page 670 of this chapter will give you a chance to practise developing a control system that includes rules to guide behaviours and statistics for measuring performance.

R EMEMBE R THIS ◗◗ ◗◗

Statistical measurement is an important part of achieving high performance.

◗◗

Most organisations measure and control performance using quantitative financial measures.

Organisational control is the systematic process through which managers regulate activities to meet planned goals and standards of performance.

14.2 feedback control Control that focuses on the organisation’s outputs; also called post-action or output control.

FEEDBACK CONTROL MODEL

A feedback control model helps managers meet strategic goals by monitoring and regulating an organisation’s activities and using feedback to determine whether performance meets established standards. Consider how, in the United States, FreshDirect, a premium online supermarket has used a feedback control model to improve the quality of its products and customer service. With more than 45 000 deliveries per week, FreshDirect is known for its farm-fresh produce, custom-butchered meat, seafood, and bakery-fresh pastries and breads. It may be surprising that this successful organisation stumbled through a series of missteps during its early days. Although FreshDirect was very successful in attracting first-time customers with coupons and incentives, the majority of these customers dropped the service after placing one or two orders because of poor customer service. ‘We broke too many eggs,’ said Richard S. Braddock, who became CEO in 2008. ‘We showed up with thawed ice cream. We bruised produce. We delivered late. We missed boxes.’ Braddock decided to take drastic action by creating a system of continuous feedback, a real-time database that would follow every step – and misstep – of each business day, so minor problems could be corrected before they erupted into big problems.4 The strategy of focusing on improving its customer service with its existing customers paid off. In 2010, FreshDirect saw the majority of its revenue being derived from 50 000 repeat customers, and by 2013, the company had more than 250 000 customers and US$400 million in annual sales. In 2016, FreshDirect dominates the grocery

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delivery industry in New York, with 47 per cent of delivery sales and US$600 million in annual revenue, compared with its competitors: Peapod (23%), Instacart (21%), and Amazon Fresh (9%).5 Teams of researchers asked managers in thousands of organisations questions designed to determine how well they were implementing various management control practices, such as establishing standards and targets and measuring performance data, and they found that better control is strongly correlated with better organisational productivity and performance.6 A feedback-control model can help managers meet strategic goals by monitoring and regulating the organisation’s activities and using feedback to determine whether performance meets established standards.

ST E P S O F F E E D B AC K CO N T RO L Managers set up control systems that consist of the four key steps, which are illustrated in EXHIBIT 14.1: establish standards, measure performance, compare performance to standards and make corrections as necessary.

ESTABLISH STA NDA RDS O F PE R F O R MA NC E Within the organisation’s overall strategic plan, managers define goals for departments in specific, operational terms that include a standard of performance against which to rank activities. At H&M retail stores, for example, sales floor employees are guided by the standard that clothes should always be ‘easy to find, easy to buy’. Pants, jumpers, and shirts are stacked neatly, with perfect folds; size stickers are placed with precision; and hangers are lined up uniformly. All that precision turns to chaos as soon as the doors open for business, of course, but employees are trained to restore order whenever they have moments to do so.‘One thing to keep in mind,’ said Edwin Mercedes, a store visual manager who is responsible for the look of several stores, ‘is standards. We want perfect folds.’ Garments are replenished on the racks or shelves as soon as they are depleted and they should never, ever be allowed to lie on the floor. Basic standards for customer service are also followed precisely.7 Tracking such measures as customer service, product quality or order accuracy is an important supplement to traditional financial and operational performance measurement, but many companies have a hard time identifying and defining non-financial measurements. To evaluate and reward employees effectively for the achievement of standards, managers need clear standards that reflect activities that contribute to the organisation’s overall strategy in a significant way. Standards should be defined clearly and precisely so that employees know what they need to do and can determine whether their activities are on target.8 Feedback Adjust standards Establish strategic goals

1. Establish standards of performance.

Adjust performance 2. Measure actual performance.

3. Compare performance to standards.

If inadequate

4. Take corrective action.

If adequate

Feedback

4. Do nothing or provide reinforcement.

EXHIBIT 14.1 Feedback control model

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MANAGEMENT IN PRACTICE QUANTIFY YOURSELF Imagine becoming better at your job and more satisfied with your life by tracking information that reveals exactly how you spend your day. For 22 years, entrepreneur and scientist Stephen Wolfram did just that. He mapped data about his time spent in meetings, his email usage and the number of keystrokes he logged, so that he could analyse how he spent his time. Wolfram was able to identify work habits that squelched his creativity and stymied his productivity. So he started planning changes that would help him become more productive and happier. New devices such as computer software and smartphone apps can help people to gather and analyse data about what they do at work so they can use it to do their jobs better. This interest in selfawareness is part of a growing discipline called auto-analytics, which is the practice of voluntarily collecting and analysing data about oneself in order to improve.

✚✚ Tracking screen time. While it may be unsettling to have our managers watching what’s on our computer screens, it’s much more acceptable when we are the ones doing the watching. New technology called knowledge workload tracking records how you use your computer, such as measuring how long you have a window open, how often you switch between windows and how long you’re idle. The software turns all these measurements into charts so that you can see where you’re spending your time and how you can improve your productivity. One computer programmer thought his online chats were eating into his programming time, so he analysed how much time he spent chatting during certain periods, and then looked at how much code he wrote during those times. Surprisingly, he found that talking online with colleagues actually improved his productivity.

✚✚ Measuring cognitive tasks. Another set of tracking tools can help you to gather data as you perform cognitive tasks, such as client research on your smartphone or statistical analysis

in Excel. Although it is notoriously difficult to measure knowledge work, a tool such as MeetGrinder (an app that measures the time and cost spent in meetings and related activities) can measure the time and money spent doing any activity. Bob Evans, a Google engineer, used it to explore the relationship between his attention and productivity. ‘As engineers, we load up our heads with all these variables, the intellectual pieces of the systems we are building. If we get distracted, we lose that thread in our heads,’ he said. MeetGrinder revealed to him that he needs about four straight hours to get anything challenging done, so he tackles those projects when he has that kind of time, not on days that are interrupted with meetings and phone calls.

✚✚ Improving health. Exercise, amount of sleep and the stress levels of knowledge workers have been shown to affect productivity, creativity, and job performance. Employees can choose from a variety of mobile apps and wearable sensors that collect valuable data about their physical health. Sacha Chua wanted to better understand how her sleep schedule affected her professional priorities, so she monitored her bedtimes, wake-up times and amount of sleep over several weeks using a tracker called Sleep On It. She changed her routine and started waking up at 5.40 a.m. instead of 8.30 a.m. She gave up late-night activities like browsing the web and started going to bed earlier. With these adjustments, she discovered that her work productivity soared. The data from Sleep On It gave Chua measurable information that allowed her to establish priorities on what really mattered to her. Tools used for auto-analytics will continue to become more sophisticated. The data that they reveal will provide the hard evidence we sometimes need to adjust the way we use our time and nurture our minds and bodies to have more success in work and life.

SOURCES: Based on H. James Wilson. (2 April 2012). Employees, Measure Yourselves. The Wall Street Journal, http://online.wsj.com/article/SB1000142405297020452020457724 9691204802060.html#articleTabs%3Darticle (accessed 28 September 2012); and H. James Wilson. (September 2012). You, by the Numbers. Harvard Business Review, 2–5.

MEA SURE A C T UA L P ER F O R MA NC E Most organisations prepare formal reports of quantitative performance measurements that managers review daily, weekly or monthly. These measurements should be related to the standards set in the first step of the control process. For example, if sales growth is a target, the organisation should have a means of gathering and reporting sales data. If the organisation has identified appropriate measurements,

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regular review of these reports helps managers stay aware of whether the organisation is doing what it should or not. FreshDirect has a warehouse where workers are responsible for butchering, baking and food preparation. Warehouse managers analyse numerous reports that track plant operations, including inventory levels, quality assurance and freshness. Managers also monitor real-time data that show the popularity of certain products in specific delivery zones and time slots.9

COMPARE PERFO RM A NC E T O S TA NDA R DS The third step in the control process is comparing actual activities to performance standards. When managers read computer reports or walk through work areas, they identify whether actual performance meets, exceeds or falls short of standards. Typically, performance reports simplify such comparisons by placing the performance standards for the reporting period alongside the actual performance for the same period and computing the variance – that is, the difference between each actual amount and the associated standard. To correct the problems that most require attention, managers focus on variances. When performance deviates from a standard, managers must interpret the deviation. They are expected to dig beneath the surface and find the cause of the problem. Assume that FreshDirect established a goal of increasing seafood sales by 10 per cent during the month of July, but sales increased by only 8 per cent. Managers must investigate the reasons behind the shortfall. They may discover that recent price increases for prawns and three late shipments of salmon caused weaker sales during July, for instance. FreshDirect should also consider variables like the weather (average temperatures in New York for July are around 25° C, with temperature ranging from 20° C to 29° C), the time of year (July, which is summer in the northern hemisphere), as well as sales of seafood from previous years.10 Managers should take an inquiring approach to deviations to gain a broad understanding of factors that influence performance. Effective management control involves subjective judgement and employee discussions, as well as objective analysis of performance data.

TAKE CORREC T IV E A C T ION Managers also determine what changes, if any, are needed. In 2008, FreshDirect was falling short of its revenue and cash goals, and customers were complaining about sold-out items, limited delivery options and mistakes in orders. Sales were suffering, and 85 per cent of customers placed only one or two orders before giving up on the company. The CEO chose to take corrective action by remaking the company with a focus on customer service. He dropped the company’s obsession with luring in new customers with coupons and began focusing on building loyal customers. He upgraded the company’s website and developed a database to profile customers and provide a customised online experience. Now, the website can analyse order patterns, remind customers of their favourite products, and suggest other items they might like.11 This investment paid off. FreshDirect now has more than US$600 million in annual revenue and has been cash-flow positive since 2010 and. In 2016, the company secured a US$189 million investment to launch its grocery delivery service in more cities.12 FreshDirect uses simple messaging and visuals on its website to explain its value proposition to their customers. Now it has rectified past mistakes, FreshDirect concentrates on both attracting new customers (through its two months of grocery deliveries for 1 cent trial) and servicing its existing customers, who are familiar with the company. It also encourages customers to Share (Facebook), Tweet (Twitter), or Pin (Pinterest) their favourite items on the FreshDirect website through the social media integration that the company has imbedded on its site.13

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T H E B A L A N C E D S CO R E C A R D

balanced scorecard A management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors.

One current approach to organisational control is to take a balanced perspective of company performance, integrating various dimensions of control that focus on markets and customers, as well as employees and financials.14 Managers recognise that relying exclusively on financial measures can result in short-term, dysfunctional behaviour. Non-financial measures provide a healthy supplement to traditional financial measures, and companies are investing significant sums in developing more balanced measurement systems as a result.15 The balanced scorecard is a comprehensive management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors.16 A balanced scorecard contains four major perspectives, as illustrated in EXHIBIT 14.2: financial performance, customer service, internal business processes, and the organisation’s capacity for learning and growth.17 Within these four areas, managers identify the key performance metrics the organisation will track.

◗◗ Financial performance. The financial performance perspective reflects a concern that the organisation’s activities contribute to improving short- and long-term financial performance. It includes traditional measures such as net income and return on investment.

◗◗ Customer service. Customer service indicators measure information such as how customers view the organisation and customer retention and satisfaction. This data may be collected in many forms, including testimonials from customers describing superlative service or from customer surveys that explore important product or service attributes.18

◗◗ Internal business processes. Business process indicators focus on production and operating statistics. For an airline, business process indicators may include on-time arrivals and adherence to safety guidelines.

◗◗ Potential for learning and growth. The final component of the balanced scorecard looks at the organisation’s potential for learning and growth, focusing on how well resources and human capital are being managed for the company’s future. Metrics may include things such as employee retention and the introduction of new products. The components of the scorecard are designed in an integrative manner, as illustrated in EXHIBIT  14.2. Managers record, analyse and discuss these metrics to determine how well the organisation is achieving its strategic goals. The balanced scorecard is an effective tool for managing and improving performance, but only if it is clearly linked to a well-defined organisational strategy and goals.19 At its best, use of the scorecard cascades down from the top levels of the organisation so that everyone becomes involved in thinking about and discussing strategy. The scorecard has become the core management control system for many organisations, including well-known organisations such as PETRONAS in Malaysia, Exxon Mobil Corporation, Cigna (insurance), Hilton Hotels and even some government departments.20 As with all management systems, the balanced scorecard is not right for every organisation in every situation. The simplicity of the system causes some managers to underestimate the time and commitment that is needed for the approach to become a truly useful management control system. If managers implement the balanced scorecard using a performance measurement orientation rather than a performance management approach that links targets and measurements to corporate strategy, use of the scorecard can actually hinder or even decrease organisational performance.21

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Financial Correctio n

Outcom es

Measure

Do actions contribute to improving financial performance?

Targets

s

s

EXHIBIT 14.2 The balanced scorecard

ns Correctio

Outcom es

Corrections

Outcomes

Measure

Are we learning, changing and improving?

Targets

s

Missions and goals

Measure

Do internal activities and processes add value for customers and shareholders?

Targets

ns Correctio

Outcom es

s Measure

Targets

How well do we serve our customers?

s

Internal business processes

Customers

Learning and growth Sources: Based on Robert S. Kaplan and David P. Norton. (January–February 1996). Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review, 75–85; and Chee W. Chow, Kamal M. Haddad and James E. Williamson. (August 1997). Applying the Balanced Scorecard to Small Companies. Management Accounting, 79:2, 21–7.

✚ Firstly you must always seek to keep learning and never think you know all there is to know, the world is becoming smaller with globalisation, change is everywhere and the level of education of students who leave school this year is greater than when you left high school.

AUSTRALIAN MANAGER PROFILE Source: Courtesy Justin Ryan

Justin started his working career immediately after finishing school, with IPEC Road Express (Mayne Nickless) under a transport traineeship. This grounding, from a grass roots operational level has assisted Justin over the last 24 years of his working life through to completing his MBA in 2005 and his Masters of Supply Chain Management in 2017. During this time, Justin has had many experiences being managed and managing others in state-based and national roles, covering both business development and operations. Justin has provided some insights to his experiences on how to be a successful manager and grow your career.

✚ When I completed my MBA in 2005, Facebook was one year old and had 5.5 million users. Today they have 1.79 billion, and social media was a term rarely used. (I am still not a user.)

✚ During your career you will come across managers you believe to be good or bad.

JUSTIN RYAN, HEA D OF LOGISTICS

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You can learn from both types of managers equally, on what to do and what not to do; keep your eyes open.

✚ Opportunities are always available, but you also need to create your own opportunities. Don’t wait for an opportunity to be offered to you, create it and learn more. Opportunities can be the 3 E’s: ✚ Education – training, anything from in-house training for an IT system through to post-graduate degree. Never say no if you are offered training. Seek out training that will benefit you and your employer may even support you to study further! ✚ Experience – Ask why? Why do we do it that way? Cover for a colleague when they are on leave to experience another part of the organisation. ✚ Ethics – This is your personal integrity, only you can give this away as no one can take it from you. Even more important these days with social media, would you be proud of your actions if what you are doing makes front page news? People are the most critical ingredient to success as a manager, nothing happens without them! Role and status is only a small part

of your career. I enjoy leading and working with great people, those who want to see the business succeed. I am currently a group manager of a large Logistics business. Engaging with staff and providing them with guidance and training to help them improve and achieve the next step in their career is highly satisfying. My success later in my career has been developing managers to take over my role to allow myself to move onto the next challenge. If you chase the big salary, you are doing it for the wrong reasons – the salary, car and benefits are an outcome of the role you have. Make sure in any organisation you work for, you improve it and leave it in a better position than when you joined. Encourage your team to challenge what is being done; change for the right reasons is good. There is a saying that the 10 most expensive words in business are, ‘because that is the way we have always done it’. If you are not evolving as an individual/organisation your replacement/competitors will be! Lastly, find a coach or mentor – someone who is not your direct manager and whose open and honest feedback, someone you can discuss challenges with, who can give you a different and impartial view. Someone who will challenge you to better yourself.

SOURCES: ‘Number of active Facebook users over the years’, (2 May 2013). Associated Press, https://www.yahoo.com/news/ number-active-users-facebook-over-230449748.html?ref=gs; ‘Number of monthly active Facebook users worldwide as of 4th quarter 2016 (in millions)’, statista, https://www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide/

14.3

BUDGETARY CONTROL

Every organisation, large or small, should prepare a financial budget that details the financial expectations (revenue and cost items) over the next 12 months. Without a budget, it is difficult to know how a business is tracking. Debbie Dusenberry was following her dream as a successful entrepreneur. She had opened a beautifully designed store called Curious Sofa and filled its expansive showroom with antiques, offbeat furniture, accessories and gifts. She had a dedicated staff and sales reaching $800 000 per year. She had borrowed a lot of money and was planning to expand her inventory. Business was growing fast. But Dusenberry was typical of many small business owners who are long on drive and passion but short on financial experience. Caught up in the excitement of growing sales, she was unaware that excessive costs in staffing, inventory and freight were hurting her profitability. She was operating without a budget and not keeping track of all her expenses. When sales dropped during the global financial crisis, the glaring weaknesses in her financial system were exposed. Scared and exasperated, Dusenberry began thinking

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about how she could save her business and realised she needed a new system that would help her monitor and manage her costs. Her first step was to create a budget.22 Budgetary control, one of the most commonly used methods of managerial control, is the process of setting targets for an organisation’s expenditures, monitoring results and comparing them to the budget, and making changes as needed. As a control device, budgets are reports that list planned and actual expenditures for cash, assets, raw materials, salaries and other resources. In addition, budget reports usually list the variance between the budgeted and actual amounts for each item. A budget is created for every division or department within an organisation, no matter how small, as long as it performs a distinct project, program or function. The fundamental unit of analysis for a budget control system is called a responsibility centre. A responsibility centre is defined as any organisational department or unit under the supervision of a single person who is responsible for its activity.23 A threeperson appliance sales office is a responsibility centre, as is a quality control department, a marketing department and an entire refrigerator manufacturing plant. The manager of each unit has budget responsibility. Top managers use budgets for the company as a whole, and middle managers traditionally focus on the budget performance of their department or division. Managers typically use expense, revenue, cash and capital budgets.

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budgetary control Setting specific financial plans in place, then managing in real time to achieve those plans, carefully attending to variations between plans and ‘actuals’. responsibility centre An organisational unit under the supervision of a single person who is responsible for its activity.

E X PE NSE BUDGET An expense budget includes anticipated and actual expenses for each responsibility centre and for the total organisation. An expense budget may show all types of expenses, or it may focus on a particular category, such as materials or research and development expenses. When actual expenses exceed budgeted amounts, the difference signals the need for managers to identify possible problems and take corrective action if needed. The difference may arise from inefficiency, or expenses may be higher because the organisation’s sales are growing faster than anticipated. Conversely, expenses below budget may signal exceptional efficiency or possibly the failure to meet some other standards, such as a desired level of sales or quality of service. Either way, expense budgets help identify the need for further investigation but do not substitute for it.

expense budget A budget that outlines the anticipated and actual expenses for a responsibility centre.

REVE NUE BUDGET A revenue budget lists forecasted and actual revenues of the organisation. In general, revenues below the budgeted amount signal a need to investigate the problem to see whether the organisation can improve revenues. In contrast, revenues above budget would require determining whether the organisation can obtain the necessary resources to meet the higher-than-expected demand for its products or services. Managers then formulate action plans to correct the budget variance.

revenue budget A budget that identifies the forecasted and actual revenues of the organisation.

CASH BUDGET The cash budget estimates receipts and expenditures of money on a daily or weekly basis to ensure that an organisation has sufficient cash to meet its obligations. It shows the level of funds flowing through the organisation and the nature of cash disbursements. If it shows that the firm has more cash than necessary to meet short-term needs, the company can arrange to invest the excess to earn interest income. In contrast, if the cash budget shows a payroll expenditure of $20 000 coming at the end of the week but only $10 000 in the bank, the organisation must borrow cash to meet the payroll.

cash budget A budget that estimates and reports cash flows on a daily or weekly basis to ensure that the organisation has sufficient cash to meet its obligations.

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C A P I TA L B U D G E T capital budget A budget that plans and reports investments in major assets to be depreciated over several years.

The capital budget lists planned investments in major assets such as buildings, heavy machinery or complex information technology systems, often involving expenditures over more than a year. Capital expenditures not only have a large impact on future expenses, but they are also investments designed to enhance profits. Therefore, a capital budget is necessary for planning the impact of these expenditures on cash flow and profitability. Controlling involves not only monitoring the amount of capital expenditures, but also evaluating whether the assumptions made about the return on the investments are holding true. Managers can evaluate whether continuing investment in particular projects is advisable, as well as whether their procedures for making capital expenditure decisions are adequate. Some companies, including Boeing, Merck, Shell, BHP Billiton, Coles, Westpac and Whirlpool, evaluate capital projects at several stages to determine whether they are still in line with the company’s strategy.24

Z E RO - B A S E D B U D G E T zero-based budgeting A budgeting process that requires a complete justification for every line item in a budget.

top-down budgeting A budgeting process in which middle- and lower-level managers set departmental budget targets in accordance with overall organisation revenues and expenditures specified by top management. bottom-up budgeting A budgeting process in which lower-level managers budget their departments’ resource needs and pass them up to top management for approval.

Zero-based budgeting is an approach to planning and decision making that requires a complete

justification for every line item in a budget, instead of carrying forward a prior budget and applying a percentage change. A zero-based budget begins with a starting point of $0, and every dollar added to the budget is reflected by an actual, documented need.25 Shell, the oil and gas industry giant, implemented a zero-based budget to drive significant financial performance improvements. Facing unpredictable oil and gas demand and an uncertain global economy, then CFO Gerard Paulides believed that a cost reduction strategy was as important to Shell’s business as oil and gas production and hydrocarbon maturation. ‘We dove in deeply, stripping all business areas down to zero and then going back through the exercise of building them back up.’ Paulides and other executives looked at the minimum resources required to run each part of the business, which Paulides referred to as the must-haves. ‘All other activities are essentially discretionary and optional, or in the zero-based framework, nice to have,’ said Paulides.26 This approach to budgeting helped Shell to shave excessive and unnecessary costs from its yearly expenditures. It helped the company to robustly weather the stormy period of a widely gyrating oil price, which moved over a few short years, from $40 per barrel up to $150, then back down to below $50 in more recent times. This approach provides the 108-year-old company, with nearly 100 000 employees, and revenue and assets each of some $300 billion, a robust platform for going forward in turbulent times. Budgeting is an important part of organisational planning and control. Many traditional companies use top-down budgeting, which means that the budgeted amounts for the coming year are literally imposed on middle- and lower-level managers.27 These managers set departmental budget targets in accordance with overall company revenues and expenditures specified by top executives. Although the top-down process provides some advantages, the movement towards employee empowerment, participation and learning means that many organisations are adopting bottom-up budgeting, a process in which lower-level managers anticipate their departments’ resource needs and pass them up to top management for approval.28 Companies of all kinds are increasingly involving line managers in the budgeting process.

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R EMEMBE R THIS ◗◗

Budgetary control is one of the most commonly used forms of managerial control. It is the process of setting targets for an organisation’s expenditures, monitoring results and comparing them to the budget, and making changes as needed.

◗◗

A responsibility centre is any organisational department or unit under the supervision of a single person who is responsible for its activity.

◗◗ ◗◗ ◗◗

An expense budget outlines the anticipated and actual expenses for a responsibility centre.

◗◗

A budget that plans and reports investments in major assets to be depreciated over several years is called a capital budget.

◗◗

Zero-based budgeting is an approach to planning and decision making that requires a complete justification for every line item in a budget, instead of carrying forward a prior budget and applying a percentage change.

◗◗

Many companies use top-down budgeting, which means that the budgeted amounts for the coming year are literally imposed on middle- and lower-level managers.

◗◗

Bottom-up budgeting involves lower-level managers anticipating their department’s budget needs and passing them up to top management for approval.

A revenue budget lists forecast and actual revenues of the organisation. The cash budget estimates receipts and expenditures of money on a daily or weekly basis to ensure that an organisation has sufficient cash to meet its obligations.

14.4

FINANCIAL CONTROL

‘Numbers run companies,’ claims Norm Brodsky, a veteran entrepreneur and writer for Inc. magazine.29 In every organisation, managers need to watch how well the organisation is performing financially by watching the numbers. Not only do the numbers tell whether the organisation is on sound financial footing, but they also can be useful indicators of other kinds of performance problems. For example, a sales decline may signal problems with products, customer service or sales force effectiveness.

F I NA N C I A L STAT E M E N T S Financial statements provide the basic information used for financial control of an organisation. Two major financial statements – the balance sheet and the income statement – are the starting points for financial control. Think of the balance sheet as a thermometer that provides a reading on the health of the business at the moment you take its temperature.30 The balance sheet shows the firm’s financial position with respect to assets and liabilities at a specific point in time. An example of a balance sheet is presented in EXHIBIT 14.3. The balance sheet provides three types of information: assets, liabilities and owners’ equity. Assets are what the company owns, and they include current assets (those that can be converted into cash in a short time period) and fixed assets (such as buildings and equipment that are long term in nature). Liabilities are the firm’s debts, including both current debt (obligations that

balance sheet A financial statement that shows the firm’s financial position with respect to assets and liabilities at a specific point in time.

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income statement A financial statement that summarises the firm’s financial performance for a given time interval; sometimes called a profitand-loss statement.

will be paid by the company in the near future) and long-term debt (obligations payable over a long period). Owners’ equity is the difference between assets and liabilities and is the company’s net worth in stock and retained earnings. The income statement, sometimes called a profit-and-loss statement or P&L for short, summarises the firm’s financial performance for a given time interval, usually one year. A sample income statement is shown in EXHIBIT 14.4. Some organisations calculate the income statement at three-month intervals during the year to see whether they are on target for sales and profits. The income statement shows revenues coming into the organisation from all sources and subtracts all expenses, including cost of goods sold, interest, taxes and depreciation. The bottom line indicates the net income – profit or loss – for the given time period.

NEW CREATIONS LANDSCAPING CONSOLIDATED BALANCE SHEET 31 DECEMBER 2015

EXHIBIT 14.3 Balance sheet

ASSETS

Current assets:  Cash   Accounts receivable  Inventory

LIABILITIES AND OWNERS’ EQUITY

$ 25 000

$

Current liabilities:   Accounts payable

75 000

  Accrued expenses

20 000

  Income taxes payable

30 000

500 000

   Total current assets

  Buildings and fixtures

$ 200 000

600 000   Total current liabilities

Fixed assets:  Land

$

250 000

Long-term liabilities: 250 000

  Mortgages payable

350 000

1 000 000

  Bonds outstanding

250 000

  Total long-term liabilities Less depreciation   Total fixed assets

200 000

1 050 000   Common stock   Retained earnings    Total owners’ equity

Total assets

600 000

Owners’ equity:

1 650 000 Total liabilities and net worth

540 000 260 000 800 000 1 650 000

During the global financial crisis, companies cut discretionary spending, such as travel expenses, to improve their bottom line, and managers are pushing to keep those expenses from creeping up again. If managers keep costs low where possible, they can spend scarce dollars on higher-priority areas, such as salary increases for staff or research and development. To avoid a cost creep in travel expenses, Deloitte reminds its employees of company travel policies when managers see costs rising. Employees are discouraged from travelling to meetings that are expected to last less than eight hours and to use video and web conferencing whenever possible as an alternative to travel.31 The Innovative way below describes how one successful franchise owner uses a financial control system to manage a highly profitable 7-Eleven store.

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NEW CREATIONS LANDSCAPING INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2015

$3 100 000

Gross sales

200 000

Less sales returns

2 900 000

  Net sales Less expenses and cost of goods sold: 2 110 000

  Cost of goods sold

60 000

 Depreciation

200 000

  Sales expenses

2 460 000

90 000

  Administrative expenses

440 000

Operating profit

 20 000

Other income

460 000

Gross income 80 000

Less interest expense

380 000

Income before taxes 165 000

Less taxes

$

Net income

215 000

INNOVATIVE WAY 7–ELEVEN Norman Jemal, an enthusiastic and gregarious 7-Eleven franchise owner in the United States, loves crunching the numbers with field consultant Kunta Natapraya. Together, they study the sales data and profit margins for the thousands of snack foods that Jemal sells in his three profitable stores. Some claim that Jemal’s success is due to the location of his stores on busy streets. High vehicle and pedestrian traffic do produce lots of potential customers. But Jemal’s success also comes from his knack for analysing financial data to spot the most profitable products in his inventory and maximising profits through efficient ordering. When faced with reordering decisions, Jemal uses 7-Eleven’s proprietary Retail Information System (RIS), which helps him to analyse sales and profitability data for each product in his inventory. For example, when corporate 7-Eleven announced it was rolling out a

sugar-free Slurpee Lite, Jemal needed to make room for it by eliminating an existing product. Using RIS, he studied the profitability of each snack product and discovered that the spicy beef patty was lagging in sales and profitability, so he slashed it from the stores’ inventory to make room for the new products. 7-Eleven focuses on its core competence of figuring out what to sell to rushed customers and how to sell it to them. ‘Other franchises pitch their name,’ Jemal says. ‘7-Eleven, which I think has a great name, pitched their [RIS] system.’ That system is part of a carefully designed financial control model that also includes regular audits. A good audit performance will go a long way towards determining if 7-Eleven allows Jemal to open more stores. He says he’d like to open 20 more.

Source: Willy Staley. (14 May 2012). How 7-Eleven Plans to Put the Bodega Out of Business. New York, 38–41, 87–8.

EXHIBIT 14.4 Income statement

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F I NA N C I A L A NA LY S I S : I N T E R P R E T I NG T H E  N U M B E R S A manager needs to be able to evaluate financial reports that compare the organisation’s performance with earlier data or industry norms. These comparisons enable the manager to see whether the organisation is improving and whether it is competitive with others in the industry. The most common financial analysis focuses on ratios; that is, statistics that express the relationships between performance indicators such as profits and assets, sales and inventory. Ratios are stated as a fraction or proportion; EXHIBIT 14.5 summarises some financial ratios, which are measures of an organisation’s liquidity, activity, profitability and leverage. These ratios are among the most common, but many measures are used. Managers decide which ratios reveal the most important relationships for their business.

EXHIBIT 14.5 Common financial ratios

LIQUIDITY RATIOS

Current ratio

Current assets/Current liabilities

Quick ratio

Cash 1 accounts receivable/Current liabilities

ACTIVITY RATIOS

Inventory turnover

Total sales/Average inventory

Conversion ratio

Purchase orders/Customer inquiries

PROFITABILITY RATIOS

Profit margin on sales

Net income/Sales

Gross margin

Gross income/Sales

Return on assets (ROA)

Net income/Total assets

LEVERAGE RATIOS

Debt ratio

Total debt/Total assets

LIQ UIDIT Y RATIO S liquidity ratio A financial ratio that indicates the organisation’s ability to meet its current debt obligations.

The liquidity ratio indicates an organisation’s ability to meet its current debt obligations. For example, the current ratio (current assets divided by current liabilities) tells whether the company has sufficient assets to convert into cash to pay off its debts, if needed. If a hypothetical company, Oceanographics Inc., has current assets of $600 000 and current liabilities of $250 000, the current ratio is 2.4, meaning it has sufficient funds to pay off immediate debts 2.4 times. This level for the current ratio is normally considered a satisfactory margin of safety. Another liquidity ratio is the quick ratio, which is typically expressed as cash plus accounts receivable divided by current liabilities. The quick ratio is a popular metric to pair with the current ratio to gauge liquidity. ‘If a business does not have decent liquidity, then one unexpected expense could severely hurt it,’ says Brad Schaefer, an analyst with Sageworks Inc., a financial information company.32

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ACTIVITY RAT IOS The activity ratio measures internal performance with respect to key activities defined by management. For example, inventory turnover is calculated by dividing total sales by average inventory. This ratio tells how many times the inventory is used up to meet the total sales figure. If inventory sits too long, money is wasted. Dell Inc. achieved a strategic advantage by minimising its inventory costs. Dividing Dell’s annual sales by its small inventory generates an inventory turnover rate of 35.7.33 Another type of activity ratio, the conversion ratio, is purchase orders divided by customer inquiries. This ratio is an indicator of a company’s effectiveness in converting inquiries into sales. For example, if Cisco Systems moves from a 26.5 to a 28.2 per cent conversion ratio, more of its inquiries are turned into sales, indicating better sales activity.

activity ratio A financial ratio that measures the organisation’s internal performance with respect to key activities defined by management.

PROFITA BILITY RAT IOS Managers analyse a company’s profits by studying profitability ratios, which state profits relative to a source of profits, such as sales or assets. When Alan Mulally became CEO of Ford Motor Company in 2008, he emphatically stressed the importance of profitability. At that time, Ford was a sick company, losing $83 million a day, and the stock price had plummeted to $1.01. Mulally initiated Ford’s remarkable turnaround by fostering a new culture of accountability that emphasised the use of consistent metrics to gauge performance. Mulally expected each department head to know and report how his or her department was performing. His emphasis on data-driven management permanently changed the culture at Ford. In 2010, Ford posted a profit of $6.6 billion, the most money the company had made in more than a decade.34 General Motors in the United States went through similar turmoil to Ford and has recently rebounded. Both Ford and General Motors closed their Australian manufacturing operations: Ford in 2016 and General Motors in 2017, as part of their global profit optimisation programs. One important profitability ratio is the profit margin on sales, which is calculated as net income divided by sales. Similarly, gross margin is the gross (before-tax) profit divided by total sales. Another profitability measure is return on assets (ROA), which is a percentage representing what a company earned from its assets, computed as net income divided by total assets. ROA is a valuable yardstick for comparing a company’s ability to generate earnings with other investment opportunities. In basic terms, the company should be able to earn more by using its assets to operate the business than it could by putting the same investment in the bank.

profitability ratio A financial ratio that describes the firm’s profits in terms of a source of profits (for example, sales or total assets).

Leverage refers to funding activities with borrowed money. A company can use leverage to make its assets produce more than they could on their own. However, too much borrowing can put the organisation at risk that it will be unable to keep up with repayment of its debt. Managers therefore track their debt ratio, or total debt divided by total assets, to make sure it does not exceed a level that they consider acceptable. Lenders may consider a company with a debt ratio above 1.0 to be a poor credit risk.

Entrepreneurs, as well as large corporations, use leveraged funds to finance their companies. Joshua Silver, a physics professor at Oxford University, needs US$8 million for the manufacture and marketing of his glasses, which are the world’s first adjustable-prescription specs. At a cost of only $10 per pair, the glasses could be a boon for the one-sixth of the world’s population who are vision impaired and can’t afford regular glasses. However, having already invested $650 000 in his idea, Silver has an immense sum of money yet to borrow before he and the world can profit from his invention.

Source: Getty Images/The Washington Post

LEVERAGE RATIO S

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R EMEMBE R THIS ◗◗ ◗◗

Financial statements provide the basic information used for financial control of an organisation.

◗◗ ◗◗

The income statement summarises the firm’s financial performance for a given time interval.

◗◗ ◗◗

The liquidity ratio indicates the organisation’s ability to meet its current debt obligations.

◗◗

The profitability ratio describes the firm’s profits relative to a source of profits, such as sales or assets.

The balance sheet shows the firm’s financial position with respect to assets and liabilities at a specific point in time.

The most common financial analysis focuses on the use of ratios – statistics that express the relationships between performance indicators such as profits and assets, sales and inventory.

The activity ratio measures the organisation’s internal performance with respect to key activities defined by management.

14.5

See Chapter 2 for a discussion of different philosophies of corporate culture.

THE CHANGING PHILOSOPHY OF CONTROL

Managers’ approach to control is changing in many of today’s organisations. In connection with the shift to employee participation and empowerment, many companies are adopting a decentralised rather than a hierarchical control process. Hierarchical control and decentralised control represent different philosophies of corporate culture, which was discussed in Chapter 2. Most organisations display some aspects of both hierarchical and decentralised control, but managers generally emphasise one or the other, depending on the organisational culture and their own beliefs about control.

H IE R ARCH ICAL VE RSUS DECE NTR ALISED A P P ROA C H E S hierarchical control The use of rules, policies, hierarchy of authority, reward systems and other formal devices to influence employee behaviour and assess performance. decentralised control The use of organisational culture, group norms and a focus on goals, rather than rules and procedures, to foster compliance with organisational goals.

Hierarchical control involves monitoring and influencing employee behaviour through extensive use

of rules, policies, hierarchy of authority, written documentation, reward systems and other formal mechanisms.35 In contrast, decentralised control relies on cultural values, traditions, shared beliefs and trust to foster compliance with organisational goals. Managers operate on the assumption that employees are trustworthy and willing to perform effectively without extensive rules and close supervision. EXHIBIT 14.6 contrasts the use of hierarchical and decentralised methods of control. Hierarchical methods define explicit rules, policies and procedures for employee behaviour. Control relies on centralised authority, the formal hierarchy and close personal supervision. Responsibility for quality control rests with quality control inspectors and supervisors rather than with employees. Job descriptions generally are specific and task related, and managers define minimal standards for acceptable employee performance. In exchange for meeting the standards, individual employees are given extrinsic rewards such as wages, benefits and possibly promotions up the hierarchy. Employees rarely participate in the control process, with any participation being formalised through mechanisms such as grievance procedures. With hierarchical control, the organisational culture is somewhat rigid,

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and managers do not consider culture a useful means of controlling employees and the organisation. Technology often is used to control the flow and pace of work or to monitor employees, such as by measuring the number of minutes employees spend on phone calls or how many keystrokes they make at the computer. The hierarchical approach to control is strongly evident in many Japanese companies. Japanese culture reflects a preoccupation with rules and a penchant for bureaucracy that can excel at turning chaos to order. For example, after the devastating 2011 earthquake and tsunami, Japan efficiently organised evacuation centres for families who lost homes during the disaster. Self-governing committees managed these temporary shelters and laid out in painstaking detail the daily responsibilities of the residents. People were assigned specific tasks, including sorting the garbage, washing the bathrooms and cleaning freshwater tanks. ‘The Japanese people are the type to feel more reassured the more  rules are in place,’ said Shintara Goto, a tsunami survivor. This hierarchical method of  managing the temporary evacuation centres helped survivors find routine and responsibility, which could play a big role in reducing the long-term psychological and physical toll of this natural disaster.36 Decentralised control is based on values and assumptions that are almost opposite to those of hierarchical control. Rules and procedures are used only when necessary. Managers rely instead on shared goals and values to control employee behaviour. The organisation places great emphasis on the selection and socialisation of employees to ensure that workers have the appropriate values needed to influence behaviour towards meeting company goals. No organisation can control employees 100 per cent of the time, and self-discipline and self-control are what keep workers performing their jobs up to standard. Empowerment of employees, effective socialisation and training all can contribute to internal standards that provide self-control. With decentralised control, power is more dispersed and is based on knowledge and experience as much as position. The organisational structure is flat and horizontal, as discussed in Chapter 7, with flexible authority and teams of workers solving problems and making improvements. Everyone is involved in quality control on an ongoing basis. Job descriptions generally are results-based, with an emphasis more on the outcomes to be achieved than on the specific tasks to be performed. Managers use not only extrinsic rewards such as pay, but the intrinsic rewards of meaningful work and the opportunity to learn and grow. Technology is used to empower employees by giving them the information they need to make effective decisions, work together and solve problems. People are rewarded for team and organisational success as well as their individual performance, and the emphasis is on equity among employees. Employees participate in a wide range of areas, including setting goals, determining standards of performance, governing quality and designing control systems. With decentralised control, the culture is adaptive, and managers recognise the importance of organisational culture for uniting individual, team and organisational goals for greater overall control. Ideally, with decentralised control, employees will pool their areas of expertise to arrive at procedures that are better than managers could come up with working alone. Campbell Soup is using decentralised control by enlisting its workers to help squeeze efficiency out of its plants.

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EXHIBIT 14.6 Hierarchical and decentralised methods of control

HIERARCHICAL CONTROL

DECENTRALISED CONTROL

Basic assumptions

People are incapable of self-discipline and cannot be trusted. They need to be monitored and controlled closely.

People work best when they are fully committed to the organisation.

Actions

Uses detailed rules and procedures; formal control systems.

Features limited use of rules; relies on values, group and self-control, selection, and socialisation.

Uses top-down authority, formal hierarchy, position power, quality control inspectors. Relies on task-related job descriptions. Emphasises extrinsic rewards (pay, benefits, status). Features rigid organisational culture; distrust of cultural norms as means of control.

Relies on flexible authority, flat structure, expert power; everyone monitors quality. Relies on results-based job descriptions; emphasises goals to be achieved. Emphasises extrinsic and intrinsic rewards (meaningful work, opportunities for growth). Features adaptive culture; culture recognised as means for uniting individual, team and organisational goals for overall control.

Consequences

Employees follow instructions and do just what they are told.

Employees take initiative and seek responsibility.

Employees feel a sense of indifference towards work.

Employees are actively engaged and committed to their work.

Employee absenteeism and turnover is high.

Employee turnover is low.

INNOVATIVE WAY CAMPBELL SOUP Campbell Soup Company, which controls much of the Australian and United States soup markets, is piling up profits by implementing cost-saving ideas suggested by its employees. At many of its plants, factory workers huddle every morning with managers to find ways to save the company money. These employees are part of a decentralised culture in which both managers and workers share the company’s goals and collaborate on ways to improve efficiency. The daily worker–manager huddles are about ‘getting everybody involved,’ says ‘Big John’ Filmore, a 28-year soup-making veteran. ‘Instead

of being told what to do, we get to tell people about our problems,’ he said. When challenged to find efficiency in the new broth line, which processes 100 000 tonnes of raw ingredients per year, operators and mechanics devised a numbering system for each gasket to speed repairs of the processing equipment. They cut windows into the metal covers over conveyor belts so they could identify signs of wear. They colour-coded valve handles to avoid confusion in settings. With employeedriven changes like these, Campbell says operating efficiency at the plant has climbed to 85 per cent of what its managers

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say is the maximum possible, up from 75 per cent three years ago. That pays off, as a 1 per cent gain in plant efficiency adds $3 million to operating profits. Campbell’s latest challenge is reinventing how the company makes soup. In the past, each soup had its own recipe. Now many soups will share a common base, such as chicken broth, and will be adapted by adding different types of meats and vegetables. Employees at all levels of the organisation will help plan and implement the new

processes. ‘We have to collaborate at the highest levels of the organisation right down to the plant floor,’ says Dave Biegger, Campbell’s vice-president for supply chain. This approach has pervaded this company such that, despite its traditions (it has been in business since 1869), its size (17 000 employees) and its geographical spread and diversity (it owns and operates Arnott’s biscuits and snack foods in Australia), the innovative empowering of employees works well across the company.

Source: Craig Torres and Anthony Feld. (29 November–5 December 2010). Campbell’s Quest for Productivity. Bloomberg BusinessWeek, 15–16.

O P E N - BOO K M A NAG E M E N T One important aspect of decentralised control in many organisations is open-book management. An organisation that promotes information sharing and teamwork admits employees throughout the organisation into the loop of financial control and responsibility to encourage active participation and commitment to goals. Open-book management allows employees to see for themselves – through charts, digital files, meetings and so forth – the financial condition of the company. Second, it shows the individual employee how his or her job fits into the big picture and affects the financial future of the organisation. Finally, it ties employee rewards to the company’s overall success. With training in interpreting the financial data, employees can see the interdependence and importance of each function. If they are rewarded according to performance, they become motivated to take responsibility for their entire team or function, rather than merely their individual jobs.37 The goal of open-book management is to get every employee thinking and acting like a business owner. To get employees to think like owners, management provides them with the same information owners have: what money is coming in and where it is going. Open-book management helps employees to appreciate why efficiency is important to the organisation’s success as well as their own. Laura Ortmann, who owns Ginger Bay Salon and Spa with her husband, discovered that her hairstylists and massage therapists became more motivated to reach their own performance goals once she trained them to understand the company’s financial goals. Individual and company goals were recorded prominently on a scoreboard in the break room and listed each employee’s daily sales results and whether goals were met. ‘Behaviour changed overnight,’ said Ortmann. ‘No one wants their name next to a low number.’ By helping her employees see how their efforts affected the financial success of the company, Ortmann increased their motivation. ‘I love the numbers, and I love knowing how I’m doing,’ says nail technician Terri Kavanaugh.38 Managers in some countries have more trouble running an open-book company because prevailing attitudes and standards encourage confidentiality, even secrecy, concerning financial results. Many business people in countries such as China, Russia and India, for example, are not accustomed to disclosing financial details publicly, which can present problems for multinational companies operating there.39

open-book management Sharing financial information and results with all employees in the organisation.

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CASE STUDY SEMCO’S OPEN-BOOK POLICY When Ricardo Semler took over from his father as head of the family business, Brazil’s Semco, a large equipment manufacturer, he decided to manage based on a philosophy of ‘giving up control’ by having faith in people and respect for their ideas. At Semco, he designed a business model in which employees have no set work schedules, no dress codes, no strict rules and regulations, and no employee manuals. Workers choose their own training and nobody approves expense accounts. About 30 per cent of employees even set their own pay, and everyone in the company knows everyone else’s salary. All workers receive the company’s financial statements and are taught how to read them through classes set up by the labour union. Two board seats are reserved for employees, and board meetings are open to all employees who want to attend. Self-managed teams have replaced the management hierarchy, and people have a chance to choose how they can best contribute to the company. Top managers are evaluated on a regular basis by employees – with the outcomes posted for all to see. The idea that ties all this together is Semler’s belief in taking top management out of running the business, which led Fortune magazine to give him the title of ‘anti-control freak’. Semler believes that if an organisation gives people complete freedom and full information, they will act in their own, and consequently the company’s, best interests. ‘It is only when you rein them in, when you tell them what to do and how to think, that they become inflexible, bureaucratic and stagnant,’ says Semler. Semler dislikes the American organisation model, which he sees as basically a military hierarchy. Despite all the freedom, organisational control at Semco is quite strong, based not on power and authority but on organisational vision and cultural values that emphasise self-initiative, self-discipline and full disclosure of all types of information. Employees think like business owners because they can see how their jobs and actions fit in and contribute to the organisation’s – and their own – success or failure. The decentralised approach must be working. Over 20 years, Semco grew its revenue from US$4 million to $212 million and staff numbers grew from 90 people to over 3000. Semler believes his company’s success is a powerful reminder that it is possible to have an efficient business with

shared norms, values and self-discipline replacing strict rules and controls, guided by managers who lead rather than wield their power. Semco’s most recent strategic direction is to use its excellent managerial control systems and philosophies to diversify from its historical equipment industries into a range of other business activities and international joint ventures. Their published principles are listed below.

Semco principles and values At Semco, we follow a few basic rules which, we believe, a dependable and reliable company should follow. This means that the group can grow and each one of our employees fully understands their place of work. In practice, we have 10 principles and make a special effort to follow them:

✚✚ To be a dependable and reliable company. ✚✚ Value honesty and transparency over and above all temporary interests.

✚✚ Seek a balance between short-term and long-term profit. ✚✚ Offer products and services at fair prices which are recognised by customers as the best on the market.

✚✚ Provide the customer with differentiated services, placing our responsibility before profits.

✚✚ Encourage creativity, giving support to the bold. ✚✚ Encourage everyone’s participation and question decisions that are imposed from the top down.

✚✚ Maintain an informal and pleasant environment, with a professional attitude and free of preconceptions.

✚✚ Maintain safe working conditions and control industrial processes to protect our personnel and the environment.

✚✚ Have the humility to recognise our errors and understanding that we can always improve. Semco went further on employee empowerment than most companies have ever dared to go, with substantial share ownership and managerial control given to workers, and the results were strong, being 50-fold growth and improved operating performance during a period of significant difficulty in the Brazilian economy.

Sources: Vogl, A. J. (May–June 2004). The Anti-CEO. Across the Board, 30–6; Colvin, G. (26 November 2001). The Anti-Control Freak. Fortune, 60, 80; Semler, R. (September–October 2000). How We Went Digital Without a Strategy. Harvard Business Review, 51–8; http://www.inc.com/ articles/2004/03/7dayweekend.html; http://www.semco.com.br/en/content.asp?content=3&contentID=567 (accessed 17 December 2013).

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R EMEMBE R THIS ◗◗ ◗◗

The philosophy of control has shifted to reflect changes in leadership methods.

◗◗

With decentralised control, the organisation fosters compliance with organisational goals through the use of organisational culture, group norms and a focus on goals rather than rules and procedures.

◗◗

Open-book management allows employees to see for themselves the financial condition of the organisation and encourages them to think and act like business owners.

Hierarchical control involves monitoring and influencing employee behaviour through extensive use of rules, policies, hierarchy of authority, written documentation, reward systems and other formal mechanisms.

14.6

TOTAL QUALITY MANAGEMENT (TQM)

Another popular approach based on a decentralised control philosophy, discussed in Chapter 5, is total quality management (TQM), an organisation-wide effort to infuse quality into every activity in a company through continuous improvement. Managing quality is a concern for every organisation. Consider the problems that Boeing had with the new 787 Dreamliner. The new aircraft had been hailed as one of the most innovative planes in years because it is made from composites (a first for the industry), is 20 per cent more fuel-efficient, and has 20 per cent fewer emissions. But the Dreamliner was plagued with quality problems from the beginning. In January 2013, a battery caught fire aboard an All Nippon Airways flight. That, combined with other problems, including fuel leaks, a cracked cockpit window, wiring problems, and overheating batteries, prompted the Federal Aviation Administration to ground the entire fleet of 787s for four months. Not long after the Dreamliner was allowed to fly again, a fire broke out on a 787 parked at London’s Heathrow Airport. Then, in midOctober 2013, a fuselage panel fell from a 787 operated by Air India while it was in mid-flight from Delhi to Bangalore. Although the incident posed no safety risk to passengers, it was yet another black eye for Boeing’s high-tech jet, which suffered more quality problems in two years than most planes ever do.40 TQM became attractive to Australian managers in the 1980s because it had been implemented successfully by Japanese companies, such as Toyota, Canon and Honda, which were gaining market share and an international reputation for high quality. The Japanese system was based on the work of such researchers and consultants as W. Edwards Deming, Joseph Juran and Armand Feigenbaum, whose ideas attracted Australian and United States executives after the methods were tested overseas.41 The TQM philosophy focuses on teamwork, increasing customer satisfaction and lowering costs. Organisations implement TQM by encouraging managers and employees to collaborate across functions and departments, as well as with customers and suppliers, to identify areas for improvement, no matter how small. Each quality improvement is a step towards perfection and meeting a goal of zero defects. Quality control becomes part of the day-to-day business of every employee, rather than being assigned to specialised departments.

total quality management (TQM) A concept that focuses on managing the total organisation to deliver quality to customers. Four significant elements of this are employee involvement, focus on the customer, benchmarking and continuous improvement.

See Chapter 5 for a discussion of decentralised control philosophy.

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CASE STUDY

Source: Shutterstock.com/s_oleg

A LESSON IN QUALITY FROM CHINA Zhang Ruimin is CEO of the Haier group of companies in China. He heads a company that makes a number of different types of home appliances, such as refrigerators, computers, televisions and DVD players. A critical time in the company’s development was when it received customer complaints about the quality of its products. Zhang had 400 units on the factory floor inspected. When 76 of these were found to be defective, he asked the workers responsible for

these defective parts to use sledge hammers to smash them. This caused a change in attitude in the company about only making parts and products that are of acceptable quality. Zhang’s management style may seem extreme to some, but such lessons have driven the right attitudes into a workforce that needed to change. Zhang has successfully transformed a number of previously state-owned enterprises in China, and has taken these businesses to international success in fiercely competitive markets such as North America.

Source: Peter Day. Smashing Way to Start a Global Business, http://www.bbc.com/news/business-24622247.

T Q M T E C H N I QU E S The implementation of TQM involves the use of many techniques, including quality circles, benchmarking, Six Sigma principles, quality partnering and continuous improvement.

Q UA LITY C IRC LES quality circle A group of six to 12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work.

A quality circle is a group of six to 12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work.42 At a set time during the work week, the members meet, identify problems and try to find solutions (see EXHIBIT 14.7). Circle members are free to collect data and take surveys. Many companies train people in team building, problem solving and statistical quality control. The reason for using quality circles is to push decision making to an organisation level at which recommendations can be made by the people who do the job and know it better than anyone else.

Team creates quality circle and collects information

EXHIBIT 14.7 The quality circle process

Team selects problems to be solved

Team gathers data and analyses problems

Feedback from managers to quality circles

Team recommends solutions

Decision by top management

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BENCH MA RKING Introduced by Xerox in 1979, benchmarking is now a major TQM component. Benchmarking is defined as ‘the continuous process of measuring products, services, and practices against the toughest competitors or those companies recognised as industry leaders to identify areas for improvement’.43 Organisations may also use benchmarking for generating new business ideas, assessing market demand or identifying best practices within an industry. A five-step benchmarking process is shown in EXHIBIT 14.8. The first step involves planning the benchmarking study, which includes identifying the objectives of the study and the characteristics of a product or service that significantly influence customer satisfaction. The second step involves identifying the source of the information to be collected. For example, the sources of data for a Sherwin-Williams benchmarking study may include national independent lab studies or studies published in Consumer Reports magazine. Once the source of information is identified, data is then collected. Xerox collected information on the order fulfilment techniques of L. L. Bean, the United States mail order firm, and learned ways to reduce warehouse costs by 10 per cent. The fourth step includes analysing the benchmarking data that has been collected and recommending areas of improvement. The fifth step includes implementing recommendations and then monitoring them through continuous benchmarking. Improve

benchmarking The continuous process of measuring products, services and practices against major competitors or industry leaders.

EXHIBIT 14.8 A five-step benchmarking process

Analyse

Collect

Find

Plan

Source: Based on Deven Shah and Brian H. Kleiner. (March-April 2011). Benchmarking for Quality. Industrial Management, 22–5.

SIX SIG MA Six Sigma quality principles were first introduced by Motorola in the 1980s and were later popularised by General Electric (GE), where former CEO Jack Welch praised Six Sigma for quality and efficiency gains that saved the company billions of dollars. Based on the Greek letter sigma, which statisticians use to measure how far something deviates from perfection, Six Sigma is a highly ambitious quality standard that specifies a goal of no more than 3.4 defects per million parts. That essentially means being defect-free 99.9997 per cent of the time.44 However, Six Sigma has deviated from its precise definition to become a generic term for a quality-control approach that takes nothing for granted and emphasises a disciplined and relentless pursuit of higher quality and lower costs. The discipline is based on a five-step methodology referred to as DMAIC, pronounced ‘deMay-ick’ (standing for Define, Measure, Analyse, Improve and Control), which provides a structured way for organisations to approach and solve problems.45

Six Sigma A quality control approach that emphasises a relentless pursuit of higher quality and lower costs.

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Effectively implementing Six Sigma requires a major commitment from top management because it involves widespread change throughout the organisation. At Honeywell, for example, all employees are expected to understand its fundamentals. Six Sigma provides a common language among employees, complements efforts to remove fat from the organisation and supports efforts to ‘get it right the first time’.

CASE STUDY THE HONEYBEE STYLE The honeybee is known for its hard work and wise use of natural resources, as well as for living in a cooperative, interconnected community. Likewise, Munich-based BMW recognises that true sustainability involves the protection and wise use of not only the environment, but of every resource used to provide quality vehicles for consumers. Dating back to the 1970s, BMW’s approach to sustainable growth can be seen throughout its well-controlled production process. Self-managed teams oversee rigorous quality control measurement of sustainability, building for BMW an A+ international sustainability rating. A total of 23 interconnected ‘honeybee’ practices address everything

from ethical behaviour and social responsibility to quality and innovation. The results include the recycling of production waste and the reuse of scrap from BMW’s new carbon-fibre car bodies. The approach can pervade every aspect of business practices and management decisions: for example during a severe downturn, when many automotive businesses put pressure on suppliers and laid off employees, BMW took a longer-term view and loaned money to key suppliers and invested in employee skills upgrades. This ‘bounces back’ with loyalty from these stakeholders, and pays BMW well in the longer term.

Source: Gayle C. Avery and Harald Bergsteiner. (2011). How BMW Successfully Practices Sustainable Leadership Principles. Strategy & Leadership, 39:6, 11–18.

Honeywell explains its dedication to Six Sigma and what it means to reach this high level of performance with these examples:

◗◗ If your water heater operated at Four Sigma (not Six), you would be without hot water for more than 54 hours each year. At Six Sigma, you would be without hot water for less than two minutes a year.

◗◗ If your mobile phone operated at Four Sigma, you would be without service for more than four hours a month. At Six Sigma, it would be about nine seconds a month.

◗◗ A Four Sigma process will typically result in one defective package of product for every three truckloads shipped. A Six Sigma process means one defective package for every 5350 truckloads.46 EXHIBIT 14.9 lists some additional statistics that illustrate why Six Sigma is important for both manufacturing and service organisations.

EXHIBIT 14.9 The importance of quality improvement programs

99 PER CENT AMOUNTS TO:

SIX SIGMA AMOUNTS TO:

117 000 pieces of lost first-class mail per hour

1 piece of lost first-class mail every two hours

800 000 mishandled personal cheques each day

3 mishandled cheques each day

23 087 defective computers shipped each month

8 defective computers shipped each month

7.2 hours per month without electricity

9 seconds per month without electricity

Source: Based on data from Statistical Abstract of the United States, US Postal Service, as reported in Tracy Mayor. (1 December 2003). Six Sigma Comes to IT: Targeting Perfection. CIO, 62–70.

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QU ALITY PA RT NERING One of the drawbacks of a traditional quality control program is that people from the quality control department are often seen as ‘outsiders’ to the business groups that they serve. Because they don’t always have a strong knowledge of the processes that they are studying, their work may be viewed with suspicion or as an interruption to the normal work routine. The risk here is that quality control is seen as separate from everyday work. Another drawback of the traditional model is that quality control is usually conducted after a product is completed or a service delivered – the time when it is most expensive to make corrections. A new approach called quality partnering involves assigning dedicated personnel within a particular functional area of the business. In this approach, the quality control personnel work alongside others within a functional area identifying opportunities for quality improvements throughout the work process. This integrated, partnering approach to quality makes it possible to detect and address defects early in the product life cycle, when they can be corrected most easily. Another advantage of this approach is that quality partners are viewed as ‘insiders’ and peers who are readily accepted into the work group.47

quality partnering A quality control approach that involves assigning dedicated personnel within a particular functional area of the business.

CONTINUOUS IMPRO V EM ENT In Australia, crash programs and designs traditionally have been the preferred method of innovation. Managers measure the expected benefits of a change and favour the ideas with the biggest payoffs. In contrast, Japanese companies have realised extraordinary success from making a series of mostly small improvements. This approach, called continuous improvement, or kaizen, is the implementation of a large number of small, incremental improvements in all areas of the organisation on an ongoing basis. In a successful TQM program, all employees learn that they are expected to contribute by initiating changes in their own job activities. The basic philosophy is that improving things a little bit at a time, all the time, has the highest probability of success. Innovations can start simple, and employees can build on their success in this unending process.

continuous improvement The implementation of a large number of small, incremental improvements in all areas of the organisation on a continuing basis.

Despite its promise, TQM does not always work. A few firms have had disappointing results. In particular, Six Sigma principles might not be appropriate for all organisational problems and some companies have expended tremendous energy and resources for little payoff.48 Many contingency factors (listed in EXHIBIT 14.10) can influence the success of a TQM program. For example, quality circles are most beneficial when employees have challenging jobs; participation in a quality circle can contribute to productivity because it enables employees to pool their knowledge and solve interesting problems. TQM also tends to be most successful when it enriches jobs and improves employee motivation. In addition, when participating in the TQM program improves workers’ problem-solving skills, productivity is likely to increase. Finally, a TQM program has the greatest chance of success in a corporate culture that values quality and stresses continuous improvement.

Toyota is generally acknowledged as one of the best companies in the world when it comes to worker-driven continuous improvement. With the achievement of some 10 improvement suggestions per worker per year, this contributes to Toyota’s superior value in its vehicle and its industry leadership in mid-market cars.

Source: Getty Images/Bloomberg/Tomohiro Ohsumi

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EXHIBIT 14.10 Quality program success factors

POSITIVE FACTORS

NEGATIVE FACTORS

Tasks make high skill demands on employees.

Management expectations are unrealistically high.

TQM serves to enrich jobs and motivate employees.

Middle managers are dissatisfied about loss of authority.

Problem-solving skills are improved for all employees.

Workers are dissatisfied with other aspects of organisational life.

Participation and teamwork are used to tackle significant problems.

Union leaders are left out of quality-control discussions.

Continuous improvement is a way of life.

Managers wait for big, dramatic innovations.

INNOVATIVE WAY THE GLOBAL SUCCESS OF eBAY One of Meg Whitman’s guiding rules is: ‘If you can’t measure it, you can’t control it.’ As CEO of eBay for 10 years, during which time she built it from having 30 employees to being a global powerhouse, Whitman ran a company that was obsessed with performance measurement. She personally monitored a slew of performance metrics, including standard measurements such as site visitors, new users and time spent on the site, as well as the ratio of eBay’s revenues to the value of goods traded. She brought in a benchmarking consultant to measure eBay against peers to see how fast it adds features to the website. The results showed Whitman the company has some improvement to make in that area. Managers and employees throughout the company also monitor performance almost obsessively. Category managers, for example, have clear standards of performance for their auction categories (such as sports memorabilia, jewellery and watches, health and beauty, fashion, etc.). They are constantly measuring, tweaking and promoting their categories to meet or outperform the targets. Whitman believes getting a firm grip on performance measurement is essential for a company to know where to spend money, where to assign more personnel, and which projects to promote or abandon. But performance measurement isn’t just about numbers. At eBay, ‘it’s all about the customer’, and gauging customer (user) satisfaction requires a mix of methods, such as surveys, monitoring eBay’s discussion boards and personal contact.

Whitman gets her chance to really connect with users at the annual eBay Live conference. There, she wanders the convention hall talking with anyone and everyone about their eBay experiences. By defining standards, using a combination of measurement approaches and comparing performance to standards, eBay managers are able to identify trouble spots and move quickly to take corrective action when and where it’s needed. Managers may wish to provide positive reinforcement when performance meets or exceeds targets. They may reward a department that has exceeded its planned goals or congratulate employees for a job well done. Managers should not ignore high-performing departments at the expense of taking corrective actions elsewhere. When Ms Whitman handed over the eBay CEO role to John Donahoe in 2008, the culture and value created by measuring and controlling key performance metrics was firmly and deeply established in the company. Under new leadership, these sound measures and controls have continued to keep eBay as a substantially profitable company, with some 34 500 employees generating $2 billion of profits on $12 billion of revenue in 2015. Many competitors have started up and compete with eBay, especially outside the United States, such as in Asia, yet the company has traded strongly, while others have come and gone. eBay has also strategically managed its business units, such as Skype and PayPal, which it owned and spun off in 2009 and 2015 respectively.

Source: Lashinsky, A. (1 September 2003). Meg and the Machine. Fortune, 68–78.

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R EMEMBE R THIS ◗◗

Total quality management (TQM) is an organisation-wide effort to infuse quality into every activity in a company through continuous improvement.

◗◗ ◗◗

The TQM philosophy focuses on teamwork, increasing customer satisfaction and lowering costs.

◗◗

Another option for tracking quality is benchmarking, the continuous process of measuring products, services and practices against major competitors or industry leaders.

◗◗

Six Sigma is a quality control approach that emphasises a relentless pursuit of higher quality and lower costs.

◗◗

Quality partnering involves assigning dedicated personnel within a particular functional area of the business to identify opportunities for improvement throughout the work process.

◗◗

Continuous improvement, or kaizen, is the implementation of a large number of small, incremental improvements in all areas of the organisation on an ongoing basis.

Quality circles offer one technique for implementing TQM and include a group of six to 12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work.

TRENDS IN QUALITY AND FINANCIAL CONTROL

14.7

Many companies are responding to changing economic realities and global competition by reassessing organisational management and processes – including control mechanisms. Two major trends are international quality standards and increased corporate governance.

I N T E R NAT I O NA L QUA L I T Y STA N DA R D S One impetus for TQM in most industries is the increasing significance of the global economy. Many countries have adopted a universal benchmark for quality management practices, ISO 9000 standards, which represent an international consensus of what constitutes effective quality management as outlined by the International Organization for Standardization (ISO).49 Hundreds of thousands of organisations in 157 countries, including Australia, have been certified against ISO 9000 standards to demonstrate their commitment to quality. Europe continues to lead in the total number of certifications, but the greatest number of new certifications in recent years has been in the United States. Government departments and agencies such as police forces and stations have invested in this form of control system. ISO certification has become the recognised standard for evaluating and comparing companies on a global basis, and more companies are feeling the pressure to participate to remain competitive in international markets. In addition, many countries and companies require ISO certification before they will do business with an organisation.

CO R P O R AT E GOV E R NA N C E Many organisations have moved towards increased control from the top in terms of corporate governance. Traditionally defined as the ways in which an organisation safeguards the interests of shareholders, the term corporate governance has been expanded to refer to the framework of

ISO 9000 standards A set of international standards for quality management, setting uniform guidelines for processes to ensure that products conform to customer requirements.

corporate governance The system of governing an organisation so that the interests of corporate owners are protected.

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systems, rules and practices by which an organisation ensures accountability, fairness and transparency in its relationships with all stakeholders, including investors, employees, customers and the general public.50 Concerns over corporate governance came to the forefront some years ago in light of the failure of top executives and corporate directors to provide adequate oversight and control at failed companies such as Enron, OneTel, HealthSouth and WorldCom. In some cases, financial reporting systems were manipulated to produce false results and hide internal failures. In response, the United States Government enacted the Sarbanes-Oxley Act of 2002, often referred to as SOX, which requires several types of reforms, including better internal monitoring to reduce the risk of fraud, certification of financial reports by top leaders, improved measures for external auditing and enhanced public financial disclosure. Many Australian companies that are trading in the United States have needed to comply with this new set of laws.

TAKE A MOMENT As a new manager, find a balance between oversight and control on the one hand and mutual trust and respect on the other. Go to the Ethical challenge on page 669 that pertains to new workplace control issues.

With the failure of large firms such as Lehman Brothers and Bear Stearns in 2008, corporate governance again became a hot topic. Lax oversight likely contributed both to the failure of these firms and to the global financial crisis. ‘I don’t think there’s any question that a dramatic failure of corporate governance was a central issue of the crisis,’ said Phil Angelides, chairman of the Financial Crisis Inquiry Commission appointed by the United States Congress. Global regulators from 27 countries imposed new rules and restraints on financial institutions designed to limit risk-taking and increase oversight.51 In addition, in the United States, the Securities and Exchange Commission now requires that companies justify their board structure in proxy statements to ensure that boards provide needed oversight of management actions.52 Although Australian companies did not fall prey to the practices that brought the United States economy to its knees, there have been instances of poor governance in many sectors. This includes companies such as HIH, Queensland Nickel and Gunns, sporting organisations such as the Cronulla Sharks (rugby league) and Essendon Football Club (AFL), and the Health Services Union.

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R EMEMBE R THIS ◗◗

As global business expands, many companies have adopted a universal benchmark for quality management practices, including ISO 9000 standards, which represent an international consensus of what constitutes effective quality management as outlined by the International Organization for Standardization (ISO).

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Many organisations are moving towards increased control from the top in terms of corporate governance, which refers to the framework of systems, rules and practices by which an organisation ensures accountability, fairness and transparency in the firm’s relationships with stakeholders.

14.8

QUALITIES OF EFFECTIVE CONTROL SYSTEMS

Properly used, controls help managers respond to unforeseen developments and achieve strategic plans. Improperly designed management control systems can lead an organisation into bankruptcy. When such problems signal that control systems are not working properly, management must examine them for possible clarification, revision or overhaul. Whether organisational control focuses on feedforward or feedback measurement, or emphasises the bureaucratic or decentralised approach, certain characteristics should be present. In general, for organisational controls to be effective, they should be tailored to the organisation’s needs and facilitate the accomplishment of its tasks. More specifically, effective controls share the following traits:

◗◗ Linkage to strategy. The control system should not simply measure what was important in the past or be tailored to current operations. It should reflect where the organisation is going and adapt to new strategies. Moreover, the organisation should focus on activities that are relevant to strategic goals. If the dominant competitive issue facing an organisation is to reduce cycle time, the control system should not emphasise raw materials cost, which is unrelated.

◗◗ Understandable measures. Organisations depend on employees to carry out work according to standards. An effective control system ensures that employees know and understand what is expected. A highly sophisticated analysis of a department’s performance is wasted if the manager cannot interpret whether, or where, problems exist.

◗◗ Acceptance by employees. The more committed employees are to control standards, the more successful the control system will be. The control system should motivate rather than demotivate. This is most likely when it includes standards that are understandable and reasonable, when employees understand the reason for the control system, and when they do not perceive the measurement process as overly intrusive.

◗◗ Balance of objective and subjective data. Managers can be misled when control system data is either completely numeric or based solely on subjective opinion. Control should be perceived as objective, but quantitative information tells only part of the story. Managers should balance quantitative and qualitative performance indicators to provide a well-rounded picture of performance.

◗◗ Accuracy. Upward communication, especially about performance, is often influenced by what employees believe management wants to hear. However, the control system should encourage accurate information in order to detect deviations.

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◗◗ Flexibility. Internal goals and strategies must be responsive to changes in the environment and the control system should be flexible enough to adapt as needed. Managers who rely too heavily on existing controls, especially feedback controls, will find themselves out of synchronisation with changing events.

◗◗ Timeliness. The control system should provide information soon enough to permit a management response. Corrective action is of no value if performed too late.

◗◗ Support of action. Control goes beyond monitoring performance to taking corrective action. Managers therefore need a system that helps them focus on performance areas in which change is needed. The control system should highlight variances, and managers should focus on these variances, diagnosing the cause of each and using judgement to decide when intervention is required.

R EMEMBE R THIS ◗◗ ◗◗

SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT AND MANAGEMENT CONTROL

Effective control systems are critically important for ensuring that an organisation stays ‘on track’. Some key qualities of an effective control system are linking strategy, understandable measures, having accurate timely data that supports decisions and action, yet being flexible as needed so that controls will be reasonable and accepted by employees.

Like any other aspect of management or strategic initiative, a move to make a business more sustainable in terms of its environmental, financial and social outcomes must be not just well planned and resourced: it must be well controlled, too. This means applying the ideas of feedforward control, of setting expectations and budgets in place, as well as anticipated target outcomes. Each year, BHP Billiton sets aside a planned amount of money and capability of its staff to engage in community building in the vicinity of its mining operations. During the year, it executes its sustainability plans, including measuring progress of its projects and expenditure, and adjusting its actions as necessary if they are not going to plan. Finally it reviews every major sustainability initiative, reports on these to a variety of stakeholders and holds itself accountable both inside and outside the company for its actions (see http://www.bhpbilliton.com/bb/sustainableDevelopment.jsp). The management reviews and the close public scrutiny of its sustainability efforts and performance are a strong form of feedback control, leading to a formal review and then a renewal of the cycle. New, usually higher, goals are set, resourced and implemented every year, in this well-controlled cycle. BHP Billiton also uses a balanced scorecard approach to control and performance outcomes, even linking the pay for its CEO, to the balanced scorecard of company performance, including return on investment, safety, environmental factors and growth. The company’s balanced scorecard performance was doing quite well for a period, with a 2012 profit of AU$15.2 billion, and performance on the balanced scorecard leading the retiring CEO Marius Kloppers receiving a farewell package of about AU$45.4 million.53 Given that 15 years earlier, this company was a poor environmental and social performer, stakeholders are also generally well satisfied that it has taken the balanced scorecard and its commitment to sustainable development very seriously indeed. The company’s highly disciplined approach has ensured that its good intentions are generally well controlled and executed, hence are transferred into ‘good deeds’, to the benefit of all stakeholders. Yet even with all the ‘best efforts’ of keeping matters in control, disasters can never be completely eliminated. For example, in November 2015 two dams at a mine site in Samarco in Brazil, half owned by BHP Billiton, collapsed, causing 19 deaths, as well as large environmental and financial losses that will lead to well over AU$1 billion dollars loss. Even though BHP Billiton did not directly operate that site, its partial ownership means that it is responsible for outcomes; a salutary lesson in managerial control indeed.

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STUDY TOOLS

ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months access to the resources and study tools for this chapter.

Express CO UR SEM AT E EX PR ES S FO R MANAG E M E N T

S E A R C H M E ! M A NAG E M E N T

The CourseMate express website contains:

Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Management is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words:

• revision quizzes • video cases • self-assessments • audio summaries • and more!

• Managerial control

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• Quality control • Corporate governance Search tip: Search Me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’.

RESPONSE TO THE MANAGEMENT CHALLENGE

CONTROLLING AN EMPIRE AT DELL The story of Dell Computer Corporation at the beginning of the chapter demonstrates the importance of financial control, as well as the importance of aligning control systems with an organisation’s strategy. As we learned in this chapter, managers should carefully assess and define the indicators they will measure. Some years ago, Dell began to suffer because managers focused entirely on measuring growth and failed to look at other key factors that determine organisational success. Dell’s top managers, including Michael Dell himself, knew they had to make some changes in management structure and financial controls in order for their company to survive.

First, Dell refocused the company’s financial control strategy on a cash conversion cycle, which is made up of inventory, payables, receivables and cash flow from operations. The pay of the company’s top managers also was adjusted to reflect the return on invested capital as well as growth. For the first time, managers were actually invested in the success of the company. Then Dell made sure that training videos, newsletters and other information packages were distributed to all employees, so that they became part of the financial information loop through open-book management. Dell also brought in experienced managers, including Morton Topfer, a 23-year veteran of Motorola, to implement the systems needed to control a large company. As vicechairman of Dell, Topfer pulled the company out of retail sales to allow managers to focus on improving their

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direct sales efforts. Topfer also reorganised the company from a centralised, functional structure to a decentralised structure based on geographic divisions. Kevin Rollins, senior vice-president and general manager of Dell Americas, says the company’s managers are expected to communicate constantly with each other, with employees, with customers – in fact, with everyone. ‘You have to talk, you have to listen, and all of a sudden, you’ll realise you are in the loop,’ he explains. Ironically, by attacking its previous singular focus on growth, Dell was in fact growing. But growing in a stronger, more focused manner. By the mid 2000s, the company was known as one of the best in the industry at rapidly responding to changes in the volatile PC market, and had achieved industry leadership status in terms of its cost and supply chain performance and equipment reliability. Dell achieved excellent control over its operations, quality, delivery performance, culture and people, and financial performance. By 2011 Dell had grown to be one of the world’s most admired large companies, with profitable sales of $61 billion and a unique business model. Despite having mastered the PC market and their quality operations, though, Dell was completely caught off guard in terms of the popularity of tablets. Tablet sales grew from 17 million to 122 million between 2010 and 2012. The company watched in startled

alarm as consumer demand for their core product swiftly sank. While Dell suffered an 11 per cent drop in shipments in 2013, the top five global tablet companies recorded 142 per cent growth. The publicly owned Dell company sold for US$24.4 billion in early 2013 and was taken back into private ownership by a consortium including Microsoft, Silver Lake Partners and the company’s founder Michael Dell. Dell is hoping that it can now make swifter decisions and take bigger risks without having to answer to shareholders. By having effective control systems, Dell aims to be able to more effectively respond to the high uncertainty it faces in the fast moving computer industry. With Michael Dell back in control as CEO and 75 per cent owner, decision making is once again swift and the company is as nimble as a 100 000 employee company can be. In December 2016, Dell cemented the largest technology takeover ($60 billion) in history, of EMC, creating a company of 140 000 employees, and adding large value to the company’s stocks. The new company, Dell Technologies, has $74 billion in revenue. Sources: Greenfield, R. (5 February 2013). Everything You Need to Know About the Dell Buyout. The Wire, http://www.thewire.com/technology/2013/02/everythingyou-need-know-about-dell-buyout/61801/ (accessed 9 December 2013); Inocencio, Ramy. (17 May 2013). Dell’wether: Does the desktop decline point to an era’s end? CNN, http://edition.cnn.com/2013/05/17/business/dell-profit-plunge-desktoplaptop-futures/index.html (accessed 9 December 2013); http://finance.yahoo. com/q/ks?s=DELL.

DISCUSSION QUESTIONS 1 Why is it important for managers to understand the process of organisational control? 2 Suppose you are a manager who employs a participative control approach. You have concluded that corrective action is necessary to improve customer satisfaction, but first you need to convince your employees that the problem exists. What kind of evidence do you think employees will find more compelling: quantitative measurements or anecdotes from your interactions with customers? 3 Describe the advantages of using a balanced scorecard to measure and control organisational performance. Suppose you created a

balanced scorecard for McDonald’s. What specific customer service measures would you include? 4 What standards of performance has your lecturer established for this class? How will your actual performance be measured? How will your performance be compared with the standards? Do you think the standards and methods of measurement are fair? Why or why not? 5 What is the difference between budgeting and financial analysis? Why is each type of control important to a company? 6 Imagine that you are going to be the manager of a new Woolworths being built in your area. What items might be listed in your capital budget? What items might be listed in your expense budget?

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7 In the Innovative way about eBay, CEO Meg Whitman is quoted as saying, ‘If you can’t measure it, you can’t control it.’ Do you agree with this statement? Provide examples from your school or business experience that support your argument. 8 Some critics argue that Six Sigma is a collection of superficial changes that often result in doing a superb job of building the wrong product or offering the wrong service. Do you agree or disagree? Explain. 9 Would you like to work for a company that uses open-book management? Would you like to be a manager in the company? Why or why not?

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10 Why is it important for an organisation’s control system to be linked to its overall strategy? 11 Why is benchmarking an important component of TQM programs? Do you believe a company could have a successful TQM program without using benchmarking? 12 How can a generally well-run business such as BHP Billiton experience such major tragedies such as the Samarco mine collapse? Is it a failure of control? What could or should the company do to prevent further such events?

THE WAGES OF SIN?

Chris Dykstra, the person responsible for loss prevention at Westwind Electronics, took a deep breath before he launched into making his case for the changes that he was proposing to the company’s shoplifting policy. He knew that convincing Ross Chenoweth was going to be a hard sell. Ross, the company’s chairman and CEO, was the son of the founder of the local, still-family-owned consumer electronics chain. He’d inherited not only the company, but also his father’s strict moral code. ‘I think it’s time to follow the lead of other stores,’ Chris began. He pointed out that most other retailers didn’t bother calling the police and pressing charges unless the thief had shoplifted merchandise worth more than $50 to $100. In contrast, Westwind currently had the zero tolerance policy towards theft that Ross’s father had put in place when he started the business. Chris wanted to replace that policy with one that prosecuted only individuals between 18 and 65 years who had stolen more than $40 worth of goods, and who had a previous history of theft at Westwind. In the case of first-time culprits under or over these ages, he argued for letting them off with a strict warning, regardless of the value of their ill-gotten goods. Repeat offenders would be arrested. ‘Frankly, the local police are getting pretty tired of having to come to our stores every time a teenager sticks a DVD in his jacket pocket,’ Chris pointed out. ‘And besides, we just can’t afford the costs associated with prosecuting everyone.’ Every time he pressed charges against a shoplifter who’d made off with a $10 item, Westwind lost money. The company had to engage a lawyer and pay employees overtime for their court appearances. In addition, Chris was looking at hiring more security guards to keep up with the workload. Westwind was already in a losing battle with mass retailers that were competing, all too successfully, on price, so passing on the costs of its zero-tolerance policy to customers

wasn’t really an option. ‘Let’s concentrate on catching dishonest employees and those organised-theft rings. They’re the ones who are really hurting us,’ Chris concluded. There was a long pause after Chris finished his carefully prepared speech. Ross thought about his recently deceased father, who was both an astute businessman and a person for whom honesty was a key guiding principle. If he were sitting here today, he’d no doubt say that theft was theft, and that setting a minimum was tantamount to saying that stealing was acceptable just as long as you don’t steal too much. He looked at Chris. ‘You know, we’ve both got teenagers. Is this really a message you want to send out, especially to kids? You know as well as I do that there’s nothing they like better than testing limits. It’s almost an invitation to see if you can beat the system.’ But then Ross faltered as he found himself glancing at the latest financial figures on his desk – another in a string of quarterly losses. If Westwind went under, a lot of employees would be looking for another way to make a living. In his heart, he believed in his father’s high moral standards, but he had to ask himself: just how moral could Westwind afford to be? W H AT WO U L D YO U D O ? 1 Continue Westwind’s zero-tolerance policy towards shoplifting. It’s the right thing to do – and it will pay off in the end in higher profitability because the chain’s reputation for being tough on crime will reduce overall losses from theft. 2 Adopt Chris Dykstra’s proposed changes and show more leniency to first-time offenders. It is a more cost-effective approach to the problem than the current policy, plus it stays close to your father’s original intent.

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3 Adopt Chris Dykstra’s proposed changes with an even higher limit than the proposed $40 amount (say, $80 or $100), but which is still less than the cost of prosecution. In addition, make sure

the policy isn’t publicised. That way, you’ll reduce costs even more and still benefit from your reputation for prosecuting all shoplifters. SOURCE: Based on Barbaro, M. (13 July 2006). Some Leeway for the Small Shoplifter. The New York Times.

GROUP CHALLENGE

CREATE A GROUP CONTROL SYSTEM

Step 1. Form into groups of three to five students. Each group will assume that another student group has been given an assignment of writing a major paper that will involve research by individual group members that will be integrated into the final paper. Each group member has to do his or her part. Step 2. Your assignment is to develop a list of rules and identify some statistics by which to control the behaviour of members in that group. Brainstorm and discuss potential rules to govern member behaviour and consequences for breaking those rules. Step 3. First, select the five rules you think are most important for governing group member behaviour. Consider the following situations that rules might cover: arriving late for a meeting; missing a meeting; failing to complete a work assignment; disagreements about desired quality of work; how to resolve conflicts about paper content;

CASE FOR CRITICAL ANALYSIS

differences in participation, such as one person doing all the talking and someone else talking hardly at all; how to handle meetings that start late; the use of an agenda and handling deviations from the agenda; and any other situation that your group thinks a rule should cover. Step 4. Now consider what statistics could be developed to measure the behaviour and outcome of the group pertaining to those five rules. What kinds of things could be counted to understand how the group is performing and whether members are following the rules? Step 5. Discuss the following questions: Why are rules important as a means of control? What are the advantages and disadvantages of having many rules (hierarchical control) versus few rules (decentralised control) for a student group? How can statistics help a group ensure appropriate behaviour and a high-quality product? Step 6. Be prepared to present your conclusions to the class.

LINCOLN ELECTRIC

Imagine having a management system that is so successful people refer to it with capital letters – the Lincoln Management System – and other businesses benchmark their own systems by it. That is the situation of Lincoln Electric. For a number of years, other companies have tried to figure out Lincoln Electric’s secret – how management coaxes maximum productivity and quality from its workers, even during difficult financial times. Lincoln Electric is a leading global manufacturer of welding products and equipment, and electric motors, with more than US$2.7 billion in sales and over 10 000 workers worldwide. The company has had a factory in Sydney as part of its global network of operations. The company’s products are used for cutting, manufacturing and repairing other metal products. Although it is now a publicly traded company, members of the Lincoln family still own more than 60 per cent of the shares.

Lincoln uses a diverse control approach. Tasks are rigidly defined, and individual employees must meet strict measurable standards of performance. However, the Lincoln system succeeds largely because of an organisational culture based on openness and trust, shared control and an egalitarian spirit. Although the line between managers and workers at Lincoln is firmly drawn, managers respect the expertise of production workers and value their contributions to many aspects of the business. The company has an open-door policy for all top executives, middle managers and production workers, and regular face-to-face communication is encouraged. Workers are expected to challenge management if they believe practices or compensation rates are unfair. Most workers are hired right out of high school, then trained and crosstrained to perform different jobs. Some eventually are promoted to executive positions, because Lincoln believes in

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promoting from within. Many Lincoln workers stay with the company for life. One of Lincoln’s founders felt that organisations should be based on certain values, including honesty, trustworthiness, openness, selfmanagement, loyalty, accountability and cooperativeness. These values continue to form the core of Lincoln’s culture, and management regularly rewards employees who manifest them. Because Lincoln so effectively socialises employees, they exercise a great degree of selfcontrol on the job. Production workers are paid on a piece-rate system, plus merit pay based on performance. Employees also are eligible for annual bonuses that fluctuate according to the company’s fortunes, and they participate in share purchase plans. Bonuses are based on a number of factors, such as productivity, quality, dependability and cooperation with others. Factory workers at Lincoln have been known to earn well above industry averages; however, there also are other, less tangible rewards. Pride of workmanship and feelings of involvement, contribution and esprit de corps are intrinsic rewards that flourish at Lincoln Electric. Cross-functional teams, empowered to make decisions, take responsibility for product planning, development and marketing. Information about the company’s operations and financial performance is openly shared with workers throughout the company. Lincoln places emphasis on anticipating and solving customer problems. Sales representatives are given the technical training they need to understand customer needs, help customers understand and use Lincoln’s products, and solve problems. This customer focus

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is backed up by attention to the production process through the use of strict accountability standards and formal measurements for productivity, quality and innovation for all employees. In addition, a software program called Rhythm is used to streamline the flow of goods and materials in the production process. Lincoln’s system has worked extremely well. The cultural values, open communication, and formal control and reward systems interact to align the goals of managers, workers and the organisation, as well as encourage learning and growth. Now Lincoln is discovering whether its system can hold up overseas. Although most of Lincoln’s profits come from its domestic operations, and a foreign venture in the 1990s lost a lot of money for the company, top managers want to expand globally because foreign markets are growing much more rapidly than domestic markets. Thus far, Lincoln managers have not developed a strategic control plan for global operations, relying instead on duplicating the domestic Lincoln system. QU E S T I O N S 1 What types of control – feedforward, concurrent or feedback – are illustrated in this case? Explain. 2 Based on what you have just read, what do you think makes the Lincoln System so successful? 3 What changes might Lincoln managers have to make to adapt their management system to overseas operations?

SOURCE: Maciariello, J. (Spring 1997). A Pattern of Success: Can This Company Be Duplicated? Drucker Management, 1:1, 7–11; http://www.lincolnelectric.com.

ON THE JOB VIDEO CASE

BARCELONA RESTAURANT GROUP: MANAGING QUALITY AND PERFORMANCE

For a real-world application of the management theories described in this chapter, log on to CourseMate to watch the On the Job video and answer the following questions. QUESTIONS 1 How do managers at Barcelona control the company’s financial performance?

2 What is the ‘balanced scorecard’ approach to measuring corporate performance, and in what ways does Barcelona use this approach? 3 List the four steps of the feedback control model and describe an instance where Barcelona followed this process to improve its performance.

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ENDNOTES 1 Steiner, Christopher (12 August 2010). ‘Meet the fastest growing company ever’, Forbes, http://www.forbes.com/forbes/2010/0830/entrepreneurs-groupon-facebook-twitternext-web-phenom.html (accessed 2 December 2016); Trefis Team (6 September 2016). ‘Are increased marketing efforts really helping Groupon?’ http://www.forbes.com/ sites/greatspeculations/2016/09/06/are-increased-marketing-efforts-really-helpinggroupon/#97264da42f0a (accessed 2 December 2016); Lunden, I. (22 September 2015). ‘Groupon is laying off 1,100 at a cost of $35m, shutters operations in 7 countries’, https://techcrunch.com/2015/09/22/groupon-is-laying-off-1100-at-a-cost-of-35m-shuttersoperations-in-7-countries/ (accessed 2 December 2016); Innovation Village (4 November 2016). ‘Groupon closes shop in South Africa as part of strategic re-alignment’, http:// innovation-village.com/groupon-closes-shop-south-africa-part-strategic-re-alignment/ (accessed 2 December 2016). 2 Shayndi Raice and John Letzing. (31 March 2012). Groupon Forced to Revise Results. The Wall Street Journal, http://online.wsj.com/article/SB10001424052702303816504577313983 768173826.html (accessed 9 October 2012); Adam Hartung. (15 August 2012). Groupon Needs a New CEO – NOW!!’ Forbes, http://www.forbes.com/sites/adamhartung/2012/08/15/ groupon-needs-a-new-ceo-now/ (accessed 9 October 2012); Rolfe Winkler. (30 March 2012). Groupon Gets Socked by Accounting. The Wall Street Journal, http://www. localeyesurgeon.com/groupon-gets-sockedby-accounting-wall-street-journal/ (accessed 9 October 2012). 3 Douglas S. Sherwin. (January 1956). The Meaning of Control. Dunn’s Business Review. 4 Jessica Bruder. Can FreshDirect Survive a Crisis and Reinvent Itself? The New York Times, http://www.nytimes.com/2010/08/12/business/smallbusiness/12sbiz.html?pagewanted=all&_ r=0 (accessed 28 September 2012). 5 Bruder, Jessica (11 August 2010). ‘At FreshDirect, Reinvention after a crisis’, The New York Times, http://www.nytimes.com/2010/08/12/business/smallbusiness/12sbiz.html (accessed 2 December 2016); You’re the Boss (17 August 2010). ‘FreshDirect’s lesson: The price of bad service’, The New York Times, http://boss.blogs.nytimes.com/2010/08/17/freshdirects-lessonthe-price-of-bad-service/?_r=0 (accessed 2 December 2016); Vickers, Emma (19 February 2013). ‘Morrisons learns from New York home delivery success story’, The Guardian, https:// www.theguardian.com/business/2013/feb/18/morrisons-fresh-direct-online-grocery (accessed 2 December 2016); Crawford, Elizabeth (30 November 2016). ‘Online grocery sales surge 55% in two years on success of different strategies’, http://www.foodnavigatorusa.com/Markets/Online-grocery-sales-up-55-in-2-years-with-different-strategies (accessed 2 December 2016); Del Rey, Jason (26 September 2016). ‘FreshDirect dominates grocery delivery in New York. Now it has $189 million to compete elsewhere’, http://www. recode.net/2016/9/26/13034360/freshdirect-funding-189-million-jpmorgan (accessed 2 December 2016). 6 Nicholas Bloom, Raffaella Sadun, and Jon Van Reenen, ‘Does Management Really Work?’ Harvard Business Review (November 2012): 76–81. 7 Eric Wilson, ‘No. 279 Puts on Its Game Face’, The New York Times, 22 November 2012, E1. 8 Richard E. Crandall. (January–February 2002). Keys to Better Performance Measurement. Industrial Management: 19–24; Christopher D. Ittner and David F. Larcker. (November 2003). Coming up Short on Nonfinancial Performance Measurement. Harvard Business Review, 88–95. 9 Bruder. Can FreshDirect Survive a Crisis and Reinvent Itself? 10 Holiday Weather (2016). ‘Averages for New York in July’, http://www.holiday-weather.com/ new_york_city/averages/july/ (accessed 2 December 2016). 11 Bruder. Can FreshDirect Survive a Crisis and Reinvent Itself? 12 Del Rey, Jason (26 September 2016). ‘FreshDirect dominates grocery delivery in New York. Now it has $189 million to compete elsewhere’, http://www.recode. net/2016/9/26/13034360/freshdirect-funding-189-million-jpmorgan (accessed 2 December 2016); Shaoolian, Gabriel (31 October 2016). ‘How Amazon Fresh and FreshDirect are competing to engage users online and generate brand loyalty’, Forbes, http://www.forbes. com/sites/samanthaharrington/2016/11/30/how-women-can-be-successful-and-bethemselves/#4d25ad424ec6 (accessed 2 December 2016). 13 Ibid. 14 This discussion is based on a review of the balanced scorecard in Richard L. Daft. (2001). Organization Theory and Design, 7th ed. (Cincinnati, OH: South-Western), pp. 300–1.

15 Andy Neely and Mohammed Al Najjar. (Spring 2006). Management Learning Not Management Control: The True Role of Performance Measurement. California Management Review, 48:3, 101–14. 16 Robert Kaplan and David Norton. (January–February 1992). The Balanced Scorecard: Measures That Drive Performance. Harvard Business Review, 71–9; and Chee W. Chow, Kamal M. Haddad and James E. Williamson. (August 1997). Applying the Balanced Scorecard to Small Companies. Management Accounting, 79:2, 21–7. 17 Based on Kaplan and Norton. The Balanced Scorecard; Chow, Haddad and Williamson. Applying the Balanced Scorecard; Cathy Lazere. (February 1998). All Together Now. CFO, 28–36. 18 Karen S. Cravens, Elizabeth Goad Oliver and Jeanine S. Stewart. (2010). Can a Positive Approach to Performance Evaluation Help Accomplish Your Goals? Business Horizons, 53, 269–79. 19 Geert J. M. Braam and Edwin J. Nijssen. (2004). Performance Effects of Using the Balanced Scorecard: A Note on the Dutch Experience. Long Range Planning, 37, 335–49; Kaplan and Norton. The Balanced Scorecard; Cam Scholey. (2005). Strategy Maps: A Step-by-Step Guide to Measuring, Managing, and Communicating the Plan. Journal of Business Strategy, 26:3, 12–19. 20 Nils-Göran Olve et al. (May–June 2004). Twelve Years Later: Understanding and Realizing the Value of Balanced Scorecards. Ivey Business Journal Online, http://www.iveybusinessjournal. com/article.asp?intArticle_ ID=487 (accessed 4 October 2010); Eric M. Olson and Stanley F. Slater. (May–June 2002). The Balanced Scorecard, Competitive Strategy, and Performance. Business Horizons, 11–16; Eric Berkman. (15 May 2002). How to Use the Balanced Scorecard. CIO, 93–100; Brigitte W. Schay et al. (Fall 2002). Using Standardized Outcome Measures in the Federal Government. Human Resource Management, 41:3, 355–68. 21 Braam and Nijssen. Performance Effects of Using the Balanced Scorecard. 22 Jay Goltz. (23 June 2009). The Dusenberry Diary: When Passion Meets Math. The New York Times, http://boss.blogs.nytimes.com/2009/06/23/thedusenberry-diary-when-passion-meetsmath/ (accessed 2 October 2012). 23 Sumantra Ghoshal. (1986). Strategic Control (St Paul, MN: West), Chapter 4; and Robert N. Anthony, John Dearden and Norton M. Bedford. (1984). Management Control Systems, 5th edn (Homewood, IL: Irwin). 24 John A. Boquist, Todd T. Milbourn and Anjan V. Thakor. (Winter 1998). How Do You Win the Capital Allocation Game? Sloan Management Review, 59–71. 25 Jason Gillikin. What Is Zero-Based Budgeting and How Is It Used by an Organization? Houston Chronicle, http://smallbusiness.chron.com/zerobasedbudgeting-usedorganization-22586.html (accessed 3 October 2012). 26 Gerard Paulides. (Winter 2011). Resetting the Cost Structure at Shell. Strategy 1 Business, 65, 1–4. 27 Anthony, Dearden and Bedford, Management Control Systems. 28 Participation in budget setting is described in a number of studies, including Neil C. Churchill. (July–August 1984). Budget Choice: Planning versus Control. Harvard Business Review, 150–64; Peter Brownell. (1983). Leadership Style, Budgetary Participation, and Managerial Behavior. Accounting Organizations and Society, 8, 307–21; and Paul J. Carruth and Thurrell O. McClandon. (November 1984). How Supervisors React to ‘Meeting the Budget’ Pressure. Management Accounting, 66, 50–4. 29 Norm Brodsky. (October 2011). Balance-Sheet Blues. Inc., 34. 30 This analogy is from Brodsky. Balance-Sheet Blues. 31 Dana Mattioli. (1 January 1998). CEOs Fight to Prevent Discretionary Spending from Creeping Back Up. The Wall Street Journal, http://online.wsj.com/article/SB1000142405274870 3609004575354901545566456.html (accessed 11 December 2012). 32 Mary Ellen Biery. (25 May 2012). Five Metrics You Should Know. The Washington Post, http://www.washingtonpost.com/blogs/on-small-business/post/5-financial-metricsyoushould-know/2012/05/25/gJQAuDSjpU_blog.html (accessed 9 October 2012). 33 Lawrence M. Fisher. (First Quarter 1998). Inside Dell Computer Corporation: Managing Working Capital. Strategy + Business, 10, 68–75; Randy Myers. (August 2000). Cash Crop: The 2000 Working Capital Survey. CFO, 59–69. 34 Nancy F. Koehn. (31 March 2012). The Driver in Ford’s Amazing Race. The New York Times, http://www.nytimes.com/2012/04/01/business/american-icon-examinesfords-reboundreview.html?pagewanted=all&_r=0 (accessed 28 September 2012).

14: MANAGERIAL AND QUALITY CONTROL

35 William G. Ouchi. (1980). Markets, Bureaucracies, and Clans. Administrative Science Quarterly, 25, 129–41; and B. R. Baligia and Alfred M. Jaeger. (Fall 1984). Multinational Corporations: Control Systems and Delegation Issues. Journal of International Business Studies, 25–40. 36 Daisuke Wakabayashi and Toko Sekiguchi. Disaster in Japan: Evacuees Set Rules to Create Sense of Normalcy. The Wall Street Journal, http://online.wsj.com/article/SB1000142405274870 3784004576220382991112672.html (accessed 3 October 2012). 37 Perry Pascarella. (May 1998). Open the Books to Unleash Your People. Management Review, 58–60. 38 Leigh Buchanan. (June 2010). Learning from the Best. Inc., 85–86. 39 Mel Mandell. (1 December 2001). Accounting Challenges Overseas. World Trade, 48–50. 40 Nancy Trejos, ‘Boeing Faces More Dreamliner Problems’, USA TODAY, 26 September 2013, http://www.usatoday.com/story/todayinthesky/2013/09/26/norwegian-air-polish-lot-boeingdreamline/2878019/ (accessed 13 November 2013); ‘Boeing 787 Dreamliner: A Timeline of Problems’, The Telegraph, 28 July 2013, http://www.telegraph.co.uk/travel/travelnews/10207415/ (accessed November 13, 2013); and Alwyn Scott, ‘Fuselage Panel Falls from Boeing 787 Dreamliner In Flight’, Reuters, 15 October 2013, http://www.reuters.com/article/2013/10/16/ us-boeing-dreamliner-idUSBRE99F02X20131016 (accessed 13 November 2013). 41 A. V. Feigenbaum. (1961). Total Quality Control: Engineering and Management (New York: McGraw-Hill); John Lorinc. (September 1990). Dr. Deming’s Traveling Quality Show. Canadian Business, 38–42; Mary Walton. (1986). The Deming Management Method (New York: Dodd-Meade & Co.); and J. M. Juran and Frank M. Gryna, eds. (1988). Juran’s Quality Control Handbook, 4th edn (New York: McGraw-Hill). 42 Edward E. Lawler III and Susan A. Mohrman. (January–February 1985). Quality Circles After the Fad. Harvard Business Review, 65–71; and Philip C. Thompson. (1982). Quality Circles: How to Make Them Work in America (New York: AMACOM). 43 D. J. Ford. (July 1993). Benchmarking HRD. Training & Development, 37–41. 44 Tracy Mayor. (1 December 2003). Six Sigma Comes to IT: Targeting Perfection. CIO, 62–70; Hal Plotkin. (June 1999). Six Sigma: What It Is and How to Use It. Harvard Management Update, 3–4; Tom Rancour and Mike McCracken. (October 2000). Applying Six Sigma Methods for Breakthrough Safety Performance. Professional Safety, 45:10, 29–32; G. Hasek. (21 August 2000). Merger Marries Quality Efforts. Industry Week, 89–92; and Lee Clifford. (22 January 2001). Why You Can Safely Ignore Six Sigma. Fortune, 140.

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45 Dick Smith and Jerry Blakeslee. (September 2002). The New Strategic Six Sigma. Training & Development, 45–52; Michael Hammer and Jeff Goding. (October 2001). Putting Six Sigma in Perspective. Quality, 58–62; and Mayor. Six Sigma Comes to IT. 46 Jack Bouck. (November/December 2007). Creating a Customer-Focused Culture: The Honeywell Experience. Industrial Management, 11. 47 This discussion is based on Eileen Newman Rubin. (May–June 2012). A Partnered Approach to QA Increases Efficiency Through Early Problem Detection. Global Business and Organizational Excellence, 28–37. 48 Clifford. Why You Can Safely Ignore Six Sigma; and Hammer and Goding. Putting Six Sigma in Perspective. 49 Syed Hasan Jaffrey. (May 2004). ISO 9001 Made Easy. Quality Progress, 37:5, 104; Frank C. Barnes. (Spring 1998). ISO 9000 Myth and Reality: A Reasonable Approach to ISO 9000. SAM Advanced Management Journal, 23–30; and Thomas H. Stevenson and Frank C. Barnes. (May–June 2001). Fourteen Years of ISO 9000: Impact, Criticisms, Costs, and Benefits. Business Horizons, 45–51. 50 Corporate Governance. Business Dictionary website, http://www.businessdictionary.com/ definition/corporategovernance.html (accessed 16 September 2010); Words to Understand: Corporate Governance Models. Gruppo Hera Italy website, http://eng.gruppohera.it/group/ hera_ondemand/words_understand/page23.html (accessed 16 September 2010); and (10 March 2009). Corporate Governance Issues in 2009. The Corporate Eye, http://www.corporate-eye.com/ blog/2009/03/corporate-governanceissues-2009 (accessed 16 September 2010). 51 Damian Paletta and David Enrich. (13 September 2010). Banks Get New Restraints. The Wall Street Journal. 52 Joann S. Lublin. (13 September 2010). Lead Directors Gain Clout to Counterbalance Strong CEOs. The Wall Street Journal. 53 Michael Bleby. (30 January 2013). Biggest Profit: BHP Billiton. BRW, http://www.brw.com. au/p/biggest_profit_bhp_billiton_BZ68y2FOjUFFU8F5hNZI2M (accessed 9 December 2013) and BHP Chief Marius Kloppers Strikes It Rich With Staggering Farewell Payout. news.com.au, http://www.news.com.au/business/companies/bhp-chiefmarius-kloppersstrikes-it-rich-with-staggering-farewell-payout/storyfnda1bsz-1226623824930 (accessed 9 December 2013).

CAPSTONE CHAPTER M A K ING E F F EC T I V E M A N AGE M E N T H A P P E N

L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO :

1 understand the fundamental practices that are common to successful organisations including: leadership, people management, customer focus, quality, innovation and knowledge practices

2 gain further insight into deeper principles that commonly occur in successful organisations

3 understand how to put the best practices and principles into action.

Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources.

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In this capstone chapter, we will examine some key aspects of the leading edge of management practices, and the deeper principles that underpin these, in excellent organisations. This chapter summarises and reinforces key management theories outlined in this book by putting them into a practical setting. What do managers in the world’s best companies do that has driven them to their industry-leading positions, and in the best of cases, allowed them to remain in those winning positions for a considerable time? What specific managerial practices do they employ that have pulled them out to the front of the pack? What are the deep-seated cultural, process and other key elements of these firms? We will examine this by considering the core capabilities of these organisations and how these capabilities are developed, led and used to great effect. First, it is worth pointing out that in every industry there is a lot of variance in performance between the best performers, the average performers and the underperformers. There are companies that are thriving, growing and profiting while creating value for their stakeholders, and there are others that are struggling, and ultimately going bankrupt. What explains this high degree of variance in performance? To explain this variance, we examine the practices in place in these organisations. EXHIBIT C.1 shows how firms that have certain practices strongly in place (sometimes referred to as ‘best practice’ organisations), usually outperform their industry averages or benchmarks. And conversely, organisations which fail to effectively implement certain practices are most likely to be the underperformers in their industry. EXHIBIT C.1 depicts this relationship between practice and performance. It is not a perfect relationship; there are no certainties in managerial and organisational life. There are some firms that do well (for a while) despite not having all these practices in place, and there are some firms that have many of them in place, but do not prosper to the extent we would predict or expect. There are many other factors that influence and explain organisational performance apart from management factors, such as industry level effects, country level effects and occasionally luck, which can be good or bad on any day. However, there is evidence to show that certain sets of management ‘best practices’ are associated with high performance. In the first part of this chapter, we will draw on many of the previous chapters of this book and outline and extend our explanation of these practices. To stretch our thinking even further, let us consider the following question: if it is possible to know what these best practices are then why don’t the underperforming firms identify these best practices and set about implementing them and improving their performance? Is it that some firms choose to not improve? Probably not: most organisations strive to succeed. Is it lack of knowledge? We would argue that this is unlikely, as thousands of management books, courses and seminars are available that advocate the benefits of improving practices and performance. Knowledge abounds about these best practices. Is it that the managers in these struggling or underperforming organisations are unintelligent or lazy? Also unlikely. We can infer that there is a big difference between knowing what to do to improve, and doing it effectively on an ongoing basis. Knowing is not the same as doing. So, with reference to EXHIBIT C.1, we show that just as practices can explain variance in performance, there are deep principles within organisations that explain the variance in being able to implement practices consistently and deliver improved performance outcomes. Principles are different in nature from practices. Practices are what people do, whereas deep principles are the ideas and values that provide capability and guidance. When those principles are strongly in place, certain practices will be likely to

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work and deliver. Without these principles in place, attempts to implement leading edge practices are likely to fail. In the latter half of this chapter, we will describe and illustrate these deeper principles and their application.

EXHIBIT C.1 Explaining variation in organisational performance

Core principles: STRONG

Sound strong management practices

High performance

Core principles: WEAK

Weak or poor management practices

Low performance

We can now review the meaning and purpose of management activities as they were introduced in Chapter 1 and discussed throughout this textbook. They involve planning, leading, organising and controlling the firm’s activities in order to achieve goals. In doing so, all organisations must work with and serve a range of stakeholders in a value-adding manner. By this, we mean value as defined by: Value = Benefits/Cost See Chapter 1 for a discussion of management activities, including planning, leading, organising and controlling the firm’s activities.

The benefits are best defined by the stakeholders, as they are the recipient of these. For customers, the benefits are the value that the products or services provide to them, as perceived by them. For employees, the benefits are mainly the pay and other rewards, such as a sense of achievement through job satisfaction, which they receive in exchange for their work effort. For investors or lenders to an organisation, value means the return they get from investing or lending money is worth the risk of doing so. Stakeholders will do business with us when we can create net positive value for them in their terms, better than our competitors can. The three key stakeholder groups, customers, employees and investors, can essentially define the manager’s job: that they must be able to be competitive in three markets.

◗◗ The market for the goods and services produced by the organisation. ◗◗ The labour market, in terms of being able to give value to employees in order to attract, retain and motivate them to perform effectively.

◗◗ The financial market, in which investors will want to invest and lenders will want to lend money to finance the firm’s activities. Although there are clearly other important stakeholders of any organisation, such as communities, suppliers, governments and the natural environment, the three primary stakeholder groups listed above provide a set of foundations or imperatives for managerial success.

CAPSTONE CHAPTER: MAKING EFFECTIVE MANAGEMENT HAPPEN

MANAGEMENT IN PRACTICE TWO USEFUL THEORETICAL FR AMES: RESOURCES AND CAPABILITIES Two theoretical frames that allow us to deeply understand organisations and how they can best get ahead, through effectively making decisions, are the resource-based view and the dynamic capabilities approach. The resource-based view considers how an organisation can succeed through the creation, accumulation and application of resources that have certain characteristics: 1 They should be valuable resources, providing a cost or other advantage to the organisation. Acquiring the resource should generally lead to higher levels of competitiveness than outsourcing them and their activities. 2 They should be rare resources, limited in supply and not easily or cheaply available to competitors, and hence providing competitive advantage. 3 The resources should be inimitable, meaning they cannot be replicated by a competitor, and they can include knowledge, machinery, human resources or other unique elements of the organisation’s systems. 4 The resources should be non-substitutable, meaning that it should be difficult, impossible or expensive for competitors to achieve the same purpose or outcomes with alternatives to the key resources. A firm should identify, invest in and apply its key resources to its advantage. The dynamic capabilities approach was developed to overcome the static notion of the resource-based view,

recognising that in a fast-changing world, it is not just the key resources, but the ability to quickly and effectively reconfigure these resources, that drives advantage. Hence, dynamic capabilities is focused on: 1 Learning effectiveness of the organisation, arguing that the ability of an organisation to learn (more quickly than its competitors) is critical to its ongoing success. 2 Process change, meaning that as markets and customer requirements change, the ability to stay with or ahead of key trends is a driver of success. 3 Transforming of existing assets and flexibility is key to not being left behind. This means being fast and effective at updating products, processes and ways of doing business, including adapting resources such as equipment and people to new tasks. 4 Innovation is a key to remaining relevant to customers and driving improved business outcomes. 5 Integration and combination of resources, including ensuring the adjustment and fit of ‘soft’ resources, such as knowledge and human skills, with ‘hard’ resources, such as machinery, computers, land and buildings. Dynamic capabilities emphasises the ability to reconfigure and change the organisation with an eye to responding to or leading the changes happening in the organisation’s external environment.

R EMEMBE R THIS ◗◗ ◗◗

Value can be considered the creation of benefits by the organisation, divided by price.

◗◗

Theoretical frameworks such as the resource-based view and dynamic capabilities help us to understand and make decisions about value creation in organisations.

Some critical aspects of managing organisations include leadership practices, people management practices, customer focus practices, quality and process management practices, innovation management practices and knowledge management practices.

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FUNDAMENTAL PRACTICES COMMON TO WINNING ORGANISATIONS C.1

We can classify the practices common to leading organisations:

◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗

leadership practices people management practices customer focus practices quality and process management practices innovation management practices

knowledge management practices. We can specify and illustrate the nature of ‘what works’ in these practice areas. If an organisation is doing most of these well, then it is likely to be effective in creating the value that we described earlier and in being competitive and successful in its industry.

L E A D E R S H I P P R A CT I C E S We have already discussed many leadership concepts in Chapter 11; it is also possible to observe the practices of successful leaders. What do leaders do in order to effectively influence others and guide their organisations to success? Observation of great leaders reveals their practices to include the following:

1 Effectively setting vision and strategy. Leaders can define a view of what the organisation is to

See Chapter 11 for a discussion of leadership concepts.

represent and achieve in the long term, and what is a sensible and aspirational journey to commence. This vision, and the strategies for getting there, must be value-adding to the key stakeholders (as described above), or they will not cooperate in turning the vision into reality. When it is done well, the vision can be inspiring to stakeholders, especially staff. For example, consider the vision set by Steve Jobs: the creation of a world in which information and entertainment could be created and delivered in such a user-friendly way to make it enjoyable to produce and to consume Apple’s cleverly designed products and services. Steve Jobs and the company he led have clearly achieved great success in the three key stakeholder markets.1

2 Communications and inspiration. There is little point in leaders having brilliant ideas about vision

See Chapter 12 for a discussion of communication channels.

and strategy if they keep them to themselves! These great ideas must be disseminated to staff, and to external stakeholders, in order to inspire them to invest and participate in the achievement of those strategies and the fulfilment of the vision. The leader must be a powerful communicator, able to relate to all stakeholders and their needs and desires, and to translate the vision and strategies into their terms in such a way as to attract them to energetically participate. Communication can be via multiple channels: via formal presentations, talking to small groups or written communications, as outlined in Chapter 12. The leader is the symbol of the organisation and must be visible in communication of the purpose of the organisation and its actions. It certainly helps if the messages are heartfelt and sincere, and if the leader can send these messages with charm and charisma. However, at the very least, they must be powerfully and convincingly communicated so that stakeholders will see the value of participating. Leaders can never implement the vision and strategy by themselves! They must be able to engage and motivate a range of people to go with them on the journey, and for this, excellent communication skills and practices are vital.

CAPSTONE CHAPTER: MAKING EFFECTIVE MANAGEMENT HAPPEN

3 Integrity. This is a key characteristic for effective leadership of organisations.2 Staff at all levels look to their senior executives as symbols and indicators of the ethical stance that they take. When employees see their leaders setting a high level of integrity, they understand the expectations being set in the organisation and are likely to behave accordingly; the same is true when staff observe their leaders as having dubious levels of integrity. Imagine staff who worked in Bond Corporation Holdings or Coles Group in Australia, when they saw their organisations embarrassed and chief executives publicly prosecuted and found guilty of various crimes related to illegal use of the corporation’s assets for personal gain. When chief executive officers such as Brian Quinn of Coles and Alan Bond of Bond Corporation are convicted of crimes and jailed, employees cannot be blamed for lowering their belief in the organisation’s vision and standards of ethical behaviour. Such outcomes were demoralising for staff. On the other hand, when a senior executive visibly demonstrates a high level of integrity, even when the alternative might be cheaper and easier, staff will learn and respect the value of those actions and the value system they are based on, and are likely to apply similarly high standards.3

4 Strong performance orientation. The drive to influence everybody to reach their goals, and to ensure that the whole organisation is always performing at its best, is intuitive for great leaders. Leaders instil this mindset of high performance in all their staff by ensuring that they lead by example. Great leaders make sure that they personally deliver on their commitments and initiatives; they can then insist that others do likewise. Leaders are often quite tough and demanding in their performance management expectations. When staff are assigned and accept responsibility for projects, such as new product development, their senior business leaders expect these projects to be completed on time unless there are truly exceptional reasons for not meeting those expecations.4

5 Humble and ‘servant-like’. Great leaders do not have great big egos, or if they do, then they successfully suppress these when dealing with their staff and other stakeholders. Great leaders are able to communicate with all their staff on a mature, adult-to-adult basis, and do not patronise staff under normal circumstances. They see their role not only as leading, for example by setting big picture strategy, but also as serving their organisation and their staff, and providing the resources needed by those staff, so that the staff can excel. This ‘leader as servant’ approach is highly motivating for staff, who are inspired by a senior leader who comes across as human and humble. On the other hand, leaders who remain aloof from staff do not gain staff loyalty, and can even engender disloyalty, low morale and motivation in those staff. An example is one chief executive of a major resources company in Australia, who went to great lengths to avoid face-to-face contact with his staff, even to the point of installing a private toilet for himself and a locking device in the head office lift so that the lift would not stop between his basement car park and his private top-floor office. Once staff knew of these things, they lost any sense of loyalty to the chief executive, and their level of commitment to the organisation fell significantly. The worst leaders look down on their staff, treating them like pawns in a game that they command, or worse. The best leaders let their staff know that leaders have deeper and broader sets of responsibilities than lower level staff, but they also establish a clear relationship of mutual respect for the different work responsibilities that people have. These great leaders explicitly acknowledge to their staff that without their staff achieving individual and collective success, neither could the leaders! They communicate this mutual dependency so that everyone can then get on with growing the organisation, with less dissatisfaction about how the success of the organisation is distributed. These organisations, therefore, are set up to succeed.

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6 Knowledge-focused. Great leaders make it their business to know the details of what is happening in all corners of their organisation. They ensure that they are well-informed about issues, opportunities and problems in the organisation, and they monitor performance. This includes personally knowing the key stakeholders, such as highest value customers, suppliers and investors, and having open and honest relationships with key people within the organisation. Leaders need people inside the organisation who will tell them the truth about what is going on. They cultivate such relationships with opinion leaders across the organisation.

7 Energy and passion. Both energy and passion are required at a high level, because leadership is hard work! Strong leaders are committed to their organisation and show their motivation to others as an indication of what is expected in terms of effort. Leaders live and breathe the organisation, almost on a 24/7 basis! To really know the detail of the organisation (see point 6 above), long hours are required of talking to people, reading reports and communicating strategies and motivating staff. Some people call this ‘management by walking around’, which means being visible as a leader.

8 Smart. Modern-day organisations must find their way through a complex maze of circumstances, and leaders can best add value by contributing to problem solving and using their business acumen to drive through the complexity and solve problems. Conversely, one might say that if you lack intelligence, you shouldn’t aspire to be a leader of an organisation, as it will be difficult to cope with the complexity of the job and its many demands.

9 Agile of mind and innovative. Great leaders are open to new ideas, particularly those brought forward by others. Successful leaders realise that they do not need to come up with all the good ideas within the organisation; they also encourage others to solve problems and bring forward their best ideas and business improvement opportunities. This means that good leaders need to be good listeners! They need to encourage those around them to be prepared to open up and not feel apprehensive about speaking their mind. By doing this, a leader can build an honest and frank organisational culture, which is psychologically healthy for all stakeholders – and good for performance, too.

10 Customer-focused. This means setting a standard and culture of ‘acute customer focus’.5 It is all too easy for a leader to lose touch with the customer interface and the value proposition of the firm, if these are not consciously kept front of mind. Successful leaders use a variety of methods to remind themselves and their staff of perhaps the single most important goal of the organisation: satisfying the consumer. They sometimes serve on the front counter of the organisation, as McDonald’s leaders occasionally do, or they read and directly respond to customer complaints, and stay in touch with customer satisfaction survey reports. In their communications, leaders showcase their passion for satisfying customers.6

11 Courageous and determined. It can be lonely at the top of an organisation, whether it is a team, a department or a whole organisation. Sometimes it can feel as if there is a lot of opposition to a leader’s strategies, and strong leaders need to demonstrate their determination. They need to be prepared to remain strong and commited when things are not working out in the first instance, as is often the case with new initiatives, strategies and products. At the same time, leaders must have good judgement, knowing when to change approach and not be overly stubborn.7

12 Delegate and trust. In order to bring out the best in others, successful leaders give their staff the responsibility and scope to take initiative without having to come back to ask permission. Leaders choose good people to work with them, then give these people room to make decisions in order to implement the vision and strategies that have been agreed. However, while successful leaders do give

CAPSTONE CHAPTER: MAKING EFFECTIVE MANAGEMENT HAPPEN

quite a lot of trust and delegation, many of them follow the maxim, ‘Trust . . . but verify’. They keep a watchful eye on all aspects of activities and performance.8

13 Team builder. A leader cannot implement strategies on their own. Leaders need lieutenants who they can weld into a cohesive team, to communicate consistent messages throughout the organisation, and to control and coordinate execution of those strategies. Just as in sporting teams, leaders foster strong team-based efforts through their role as a combination of coach and captain.9 Leaders of all but the smallest organisations create and support a leadership team of senior and middle managers who will help them sell the vision and strategy to all stakeholders, and drive implementation and goal achievement.

14 Sincerity as a people person and developer. Leaders need to be ‘people-friendly’. This does not mean that a leader must be forever socialising with staff; rather that the leader is genuinely interested in people’s welfare and the quality of their lives, at work and beyond.10 A well known example is John Mars of Mars Corporation, which leads pet food and confectionery market segments on a global basis and is one of the world’s largest and most successful privately owned companies. John was known to travel the world and visit his company’s many factories and business offices, asking people, with genuine interest, about themselves and their families, and then asking them what they did to make the company a better place.

15 Technologically literate. Successful leaders need to know at least enough about the processes and products of their organisation and industry to be able to make good decisions regarding these, and to communicate comfortably with their technical specialists. When a leader is technologically illiterate, poor decisions can result, as they must accept advice from others and cannot connect their business judgement to important technical aspects of those decisions. On the other hand, high-level technological literacy is certainly not necessary, and can in fact sometimes be unhelpful for this sometimes leads them to immerse themselves in so much detail as to miss the big picture.

16 Committed beyond the short-term. Strong leadership means not only driving for strong performance in the short term, but also investing in capability-building for the future. When leaders are too short-term and operationally focused, then the organisation can suffer from a lack of sound long-term strategies and under-resourcing of business, and therefore lack the capability to sustain competitiveness into the medium and long term. In the most extreme of such cases, organisations simply run out of capability and go out of business. The personal commitment of leaders need not be indefinite – as nothing lasts forever – but it should be long enough to see out a series of strategies to ensure the consistency of their implementation and realisation of their intentions.

CASE STUDY ‘HEARTFELT LEADERSHIP’ PAYS OFF AT TOYOTA With the impending closure of the Melbourne manufacturing plant of Toyota scheduled for late 2017, decisions needed to be made regarding the treatment of its employees, many of whom are long-serving. The famous ‘Toyota way’ philosophy has as its centrepiece, the idea of ‘respect for people’, and so once the decision to close

the plant was made, the Toyota Motor Corporation’s Japanese President Akio Toyoda personally travelled from Japan to Australia to deliver the announcement to the Australian employees in February 2014. A comprehensive plan was formulated, now being implemented, involving some 2500 people. I have been asked by Toyota to study

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and evaluate their plans and actions, and have found so far that their approach starts with a philosophy of ‘people before profits’, which in itself is quite different to many other organisations, especially traditional manufacturers, that treat their workers as little more than an input to production systems. It is more the norm for companies that are downsizing, to pay legislated entitlements and do a minimalist job of outplacement counselling. Toyota’s approach raises the question of how and whether the approach of ‘People before Profits’ reduces profits. In fact Toyota is making quite the opposite happen. The big question is how do they achieve this? In my interviews and meetings with dozens of people, one clear shared goal and approach is best attributed to a quote that I keep hearing and seeing in action: ‘My job is my work plus Kaizen’. (The Japanese word ‘kaizen’ simply means improvement. ‘Kaizen’ in the Toyota business context, is a business philosophy/ activity of continuous improvement through problem solving.) Toyota invests heavily in its human capability, from the shop floor up, and the return on this investment is achieved in problem solving at all levels. It is as if Toyota people, at all levels, really have two jobs, the first being the doing of ‘the work’, and the second being a relentless drive for improvement through problem solving. There is a very interesting ‘natural experiment’ occurring presently in Toyota, Australia being its first major shutdown of manufacturing in one of its countries of operations. I am observing how the ‘Toyota way’ philosophy is being stretched from its usual domain of over 50 years of stability and year-on-year growth, to a much more challenging context of a shutdown. So far, staff engagement has not dropped, indeed it is slightly up since the closure announcement, and team member participation in quality control circles (QCC) and other kaizen activities is as strong as ever. QCC are small group problem-solving activities which have played a vital role in human resource development and continuous improvement for 50 years in the Toyota world. The engagement effort has resulted in product quality rising since the closure announcement, and Toyota is pushing hard to achieve an outcome that has become a mantra there of ’last car equals best global car’.

The ‘people before profits’ approach is progressing well thus far with some impressive and innovative initiatives in place. Some of their manufacturing employees will be redeployed and some will retire, while all others are being offered either up-skilling or reskilling options. This is above and beyond what many other companies offer in such circumstances. Up-skilling demonstrates Toyota’s commitment in developing its people to the last day. It provides employees with paid time to attend classroom training, on-the-job competency development and qualification attainment (through partnering with a TAFE college) to a level above the current job level. For example, shop floor team members can achieve first line supervision qualification, supervisors can achieve one level higher qualification and so it goes across the plants. These people are being well trained and prepared for their post-Toyota career. I believe that their future employers will be fortunate to get such well-developed people. Reskilling at Toyota is even more innovative and impressive. Those who will leave Toyota later in 2017, can nominate a career interest and once established as real and feasible, Toyota will pay for their retraining. For example, Toyota is currently paying for over 20 team members to study nursing. This then raises the question of whether and how an approach of ‘people before profits’ leads to more profits. It does. Toyota implements a view of ‘people first equals customer first’, and it is this investment in its human resource that leads to the superb quality of its vehicles, measured as ‘first time through’, customer satisfaction, and durability and reliability of its products. It is also the core reason as to how Toyota has become the world’s biggest producer, and it explains a great deal of the company’s superior profitability and why its market capitalisation is approximately twice as much as that of GM and Ford combined. Yet in my many encounters with Toyota executives and managers at all levels, their investments in people, even when they will be saying goodbye to many of them in 18 months, is not considered as a financial prospect: it is done as a sincere matter of ‘heartfelt leadership’, and because it is done so well, it pays.

Source: This case study was first published in Leadership Matters, the publication of the Australian Institute of Management, July 2016)

CAPSTONE CHAPTER: MAKING EFFECTIVE MANAGEMENT HAPPEN

TAKE A MOMENT Fill out the leadership self-evaluation questionnaire in EXHIBIT C.2. Which of these characteristics would you like to improve on in the next 12 months? Identify three of these characteristics for improvement: which three would be the most valuable for you to improve? EXHIBIT C.2 Leadership characteristics assessment

Can set vision and strategy

VERY WEAK

WEAK

OK

STRONG

VERY STRONG

1

2

3

4

5

Communicate/inspire

1

2

3

4

5

Integrity

1

2

3

4

5

Tough, performance-oriented

1

2

3

4

5

Humble: servant leader (EQ)

1

2

3

4

5

Knowledge focused

1

2

3

4

5

Energy and passion

1

2

3

4

5

Smart (IQ) with complexity

1

2

3

4

5

Agile/flexible

1

2

3

4

5

Customer oriented/focused

1

2

3

4

5

Courageous and determined

1

2

3

4

5

Delegate and trust

1

2

3

4

5

Team builder

1

2

3

4

5

Sincere people person

1

2

3

4

5

Technologically literate

1

2

3

4

5

Committed to longer term

1

2

3

4

5

P E O P L E M A NAG E M E N T P R A CT I C E S People are unique as individuals, but in some ways, we all want many of the same things. As considered in Chapter 11’s discussion of motivation, we all share a need for basics such as food, water, shelter, safety, a sense of belonging and social interaction, and a desire for achievement. We all differ in what these mean to us as individuals. However, we are all wired in a similar way, despite differences in culture, history and age or generation. Managers know that for their organisations to achieve their goals at high levels of effectiveness, the majority of employees need to be working well and working hard. Leaders have tried various methods to motivate their staff, ranging from engendering fear through to using monetary incentives and providing employees with paths to self-fulfilment. We have found that in most circumstances, management by fear doesn’t work very well, nor for long. Employees may do what they must to get by in a fear-driven culture, but they will find ways to do little more than comply, will not show initiative and, ultimately will find ways to escape such a culture. It is quite an understatement to say that management by fear is not best practice. Employees of all types and at all levels of most organisations will respond more positively and energetically to incentives which allow them to be personally successful while also making a contribution to the organisation’s goals. This personal success can involve recognition, learning and training, promotion and rewards, which lead to two major types of benefits for the employee. One of these can be thought of

See Chapter 11 for a discussion of motivation

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as intangibles, such as job satisfaction from realising (intrinsically) and being told by others (extrinsically), such as managers, that they have completed a job well. This knowledge gives employees a sense of pride, which will motivate further high-performance behaviours. This desire in humans can be called a ‘need for achievement’. The second major benefit is the tangibles: money, benefits and the potential for progress and promotion – and to achieve more tangible (and intangible) benefits.

Source: Fairfax Syndication/Philip Gostelow

AUSTRALIAN MANAGER PROFILE

RICHA RD GOY DER: MANAGING DIRECTOR, WESFA RMERS

Richard Goyder needs to be a truly exceptional leader to continue to meet stakeholder expectations in the complex multi-industry company he commands. Critics of such conglomerate businesses argue that diversified companies are a relic of the past, yet with sound leadership, Wesfarmers seems to be able to operate with success in a number of different businesses and industries.

Many experts would say that to succeed, a company needs to ‘stick to its knitting’ – meaning that it should stay focused on its core business. Wesfarmers, however, is a highly successful and highly diversified company. With over 200 000 employees, making it one of Australia’s largest employers, the company has thrived on strong leadership and sound strategies. The company has an open culture and sound business systems of reporting and information management. Richard Goyder helps to run businesses as diverse as Bunnings Warehouse, various insurance businesses, Target Australia, coal mines, Kmart, Officeworks, chemicals businesses and Coles Supermarkets. In 2007, share markets and investors had confidence in Goyder and Wesfarmers, as he invested AU$20 billion in the Coles Group acquisition and then invested significantly more, again, in a program of renewing those businesses. The primary challenge for Coles had been to compete with Woolworths. Goyder has

worked hard to build a team of business leaders who can take the Coles businesses forward. He sees innovation as critical, as he believes it is the only way Coles can catch up to and pass Woolworths in the market. Goyder’s leadership style is to try to engage each worker’s sense of involvement and ownership in the businesses, which stimulates them into bringing their best ideas to the workplace. He sees the importance of and encourages process innovation, which he views as a large number of small innovations that keep people involved in doing the things they do, but better. In 2018, new players are increasingly making inroads into the market: Costco and Aldi have attracted smaller but growing sets of loyal customers. Competition will heat up even further as Amazon.com enters grocery and other lines of retail business in Australia. Coles group will have to keep on innovating and driving productivity to maintain its market share and business performance.

Most managers have realised that management by fear only achieves low levels of motivation, and

discretionary work effort Discretionary work effort is the effective activity by staff above and beyond an acceptable norm or minimum.

can only be effective with ‘shirkers’, meaning low performers. To get staff to effectively work with high effort levels and creativity that leads to innovation, more positive signals are needed. We refer here to the concept of discretionary work effort: the notion that staff are doing more than the minimum to make themselves and the organisation excel. Discretionary work effort is a matter of choice. They don’t have to give the extra effort, but they might do so as a personal decision. High levels of discretionary work effort is one of the features of winning organisations. Google is an example of a company that achieves high levels of discretionary effort. Google provides its employees with many non-monetary benefits, and is well known for its discretionary and other benefits. These are described in the Case study on page 686. As a result, Google is a highly sought after place to work for. When people get a job at Google, they enjoy giving their best efforts to the company while enjoying superb benefits. It is an understatement to say that at Google, people do a lot more than the minimum to get by; yet there are companies in which many people are indeed ‘coasting through the day’.

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INNOVATIVE WAY GE PEOPLE/TALENT MANAGEMENT General Electric (GE) has achieved legendary status in relation to its ability to stimulate people at all levels of the company to ‘be the best they can be’ through its corporate university and development centre located at, and known, as ‘Crotonville’. The company espouses its approach and activities as: Worldwide we spend about US$1 billion each year on training and education programs for the people at GE. The results can be measured in the leadership capabilities of our own people and ultimately in the value and opportunities generated for our customers and their communities.

✚✚ Entry-level Leadership Programs. GE’s Corporate Entry-level Leadership Programs offer recent college graduates prized development opportunities that combine real-world experience with formal classroom study. Through a series of rotating assignments – typically over a period of two years – young professionals receive accelerated professional development, world-class mentors and global networking that cuts across GE’s businesses.

✚✚ Experienced Leadership Programs. Experienced professionals who wish to accelerate their careers find opportunities in our Experienced Leadership Programs. The programs position high-potential talent in collaboration with some of the top innovators in their fields, offering intensive on-the-job development in the

areas of Corporate Audit, Human Resources and Sales and Marketing.

✚✚ John F. Welch Leadership Development Center. At GE, learning is a cultural force and Crotonville is its epicentre. For over half a century, the legendary John F. Welch Leadership Development Center has been at the forefront of real-world application for cutting-edge thinking in organisational development, leadership, innovation and change. Established in 1956, the 210 hectare corporate learning campus was the first of its kind in the world. The Crotonville campus attracts the world’s brightest and most influential minds in academia and business. Every year, for thousands of our people from entry-level employees to our highest-performing executives, a journey to Crotonville is something of a pilgrimage – a transformative learning experience that, for many, becomes a defining career event. The facility’s meandering outdoor walkways and recreation areas were designed to encourage exploration and spontaneous connection with other learners. Its very structure is a reinforcement of what is best about learning at GE: authentic human connection coupled with the invigorating pursuit of ideas. Today the Welch Leadership Center continues its legacy, serving as a powerful organisational force that commissions each of our employees with an important reminder: to never stop learning.

Sources: GE Crotonville, The Future of Leadership, https://www.ge.com/sites/default/files/GE_Crotonville_ Future_of_Leadership.pdf; http://www.ge.com/company/culture/leadership_learning.html.

Consider the differences between these companies and Google in terms of the impact of discretionary effort on customer service, quality innovation and overall productivity. In order to achieve such outcomes in staff on a widespread basis, managers must work to capture the hearts and minds of their staff – and it doesn’t hurt if their wallets are closely aligned to the wallet of the employing organisation. By ‘heart’, we mean allowing and encouraging the staff to use their passion in the workplace. When we see staff really putting their hearts into their work, it is amazing how much more they can achieve! By ‘mind’, we mean the logical and rational side of the person: all staff know the organisation’s goals and priorities and have their own personal goals aligned to those broader goals. This can largely be achieved through an effective system of management by objectives (see Chapter 5), plus a lot of communication and consultation regarding the organisation’s values, purpose and strategy, and how it can be deployed and connected to the staff’s work.

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See Chapter 5 for a discussion of management by objectives.

Many staff are additionally motivated when they know that by working hard, they will get psychological fulfilment, help their organisation to succeed, and there will be a direct return on effort through pay (the ‘wallet’ factor), benefits and promotion. Incentive schemes have historically worked well for staff in sales jobs, and in many countries and companies these have been used more broadly for all job types, including managers. Like all things, if implemented badly, incentive schemes will lead to poor outcomes. Indeed, if employees are incentivised on the wrong measures, then highly dysfunctional outcomes can and probably will occur. Best practices in managing staff really involve treating people well, understanding their personal needs and differences, and giving them the opportunity to grow and develop to their fullest ability, while the organisation benefits from their contributions. When people management practices become really effective, staff become substantially self-managing on a day-to-day basis, and managers oversee fewer of their staff’s activities. This then frees up managers’ time from short-term operational activities, allowing them to work on bigger and longer-term issues. In the very best of such organisations, which we should strive to emulate, staff can be considered not just as self-managing, but as self-leading, meaning that they set their own goals, at least partially, and behave with greater responsibility and accountability in delivering those goals. In order to reach this point, delegation of some decision-making authority must go hand-in-hand with the additional responsibilities given to staff. Leaders stand back and let staff lead jointly with them. When these leaders and managers make investments in their staff, such as up-skilling and training, the employees ensure they are providing a return on those investments, which makes them worthwhile as investments, rather than wasted, as they could be in other organisations.

CASE STUDY GOOGLE (ALPHABET INC.): A GREAT PLACE TO SEARCH – AND WORK For most of us, Google is a fast, efficient search engine. However, for most of its staff, it’s even better as a place to work! As an employer, Google and its parent company Alphabet Inc. boasts the following features in Australia and globally: ✚✚ Free organic snacks, beverages, breakfast, and lunch on a regular, daily basis, including artisan coffee and tea

✚✚ Personal concierge service ✚✚ Massage therapy ✚✚ Fitness classes ✚✚ Weight Watchers meetings ✚✚ Vehicle maintenance ✚✚ Subsidised public transport ✚✚ Banking ✚✚ On-site package/mailing service

✚✚ Car wash ✚✚ Hair salon ✚✚ Dry cleaning ✚✚ Health insurance cover, including virtual doctor visits, second-opinion services, breast-cancer screenings, medical care, dental care, vision care, prescription drug subsidy, mental health care, fertility treatments, alternative treatments, blood pressure screening, cholesterol tests, flu shots, and complete biometric screening

✚✚ Family care programs, including offsite subsidised childcare, on-site or near-site childcare centre, lactation rooms, paid sick leave to care for a child or relative, and elder care resources

✚✚ Health clinic ✚✚ Allowing pets at work, with dog lovers called ‘dooglers.’

CAPSTONE CHAPTER: MAKING EFFECTIVE MANAGEMENT HAPPEN

Google (Alphabet Inc.) is often said to be one of the best workplaces to work at. Recent awards include: ✚✚ Top 100 Graduate Employer Rankings list 2016 (Australia) (Ranked 1)

✚✚ America’s Best Employers 2016 (Forbes) (Ranked 2) ✚✚ Canada’s Best Employers 2016 (Forbes) (Ranked 9) ✚✚ Best Workplaces for Recent Grads 2016 (Fortune) (Ranked 17)

✚✚ Best Workplaces in Technology 2016 (Fortune) (Ranked 8) ✚✚ World’s Best Multinational Workplaces 2016 (Fortune) (Ranked 1)

✚✚ Fortune’s 100 Best Companies to Work for 2016 (Ranked 1) ✚✚ Best Workplaces for Millennials 2015 (Fortune) (Ranked 25)

Google also supports and fosters diversity in its workforce. Some of the diversity programs include: ✚✚ Professional development for: under-represented racial/ ethnic minority groups; women; lesbian, gay, bisexual, or transgender employees; disabled employees; employees re-entering the workforce

✚✚ Married employees in same-sex or heterosexual relationships receive the same benefits

✚✚ Non-birth parents in same-sex relationships can take parental leave

✚✚ Medical care covers gender reassignment surgery. Alphabet Inc. and Google continue to ’do the right thing’ both in and out of the workplace.

Sources: Great Place to Work (2016). ‘Google Inc.,’ http://reviews.greatplacetowork.com/google-inc (accessed 5 December 2016); Fortune (2016). ’Google (Alphabet),’ http://fortune.com/best-companies/google-alphabet-1/ (accessed 5 December 2016); Kokalitcheva, K. (8 March 2016). ’Here are the 12 most petfriendly companies,’ Fortune, http://fortune.com/2016/03/08/here-are-the-12-most-pet-friendly-companies/ (accessed 5 December 2016); Chang, C. (5 February 2016). ’Top 100 Graduate Employer Rankings reveal where university students want to work,’ http://www.news.com.au/finance/work/careers/ top-100-graduate-employer-rankings-reveals-where-university-students-want-to-work/news-story/f4dca846c0411bbccc83de0bc8c6e7d2 (accessed 5 December 2016); Forbes (2016). ’Google,’ http://www.forbes.com/companies/google/ (accessed 5 December 2016); Heisler, Y. (4 October 2015). ‘Alphabet replaces Google’s ‘don’t be evil’ slogan with ‘do the right thing,’ http://bgr.com/2015/10/04/google-dont-be-evil-alphabet/ (accessed 5 December 2016).

Great organisations get themselves into a virtuous cycle of investing in their staff and giving them fulfilling, well-rewarded roles. This in turn leads to high levels of discretionary work effort and high levels of productivity, service and quality – and, hence, success in the marketplace. With this comes the satisfaction of stakeholders such as owners or shareholders, and further availability of resources to reinvest. Google clearly fits this description.

C U ST O M E R F O C U S P R A CT I C E S We have all had both good and bad experiences as customers or clients of firms. We know that this service experience significantly affects whether we will go back, how much we are prepared to pay, and whether we recommend a business or not. Effective managers know that the revenue stream of the business, meaning the money paid to it by customers, is its critical lifeline, without which every organisation would soon collapse and die. So the leaders and managers of successful organisations go to great lengths to demonstrate and require their staff to provide high levels of customer focus and strive to satisfy client requirements. While ordinary companies also realise this and try to give customers what they want and are supposed to deliver, great companies engage in some additional best practices, which differentiate them in the eyes of their clients.11 Some of these practices are:

1 Building personal bonds between the client/customer and the organisation. This means finding a way to get the client to like the experience of doing business with the firm. It may manifest as ‘friendly service’, flexible approaches or personal bonds between staff and key clients’ representatives.

2 The client focus means delivering the tangibles exactly as they are supposed to be delivered: with reliability and a high level of value to the client. This means thoroughly knowing the client’s requirements in the first place.

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3 By building relationships with key customers, great managers and their staff take the opportunity to establish a dialogue about future client needs, so that the manager can ensure that the supplying firm can be well positioned and capable of supplying those future needs.

4 This information about current and future requirements of clients should be effectively disseminated throughout the organisation, so that all staff in all roles know the clients’ preferences and can act upon them.

5 In the best organisations, innovation – a key theme of this textbook – comes to the fore. Skilled staff are encouraged to solve client problems in novel ways, and have the authority to act autonomously (up to a point) when required. Staff are always on the lookout not only to deliver to the exact client requirements, on time and on budget, but also to look for ways to improve the client outcome through new and different forms of value creation.

6 Staff pursue sustainable practices and outcomes, finding ways to reduce environmental footprints, and ‘do well by doing good’ in a societal sense. Clients increasingly care about these factors. The sustainability orientation of staff brings both tangible benefits (such as reduced energy use) and intangible benefits (better societal acceptance and market edge) to the firm and its clients.12

7 Managers find out what clients do with their services once purchased and try to position the services supplied to ensure that clients succeed in using those services. So, if a leading company like Hewlett Packard (HP) is supplying hardware and software to another industrial company, HP works hard to find out how that client firm competes in its client markets, then strives to design and provide products and services that will contribute strongly to that success. In this way, HP can potentially evolve into more than just a supplier to its client, and could lock itself in as an integral part of its client’s revenue model that drives the client’s competitiveness.

QUA L I T Y M A NAG E M E N T P R A CT I C E S The foundation for many of the world’s best organisations is a set of stable, robust processes; for all the organisation’s processes. The core ideas of quality management practice, which are set out below, are hard to argue against, as they are just so sensible. However, it is surprising how many firms have not yet deployed them well. Those key ideas of quality management practice are:

1 Make the customer’s requirements pervasive in every corner of the organisation. As in our earlier discussion about customer focus, this means being customer-centric in how decisions are made and resources allocated. In the best companies, even IT systems are designed primarily with customers in mind. When this practice is firmly established, customers achieve satisfaction, don’t leave because they are disappointed, come back with their friends and may even be prepared to pay a premium for the great services they receive.

2 Reduce all forms of organisational waste by striving to ‘get it right the first time, every time’. Most organisations waste resources through not getting it right the first time: they do large amounts of rework, must follow up in the market when customers are unsatisfied, and do repeated inspection of their services and products, because they do not systematically get it right in the first instance. As a result, it is typical for an organisation to waste over 20 per cent, and perhaps 30 per cent, of its resources, and many waste higher levels than this. Errors go unnoticed in these organisations on a continuing basis. As a result, staff at all levels are constantly frustrated and dealing with problems and scrambling to fix them, as the organisation lurches from one crisis to the next.

CAPSTONE CHAPTER: MAKING EFFECTIVE MANAGEMENT HAPPEN

In the best organisations, the total cost of all forms of waste is between two and three per cent. Much of that relates to an investment in preventing errors. Things go right and work right most of the time. Work is not frustrating, but is usually smooth and flows well. Managers do not spend their days solving operational problems, but planning the next level of capabilities or products the organisation will develop. Nor do managers spend their days working on customer complaints, because there are fewer of these. And because fewer resources are wasted, clients are more satisfied, profits and organisational effectiveness are higher, so shareholders are highly satisfied and will reinvest.

3 These companies focus on achieving process control. That is, managers work on the organisation as a series of systems and ensure that the systems are robust and stable, and able to do what is needed: produce goods and services to clients’ required specifications. This field, sometimes called process control and capability, requires a conscious focus on reducing all aspects of variability in processes, whether it is from a machine, materials being processed or how people operate within the firm. Few companies have achieved this capability better than McDonald’s, which gives its clients a high level of value in its market segment, through low rates of wastage based on excellent ‘repeatability’ and process stability on a global basis. This capability of outstanding consistency comes from strict discipline in designing standard operating procedures (SOPs) and ensuring that all staff ‘live’ by these SOPs. McDonald’s focus on ensuring that all ingredient inputs to their processes have very low variability, so that, coupled with stable preparation processes, they can guarantee their clients a known, stable product, with extremely high reliability and ‘constancy’. While ensuring process stability, these firms also drive strong levels of process improvement; these two practices are not in any conflict in the best of firms. Through process improvement, employees behave as if they actually have two jobs. The first job (job 1) is to create and deliver the goods and services as required by the customer, with robust delivery performance and consistent quality, to meet client expectations. It does not matter whether the service being produced is an insurance policy, a bottle of soft drink or a university lecture; it is done to the specification and according to well-defined SOP. However, being consistently consistent is not enough in great organisations. There is a second job, as illustrated in EXHIBIT C.3, which involves everybody in the firm. This second job (job 2) requires employees to be well-informed about the organisation’s performance, especially in terms of its operating outcomes, on elements such as safety, cost, quality, service, delivery and client satisfaction levels. Added to the information that is provided to all employees are a series of tools and ways of thinking such as how to solve problems and drive operating performance permanently forward through process improvement. These tools of ‘continuous improvement’ include problem-solving tools, analysis tools (such as the 80:20 rule which helps staff prioritise the main causes of problems), and the ability to determine which activities are value adding and which are not. These staff can then do their second job effectively, which is to constantly strive for ways to improve the primary processes defined as their first job – namely ‘making the stuff’. Readers should note that we acknowledge that at first there might seem to be a contradiction or conflict between the ideals of keeping processes constant and exactly the same way so as to minimise variance to customers, and the constant search for process improvement. Actually, there is no conflict, because:

◗◗ Staff ‘live’ the SOP with minimal variance in their primary job, always ‘doing it by the book’. ◗◗ When someone comes up with a process change idea, it is properly evaluated. If it is decided to institute a process change, then the process SOP is formally unfrozen from its previous definition, redefined and refrozen on the new settings for all staff to see and know about.

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◗◗ The change is then widely communicated to all those who need to know about it, and permanently frozen on the new position until it gets formally changed again in the future (if this occurs). So, all staff ‘live’ the SOP and work to enact a series of changes to those SOPs. Indeed, in the best of firms, there is even a standard way that staff investigate opportunities to improve processes and services, and all staff learn and follow that standard process investigation and change method. This should serve to provide the reader with a sense of just how well the world’s best organisations conduct themselves! Other organisations, which we could label as ‘just ordinary’, lag far behind in their ability to reliably produce and deliver, and simultaneously to improve their SOPs. Job #2

EXHIBIT C.3 The concept of two jobs: of production and of improvement

Improvement of all aspects of workplace (Job #1) processes. Requires training, motivation to improve, data and methods, and usually teamwork Data from measurement of Job #1 processes Inputs, e.g. raw materials

Job #1 Primary processes of making, selling etc. the organisation’s goods and services

Outputs, goods and services

4 Relating to the section above on managing people in the best organisations, the ideas of how quality is managed must, and do, hinge on high levels of staff engagement. Job 2 is essentially discretionary work effort in most workplaces: if the hearts, minds and even wallets of the staff are not on board, then we should not expect to see a vital set of improvement initiatives, people will comply and do job 1; many will leave it at that. This was the problem with Western enterprises during much of last century, a phenomenon that caused firms like GM and Ford to lose many customers to companies such as Toyota. Toyota has had a powerful form of job 2 in place for decades and the others in its market segment have only recently been playing effective catch-up in this regard. So the key to effective process change, and to process improvement, is employee participation and effort in a motivated staff group.

I N NOVAT I O N P R A CT I C E S As has been discussed throughout this book, leading organisations work hard to find new and different ways to deliver value to their clients.13 They are prepared to reshape their products, services, processes and technologies, and even their strategies, structure and business models, to achieve this aim. The firms that are systematically successful at innovation, as compared with those that have an occasional or ad hoc lucky break, employ a series of practices designed to deliver added value to their clients. These include:14

1 Leadership of innovation. Senior managers in leading organisations do not punish employees who make decisions ‘out of the box’, and who even make the occasional mistake while doing so. Rather, as in the multinational company ASEA Brown Boveri (ABB), which has many business units all over

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the world (including in Australia and New Zealand), they encourage people to make decisions, take sensible risks and hold the attitude that ‘mistakes are okay as long as your batting average is high’. This approach is very different from companies that manage by fear and inhibit innovation by punishing change initiators, who then hide their mistakes and try not to take any decisions, thus totally stopping the flow of innovation.

2 Encouraging creativity at all levels of the organisation.15 In leading organisations, staff are trained to be creative, to question existing processes and to volunteer their best ideas. These will be evaluated, feedback on them given and the best ideas will be implemented; this is highly satisfying to those staff responsible for the ideas. In many firms, creative ideas are rewarded, with both psychological rewards of staff satisfaction, and sometimes monetary benefits, corporate gifts or similar tangibles. Training provides staff with the ability to evaluate their own ideas first, and to bring the best ideas forward to their work teams and supervisors for more formal evaluation and potential implementation.

3 Strategising for innovation. This means positioning the organisation in market segments in which innovation will be valued by clients, and prioritising innovation in product and service design, and all of the organisation’s processes. When the organisation explicitly declares a focus on innovation, then employees at all levels will feel authorised to innovate, and will be less likely to feel inhibited from trying new things. This innovation strategy means that innovative efforts will be valued and legitimised in the firm and will be likely to spur innovative actions and behaviours.

4 Resourcing the innovation efforts. This involves giving employees the time to work on innovative projects, as well as training in problem solving and creative thinking. It is likely to include investing in research and product development, and opening up the organisation to outside influences which are innovative.

5 Measuring innovation as a primary dimension of value in the organisation’s value system. Innovation can be measured in terms of its inputs, processes or outputs. For example, in 3M, a company renowned globally for its innovation, managers are expected to achieve 10 per cent annual revenue growth from new offerings to their markets.

6 Recognising and rewarding staff for their contribution to innovation efforts and achievements. This gives staff a personal motivation for driving innovation outcomes and achieves the business outcomes as well. Once these building blocks are in place, then the firm can be expected to become innovative, because staff are motivated, strategies, measures and resources are in place, and the behaviour and culture needed for innovation will build on and follow these.

K NOW L E D G E M A NAG E M E N T P R A CT I C E S Knowledge management means, first, ensuring that everyone in the organisation is able to draw on the collective knowledge of all staff, not just use their own personal knowledge. This requires the organisation to achieve a focus on creating new knowledge, as well as acquiring it effectively from the outside environment. Second, the organisation must be effective at validating this knowledge, capturing and recording it where possible, then sharing it widely among staff, who can adapt and adopt it for business applications. Knowledge management effectiveness allows everyone in an organisation to

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have access and incentives to use the cumulative knowledge of all their colleagues.16 This is achieved by codified knowledge management systems, and also through person-to-person knowledge management systems. Companies that do this well, such as Schlumberger, Shell Oil, ABB and a host of others, realise that their investment in requiring staff to derive lessons learned from projects, and record this information, pays big dividends. In short, the company has a collective learning curve. For staff, this means that they must feel comfortable in publicising their lessons learned, even when they are learned from mistakes.17 The goal for the organisation is that, just as for individuals, mistakes will occur only once across the organisation. Some forms of knowledge cannot be written down, and these elements are called tacit knowledge, as against the explicit or codifiable knowledge. Some forms of knowledge are not easily amenable to being recorded in computer systems, but thrive through personal communication, so organisations often have internal conferences, communities of practice and special interest groups, in which staff who are conducting similar functions get together regularly to share knowledge. Ford Motor Company reported a benefit of some US$850 million over four years by using its knowledge management facilities to share best practices and avoid mistakes.18 The wonderful thing about knowledge is that, unlike almost every other type of commodity, using knowledge does not deplete it. Indeed, the application of knowledge generates further knowledge about its use. There is an investment to be made in a knowledge management capability, which, if made wisely, should provide a handsome return. When maturity is achieved in this regard, every staff member will become a ‘knowledge worker’. Before they start a new initiative or take an important decision, they will check on what the organisation already knows about the subject and be likely to achieve more effective outcomes. Firms that have made knowledge management work for them are making good use of the maxim ‘knowledge is power’. These companies usually have overcome the culture of fear, in order to get people to open up, share their knowledge, and be secure about their role and position.19

R EMEMBE R THIS ◗◗

Leadership characteristics of visionary strategy capability, communication, integrity, sincerity, delegation and courage are important to a leader’s, and to the organisation’s, outcomes.

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The ability for managers to motivate staff, and create high levels of discretionary work effort in the workforce is a key driver of success.

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A hallmark of successful organisations is their ability to design their processes and focus their culture and behaviours on achieving high levels of customer focus and satisfaction.

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Quality management provides a consistent approach to creating products and services with low wastage rates and high efficiency and effectiveness.

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Innovation management is a set of processes that allows organisations to effectively create new forms of value, beyond the existing offerings, and involves new or improved products, services, processes or business models.

◗◗

Knowledge management is the process of systematically gathering knowledge, making it widely available throughout the organisation, and fostering a culture of learning.

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DEEPER PRINCIPLES COMMON TO THE WORLD’S BEST ORGANISATIONS C.2

Given that it is possible to know of all the practices discussed above, why don’t all organisations have them in place and working strongly to deliver outstanding performance for all stakeholders? We have outlined the key characteristics, from a practical perspective, of sound leadership; best practices in management of staff and customers; and management of organisational quality, innovation and knowledge. Clearly, it is possible to know about these things; just as clearly, it is apparent that excellent managers have many of these practices in place, driving their organisations to achieve high levels of performance. So, if it is possible to know of these things, and know that they work, then why don’t they become widespread in every organisation? Have poorly performing organisations simply not tried to implement these practices? The answer is that managers in most organisations do know of these practices, but that implementation is not as easy as following a recipe from a cookbook. It would appear that certain fundamental ‘preconditions’ need to be in place for these powerful practices to be consistently implemented and deliver benefits when managers try to implement them. Successful implementation of practices requires the organisation to have a set of foundational principles in place (as shown in EXHIBIT C.1). These principles are outlined below:

1 Agreed purpose and direction throughout the organisation. When managers and staff in an organisation have a strong alignment in their sense of purpose and organisational strategy and direction, it is much easier to effectively implement initiatives that involve new or changed practices. Purpose is the statement of intent and overall aims of the organisation, usually specified as a set of objectives; while directions is the set of overall priorities of the organisation, which defines the criteria for making key decisions. Hence, before trying to implement any new initiatives, managers should take the time to ensure that all staff are committed to the agreed direction: that is, towards the organisation’s statement of mission or purpose. Conversely, if staff do not have a shared sense of purpose, then when managers try to introduce a new initiative or set of improved practices, there will likely be disagreement about it. This leads to less than full energy being applied to the implementation, and disappointing results or even the complete failure of the initiative, leading to deep frustration. So, before trying anything in the way of new practices, managers should check for workforce-wide alignment of values and purpose.

2 Empowered staff with decisions made at the right level. When organisations work well, one basic condition must be that decisions are made by the right people at the right level of the organisation. When it works well, the people making decisions are those with the best level of expertise on the matter. If it is a shop-floor matter, meaning an operational decision, the decision is best not made by a senior executive, but by a person or team who are close to the issue – namely shop-floor staff. Of course, this presupposes that they are both given and accept the responsibility for such decisions and the skills to make those choices. Bigger, longer-term decisions should be made by people who are familiar with the big picture facing the organisation – namely, executives. Linking decisions between short-term operational and long-term strategic decisions, which connect strategy to operations, are made by middle management in coordinating roles. So, the more senior an executive, the more longterm the time horizon of decisions and the larger the stakes of those decisions. This establishes that every person in an organisation can be a responsible decision maker. They accept accountability for

purpose Purpose is the statement of intent and overall aims of the organisation, usually specified as a set of objectives. direction Direction is the set of overall priorities of the organisation, which defines the criteria for making key decisions and the sense of purpose of its outcomes. mission Mission is the high level summary statement of the reason for existence of the organisation and its formal desired purpose.

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micro-management Micro-management is the overly controlling detailed supervision of employees’ actions, often in a meddlesome manner, such that employees’ efforts and creativity become stifled and reduced. project management Project management is the planning and implementation of projects in order to achieve outcomes of cost, timeliness of completion and quality of the specified outcome. accountability Accountability is the ‘answerability’, responsibility and ‘blameworthiness’ of a person or team for a set of outcomes that are agreed to be achieved. diligence Diligence is the earnest and persistent application of hard work to required tasks. focus Focus is the prioritisation of work efforts on the ‘vital few’ elements that make a difference rather than the ‘trivial many’ less important tasks. initiative fatigue Initiative fatigue is the attitude and subsequent behaviour of workplace tiredness, leading to less than full enthusiasm or cooperation with workplace programs because of their large number. discipline Discipline is the workplace approach to consistently conducting processes and activities in the same standard way, often specified as ‘standard operating procedures’.

their decisions, and they are trained and capable of making those choices. When shop-floor staff make operational decisions, often in teams, a benefit is that managers at all levels are not burdened with those tasks and can rather use that time productively to focus on their longer-term challenges. Operating staff feel empowered to ‘run the show’ on a daily basis, which is highly motivating for them. Middle managers find a satisfying role of linking strategic and operational activities, and of teaching and supporting shop-floor staff to drive improvements. When senior managers do not allow the rest of the staff to take on responsibility and decisionmaking authority, we often call it micro-management on the part of managers. Micro-management occurs when managers cannot or do not let go of any power to make decisions, and insist on making even relatively small decisions themselves. When this happens, staff get frustrated, decisions are not made by those with close knowledge of operations, and managers often do not fully attend to strategic matters because they spend too much time working on operational details. Micro-management is highly dysfunctional in organisations, and it prevents effective implementation of any new initiatives or best practices.

3 Execution excellence. In order to achieve successful implementation of best practices and new initiatives, two deep capabilities are needed. First, to organise the initiative, great organisations use the philosophy and techniques of project management. This involves decomposing an initiative into its parts, down to individual activities and then assigning these activities to people in such a way that if all those activities are completed to specification, then the initiative will be delivered. Project management provides the planning and organising structure for initiatives such as introducing new practices. It contains a set of tools for this purpose, such as sequencing tools, critical path analysis, Gantt charts (which plot out the activities on a calendar), and work-breakdown structures. The second core requirement for execution excellence is tough and hard accountability for delivery of agreed commitments.20 In an excellent organisation, delivering on key projects for all staff is not optional or negotiable: it just gets done, regardless of the effort required.

4 Diligence, focus and discipline. These core ideas refer to the nature and level of effort which is fundamental to successfully implementing initiatives and new practices. Diligence refers to the level of energy that all staff put in: which is high. There is no shortage of enthusiasm in these companies, and a sense of positive activity that is expected to lead to positive outcomes. Without being unrealistic, there is a ‘can do’ attitude that makes a difference. Focus refers to the notion that these firms do not spread their efforts across too many initiatives, but instead specialise and concentrate their efforts on doing a few things well. Other firms try to implement too many different initiatives, and suffer from initiative fatigue, which is a result of starting a lot more initiatives than they finish. In the worst of organisations, managers seem to jump from one initiative to another, never properly resourcing them, and always expecting short-term fixes – which never seem to work. Discipline involves choosing the best way to conduct activities and ensuring that all staff adhere to doing things in that best way. Discipline is a sense of stability and order that provides control over the activities and work processes of the organisation.

5 Learning as a key principle of the organisation. In excellent organisations, everybody is on a formalised training and development plan. Everybody has a career path planned. Succession planning is linked to the learning and development plan for individuals and the organisation. For managers and professionals, this means staying up to date with the leading edge of knowledge in their field by attending conferences, reading journals and professional magazines, or maintaining and upgrading

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qualifications through continuing education (often called ‘professional development’ by industry associations such as accounting and engineering groups). For tradespeople, it means deepening or broadening their trade skills. Overall, it means that the whole organisation is filled with people who are lifting their knowledge levels in ways that are directly or indirectly related to their contribution at work. In every organisation that is built on staff who are energised through improved knowledge, we see creativity, productivity, service and quality all improving. It is not unusual to see such organisations improving their competitiveness on all these dimensions at five to 10 per cent per year. Imagine what the difference in competitiveness would be after five years if two firms start at the exact same place, when one is improving through constant staff learning and the other is not.

6 Integrity, values and the ethical high road. These organisations are value driven, in that they decide to have a strong set of central ideals that guide behaviour, and they ask all staff to commit to these. This idea of values strongly fits with the sense of the ethical high road: the idea that these companies and their staff are expected to never cheat, lie or deceive any stakeholder. It is about integrity.21 In short, we have discovered that these companies have an embedded behaviour of always telling the whole truth. This means not accepting behaviour that does not fit with the values, and never accepting immoral or illegal behaviour. It also means dealing with customers, and even underperforming staff, with complete honesty.22

7 Distinctive capabilities and position. Successful companies have just one or two distinctive capabilities that are lasting sources of competitive advantage. These can arise due to superior technology, superior culture, a distinctively better business model or any other specific point of difference. Since any single point of comparative advantage only lasts a few years before being whittled away by competitive forces, to make these advantages last longer, companies reinvest in them, refocusing them and continuing to improve them. Sony kept its advantage in consumer electronics for over 20 years because of its outstanding technology and marketing and through continued cycles of investment, until the gap was finally closed by the extraordinary efforts of companies such as Samsung. BMW and Mercedes both had a technical and a brand advantage for over 30 years, which the Lexus brand (part of Toyota) and Honda have significantly eroded in the past decade. During the 1980s and 1990s, National Australia Bank had a distinct advantage over its competitors through lower cost structures and superior risk management processes that have now been eroded. These examples show how distinctive capabilities can deliver years of benefits, but that such distinctiveness does not last forever. Once BHP Limited (BHP) and Billiton PLC (Billiton) merged (to create the world’s largest mining company), it created a distinctive advantage over its rivals based on economies of scale. Newcrest Mining, an Australian-based gold and copper mining company, has built and used innovation, introducing new technologies and process improvements, in order to reduce its costs of production. It has become more profitable than ever before. Microsoft has leveraged its very extensive customer reach, having some 90 per cent market share of office and browser markets, to extend its brand and product leadership over some 30 years, through reinvesting in its product leadership based advantages. On the other hand, Apple has taken a leading position in phones and music markets through both hardware and software production (iPod, iPhone, iPad and related software), and through distinctive sales and distribution dominance (Apple stores and iTunes). Apple, like Microsoft, is not waiting for competitors to catch up – a recipe for mediocrity – but continue to forge ahead with more and more distinctive offerings to its customers.

ethical high road The high standard of behaviour that will not cheat, lie or scam any stakeholder, and will pursue the highest standards of honesty and integrity. integrity Steadfast adherence to a strict moral or ethical code of honesty. point of difference A differentiating aspect of the organisation that distinguishes it from its competitors, as perceived by key stakeholders such as customers or investors.

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These deep principles, combined with agreed strategy, empowered staff, execution, implementation excellence and constant learning, provide a base of organisational capability that makes it possible for practices and initiatives in areas such as customer focus, innovation, knowledge management and others to stick in place, work properly and deliver consistent performance improvements. Imagine a company in which these deep principles are absent, or only in place to a weak degree, the strategy is not agreed, staff are poorly empowered and implementation is undisciplined; newly introduced practices and initiatives will not take hold.

CASE STUDY Mars Corporation is a major privately owned corporation, and it generates global sales of over US$35 billion through confectionery and pet food activities in many countries. Most readers will know of famous products such as Mars bars; but many would be unaware that Mars also owns many of the leading brands of pet food, including Pedigree and Whiskas. This company is very strongly values driven, and lives to its five values of: ✚✚ Quality: the consumer is our boss, quality is our work and value for money is our goal.

✚✚ Responsibility: as individuals, we demand total responsibility from ourselves and as associates, we support the responsibilities of others.

✚✚ Mutuality: a mutual benefit is a shared benefit and a shared benefit will endure.

Anne Thompson

VALUES CAN COME FROM MARS Source: 123rf/Leah-

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✚✚ Efficiency: we use resources to the full, waste nothing and do only what we can do best.

✚✚ Freedom: we need freedom to shape our future, we need profit to remain free. Since it began, this company has urged all staff to live these values and guide their behaviour at work through these values. These specific values are not suitable for all companies, but they have certainly suited Mars Corporation for a very long time.

Sources: Mars (2016). ’The five principles. http://www.mars.com/global/about-us/five-principles (accessed 5 December 2016); Mars (2016). ’Who we are. http://www.mars.com/global/about-us (accessed 5 December 2016).

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C.3

In the best organisations, the principles described in this chapter are strong, and the practices in areas such as leadership, quality customer focus and people management are strong. As a result, the performance outcomes for all stakeholders are also strong. The whole organisation works like a well oiled machine, in the sense that there is little or no dysfunction, and the organisation’s functions, activities and subsystems just work well.

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shows this set of systems. First, consider strategy as the direction-setting process of the organisation. Strategy is set as the distinct focus of the organisation that tells everyone inside and outside what the focus and priorities are. Strategy provides the fit between the organisation’s capabilities, current and future, and the business environment. Examples of generic strategies are lean/low cost, distinction through quality/superior service, product leadership, flexibility and encouraging innovation. Whichever of these is chosen, the next core building block is the organisation’s delivery system, namely its operating processes. In a great organisation, the operating systems are designed precisely to deliver the specific strategy. There is no disconnect between the stated strategy and the operational capability to deliver it. See also Chapter 6 for a discussion of strategy.

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Strategy

operating processes Operating processes are the set of direct and support activities within every organisation that create its products and services.

EXHIBIT C.4 Overall organisation as a system

Positioning in a market, fit with business environment and capabilities

Operating practices Production and various support activities See Chapter 6 for a discussion of strategy.

Behaviour and culture

Measures of performance

Performance oriented for the business

E.g. operating and business performance

Rewards and recognition Pay, promotion, satisfaction

Next in the system is the firm’s core measurement system, which is the process of assessing and reporting the key performance parameters of the organisation that provide information about its progress towards achieving its goals. Key performance indicators (KPIs) are set to match the strategy, because ‘what gets measured gets done’. These organisations know that they must match their measures to the overall strategy and the focus of the operations. So, if the competitive strategy is all about being innovative, and the operations are resourced to deliver innovation, then the key measures must be innovation. At 3M, they certainly are. The same applies to Toyota and its focus on productivity and quality, and Ritz Carlton hotels and its focus on quality.

core measurement system Core measurement system is the process of assessing and reporting the key performance parameters of the organisation that provide information about its progress towards achieving its goals. key performance indicators (KPIs) Key performance indicators (KPIs) are the focused set of important metrics that describe the organisation’s performance in delivering its strategy.

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Next come the factors that align outcomes for staff and for the organisation as a whole. Staff always need to know the answer to what is colloquially known as the ‘WIFM’ question, in which the letters stand for, ‘What’s in it for me?’ Great organisations have a comprehensive answer to this question, in that the very things that measure and make the organisation successful are exactly aligned to the things that make individuals successful. This means that some combination of pay, promotion prospects and psychological rewards, as referred to earlier in this chapter, are set to reflect the organisation’s KPIs. The system of management by objectives (MBO) reflects these individual and team goals and is directed by the system of KPIs. Once this is achieved, then the organisation can be assured that its staff will be directed to deliver the organisation’s goals, which is fundamental to the very definition of management’s role. Once the staff have their sights set and focused on achieving the things that will make their personal, and simultaneously the organisation’s, goals come to fruition, then the behaviour and culture will be correctly focused on delivering the strategy. In summary, strategy defines direction and sets priorities to accompany the delivery cycle of operations practices, performance measures (KPIs), personal rewards and recognition, and the overall culture and behaviour of the organisation.

R EMEMBE R THIS ◗◗

Excellent organisations have some deeper principles strongly in place, such as an organisation-wide sense of integrity, execution (implementation excellence), delegation of authority, accountability and investment in learning.

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Organisations that sustain success have a holistic framework that makes sense of and connects their strategy, operational priorities, key measures and performance indicators, recognition and reward systems and culture/behaviour.

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DISCUSSION QUESTIONS 1 Conduct some research (via books, journals and the Internet), on three of the following business or political leaders, Mark Zuckerberg, Angela Merkel, Malcolm Turnbull, Steven Jobs, Julie Bishop, Donald Trump or Barack Obama, and comment on whether they all have the same leadership style. 2 Look up the Fortune set of ‘Top 100 employers to work for’ on the Internet. What are some of the most important human resource management practices of these companies? 3 Discuss an example of a service experience you have had in which excellent customer service was given, and contrast it with one where you received poor service. What resulting approach to repurchasing from those suppliers will you have? What differences in staff behaviour and attitude did you observe? What management practice do you think might have led to this difference?

4 Describe a company or product that you like because it is innovative. Would it be an attractive place to work, and why? Can the company charge a premium price for its services? Does its bottom line outcome benefit from being innovative? 5 Through online or offline research, find an example of an organisation that is active in knowledge management. Describe the organisation’s knowledge management methods and the business benefits that result. 6 Select an organisation with which you are familiar. Discuss its strengths and weaknesses in relation to the core principles described in this chapter. How could the organisation’s performance on two of the core principles be improved?

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GROUP CHALLENGE

UNDERSTANDING HOW AN ORGANISATION WORKS

Pick an organisation with which you are familiar, perhaps where one of you has worked, or even the university that you study at, and examine it with respect to the elements of EXHIBIT C.4. For each box in EXHIBIT C.4,

describe what you know about how that organisation works. Further, if your group was in charge, what policies and conditions would you ideally put in place for each box of EXHIBIT C.4?

ENDNOTES 1 Montgomery, Cynthia A. (1 January 2008). Putting Leadership Back into Strategy. Harvard Business Review. 2 Heineman, Ben W., Jr. (1 April 2007). Avoiding Integrity Land Mines. Harvard Business Review. 3 O’Toole, James and Warren G. Bennis. (1 June 2009). What’s Needed Next: A Culture of Candor, Harvard Business Review. 4 Goleman, Daniel and Richard Boyatzis. (1 September 2008). Social Intelligence and the Biology of Leadership. Harvard Business Review. 5 Field, Anne. (1 July 2007). Leadership That Focuses on the Customer – Really. Harvard Business Review. 6 Gulati, Ranjay. (1 May 2007). Silo Busting: How to Execute on the Promise of Customer Focus. Harvard Business Review. 7 Kanter, Rosabeth Moss. (1 April 2011). Cultivate a Culture of Confidence. Harvard Business Review. 8 Amar, Carsten Hentrich and Vlatka Hlupic. (1 December 2009). To Be a Better Leader, Give Up Authority. Harvard Business Review. 9 Rooke, David and William R. Torbert. (1 April 2005). Seven Transformations of Leadership. Harvard Business Review. 10 George, William W., Peter Sims, Andrew N. McLean, David Mayer and Diana Mayer. (1 February 2007). Discovering Your Authentic Leadership. Harvard Business Review. 11 Field. Leadership That Focuses on the Customer. 12 Porter, Michael E. and Mark R. Kramer. (1 December 2006). Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review.

13 Drucker, Peter, F. (1 August 2002). Discipline of Innovation, Harvard Business Review; Day, George S. (1 December 2007). Is It Real? Can We Win? Is It Worth Doing? Managing Risk and Reward in an Innovation Portfolio. Harvard Business Review. 14 Frangos, Cassandra A. (14 January 2011). How to Embed Innovation into Your Organizational Culture. Harvard Business Review. 15 Coyne, Kevin P., Patricia Gorman Clifford, Renee Dye, Teresa M. Amabile, Dorothy Leonard, Susan Straus and Ed Catmull. (1 September 2008). Secrets of Successful Innovation. Harvard Business Review. 16 Pugh, Katrina and Nancy M. Dixon. (1 May 2008). Don’t Just Capture Knowledge – Put It to Work. Harvard Business Review. 17 Edmondson, Amy C. (1 April 2011). Strategies for Learning from Failure. Harvard Business Review. 18 Lee, D. (February 2010). Managing Know How. Management Science, 56:2, 270(16). 19 Cohen, Don. (1 December 2006). What’s Your Return on Knowledge? Harvard Business Review. 20 Bevington,T. and Samson, D. (2012). Implementing Strategic Change (London: Kogan Page). 21 Bazerman, Max H. and Ann E. Tenbrunsel. (1 April 2011). Ethical Breakdowns. Harvard Business Review. 22 Wood, G. (2000). A cross cultural comparison of the contents of codes of ethics: USA, Canada and Australia. Journal of Business Ethics; Wood, G. and Callaghan, M. Communicating the Ethos of Codes of Ethics in Corporate Australia, 1995–2001: Whose Rights, Whose Responsibilities? Employee Responsibilities and Rights Journal, 15:4, 209–21; Singh, Jang, Emily Carasco, Goran Svensson, Greg Wood and Michael Callaghan. (February 2005). A comparative study of the contents of corporate codes of ethics in Australia, Canada and Sweden. Journal of World Business, 40:1, 91–109.

GLOSSARY

assessment centre  Used to select individuals with high managerial potential based on their performance on a series of simulated managerial tasks. authentic leadership  Individuals who know and understand themselves, who espouse and act consistently with higher-order ethical values and who empower and inspire others with their openness and authenticity.

A accountability  Accountability is the ‘answerability’, responsibility and ‘blameworthiness’ of a person or team for a set of outcomes that are agreed to be achieved. achievement culture   A results-oriented culture that values competitiveness, personal initiative and achievement. activity ratio  A financial ratio that measures the organisation’s internal performance with respect to key activities defined by management. adaptability culture   Characterised by values that support the company’s ability to interpret and translate signals from the environment into new behaviour responses. adjourning  The stage of team development in which members prepare for the team’s disbandment. administrative model  A decision-making model that describes how managers actually make decisions in situations characterised by non-programmed decisions, uncertainty and ambiguity. administrative principles  A subfield of the classical management perspective that focused on the total organisation rather than the individual worker, delineating the management functions of planning, organising, commanding, coordinating and controlling. after-action review   A disciplined procedure whereby managers review the results of decisions to evaluate what worked, what didn’t, and how to do things better. alienated follower  A person who is an independent, critical thinker but is passive in the organisation. ambidextrous approach  Incorporating structures and processes that are appropriate for both the creative impulse and for the systematic implementation of innovations. ambiguity  The goals to be achieved or the problems to be solved are unclear, alternatives are difficult to define and information about outcomes is unavailable. application form  A device for collecting information about an applicant’s education, previous job experience and other background characteristics.

coordinate the organisation with key elements in the external environment. bounded rationality  The concept that people have the time and cognitive ability to process only a limited amount of information on which to base decisions. brainstorming  A technique that uses a faceto-face group to spontaneously suggest a broad range of alternatives for decision making.

authority  The formal and legitimate right of a manager to make decisions, issue orders and allocate resources to achieve organisationally desired outcomes.

budgetary control  Setting specific financial plans in place, then managing in real time to achieve those plans, carefully attending to variations between plans and ‘actuals’.

avoidance learning  The removal of an unpleasant consequence following desired behaviour.

bureaucratic organisation  A subfield of the classical management perspective that emphasised management on an impersonal, rational basis through such elements as clearly defined authority and responsibility, formal record keeping, and separation of management and ownership.

B balance sheet  A financial statement that shows the firm’s financial position with respect to assets and liabilities at a specific point in time. balanced scorecard  A management control system that balances traditional financial measures with operational measures relating to a company’s critical success factors. BCG matrix  A concept developed by the Boston Consulting Group that evaluates strategic business units with respect to the dimensions of business growth rate and market share. behaviour modification  The set of techniques by which reinforcement theory is used to modify human behaviour. behavioural sciences approach  A subfield of the humanistic management perspective that applies social science in an organisational context, drawing from economics, psychology, sociology and other disciplines. behaviourally anchored rating scale (BARS)  A rating technique that relates an employee’s performance to specific job-related dimensions. benchmarking  The continuous process of measuring products, services and practices against major competitors or industry leaders. big data analytics  Technologies, skills, and processes for searching and examining massive, complex sets of data that traditional data processing applications cannot handle, to uncover hidden patterns and correlations. bottom-up approach  Encouraging the flow of ideas from lower levels and making sure they are heard and acted upon by top executives. bottom-up budgeting  A budgeting process in which lower-level managers budget their departments’ resource needs and pass them up to top management for approval. boundary-spanning roles   Roles assumed by people and/or departments that link and

business-level strategy  The level of strategy concerned with the question: ‘How do we compete?’ It relates to each business unit or product line within the organisation.

C capital budget  A budget that plans and reports investments in major assets to be depreciated over several years. cash budget  A budget that estimates and reports cash flows on a daily or weekly basis to ensure that the organisation has sufficient cash to meet its obligations. centralisation  The location of decision authority at a single point, usually near top organisational levels. centralised network  A team communication structure in which team members communicate through one individual to solve problems or make decisions. ceremony  A planned activity that makes up a special event and is conducted for the benefit of an audience. certainty  All the information the decision maker needs is fully available. chain of command  An unbroken line of authority that links all individuals in the organisation and specifies who reports to whom. change agent  An OD specialist who contracts with an organisation to facilitate change. changing  The intervention stage of organisation development in which individuals experiment with new workplace behaviour. channel richness  The amount of information that can be transmitted during a communication episode. channel  The carrier of a communication.

701

charismatic leader  A leader who has the ability to motivate employees to transcend their expected performance.

conceptual skill  The cognitive ability to see the organisation as a whole and the relationship among its parts.

chief ethics officer  A manager who oversees all aspects of ethics and legal compliance.

conflict  Disagreement between stakeholders involved in a decision or activity, usually as to which course of action or strategy should be preferred.

classical model  A decision-making model based on the assumption that managers should make logical decisions that will be in the organisation’s best economic interests. classical perspective  A management perspective that emerged during the nineteenth and early twentieth centuries, which emphasised a rational, scientific approach to the study of management and sought to make organisations efficient operating machines. coaching  A method of directing, instructing and training a person with the goal to develop specific management skills. coalition  An informal alliance among managers who support a specific goal. code of ethics  A formal statement of the organisation’s values regarding ethics and social issues. coercive power  Power that stems from the authority to punish or recommend punishment. collaboration  A joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose. collectivism  A preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests. communication apprehension  An individual’s level of fear or anxiety associated with real or anticipated communication. communication  The process by which information is exchanged and understood by two or more people, usually with the intent to motivate or influence behaviour. compensation  Monetary payments (wages, salaries) and non-monetary goods and commodities (benefits, vacations) used to reward employees. compensatory justice  The concept that individuals should be compensated for the cost of their injuries by the party responsible and also that individuals should not be held responsible for matters over which they have no control.

conformist  A follower who participates actively in the organisation but does not use critical thinking skills. consideration  The extent to which the leader is mindful of subordinates, respects their ideas and feelings, and establishes mutual trust. consistency culture   A culture that values and rewards a methodical, rational, orderly way of doing things. content theories  A group of theories that emphasise the needs that motivate people. contingency approach  A model of leadership that describes the relationship between leadership styles and specific organisational situations. contingency plans  Plans that define organisation responses to specific situations, such as emergencies, setbacks or unexpected conditions. contingency view  An extension of the humanistic perspective in which the successful resolution of organisational problems is thought to depend on managers’ identification of key variables (or contingencies) in the situation at hand. contingent workers  People who work for an organisation, but not on a permanent or fulltime basis, including temporary placements and contracted employees. continuous improvement  The implementation of a large number of small, incremental improvements in all areas of the organisation on a continuing basis. controlling  The management function concerned with monitoring employees’ activities, keeping the organisation on track towards its goals and making corrections as needed. coordination  The managerial task of adjusting and synchronising the diverse activities among different individuals and departments. core competence  A business activity that an organisation does particularly well in comparison to competitors.

corporate social responsibility (CSR) report  The publication of the organisation’s record of activities and performance outcomes on social/community and environmental impacts and outcomes, as well as the usual financial performance report. corporate social responsibility (CSR)  The obligation of organisation management to make decisions and take actions that will enhance the welfare and interests of society as well as the organisation. corporate university  An in-house training and education facility that offers broad-based learning opportunities for employees. corporate-level strategy  The level of strategy concerned with the question ‘What business are we in?’ It relates to the organisation as a whole and the combination of business units and product lines that make it up. cost leadership  A type of competitive strategy with which the organisation aggressively seeks efficient facilities, cuts costs and employs tight cost controls to be more efficient than competitors. creativity  The generation of novel ideas that might meet perceived needs or offer opportunities for the organisation. crisis management plan (CMP)  A detailed written plan that specifies the steps to be taken, and by whom, if a crisis occurs. critical thinking  Thinking independently and being mindful of the effect of one’s behaviour on achieving goals. cross-functional team  A group of employees assigned to a functional department that meets as a team to resolve mutual problems. cultural intelligence (CQ)  The ability to use reasoning and observation skills to interpret unfamiliar gestures and situations, and devise appropriate behavioural responses. cultural leader   Defines and articulates important values that are tied to a clear and compelling mission. culture   The shared knowledge, beliefs, values, behaviours and ways of thinking among members of a society. culture change  A major shift in the norms, values, attitudes and mindset of the entire organisation.

competitive advantage  What sets the organisation apart from others and provides it with a distinctive edge in the marketplace.

core measurement system  Core measurement system is the process of assessing and reporting the key performance parameters of the organisation that provide information about its progress towards achieving its goals.

customer relationship management (CRM)  Systems that help companies keep in close touch with customers, collect and manage customer data, and collaborate with customers to provide the most valuable products and services.

competitors   Other organisations in the same industry or type of business that provide goods or services to the same set of customers.

corporate governance  The system of governing an organisation so that the interests of corporate owners are protected.

customers   People and organisations in the environment who acquire goods or services from the organisation.

702

GLOSSARY

D 360-degree feedback  A process that uses multiple raters, including self-rating, to appraise employee performance and guide development. decentralisation  The dispersed location of decision authority, usually near lower organisational levels. decentralised control  The use of organisational culture, group norms and a focus on goals, rather than rules and procedures, to foster compliance with organisational goals. decentralised network  A team communication structure in which team members can communicate freely with each other and arrive at decisions together. decentralised planning  Managers work with planning experts to develop their own strategic plans. decision  A choice made from available alternatives. decision making  The process of identifying problems and opportunities and then resolving them. decision style  Differences among people with respect to how they perceive problems and make decisions. decode  To translate the symbols used in a message for the purpose of interpreting its meaning. delegation  The process managers use to transfer authority and responsibility to positions below them in the hierarchy. departmentalisation  The basis on which individuals are grouped into departments and departments into total organisations. descriptive  An approach that describes how managers actually make decisions rather than how they should. devil’s advocate   A person who is assigned the role of challenging the assumptions and assertions made by the group to prevent premature consensus.

criteria for making key decisions and the sense of purpose of its outcomes. discipline  Discipline is the workplace approach to consistently conducting processes and activities in the same standard way, often specified as ‘standard operating procedures’. discretionary responsibility  Organisational responsibility that is voluntary and guided by the organisation’s desire to make social contributions not mandated by economics, law or ethics. discretionary work effort  Discretionary work effort is the effective activity by staff above and beyond an acceptable norm or minimum. disruptive innovation  Innovations in products, services or processes that radically change an industry’s rules of the game for producers and consumers. distributive justice  The concept that different treatment of people should not be based on arbitrary characteristics. In the case of substantive differences, people should be treated differently in proportion to the differences among them. distributive negotiation  A competitive and adversarial approach in which each party strives to get as much as it can, usually at the expense of the other party.

efficiency  The use of minimal resources – raw materials, money and people – to produce a desired volume of output. electronic brainstorming  Bringing people together in an interactive group over a computer network to suggest alternatives; sometimes called brainwriting. embeddedness   A situation in which there is a deep understanding and acceptance of organisational direction and purpose throughout the organisation. employer brand  Aims to make the organisation seem like a highly desirable place to work. employment tests  Assess candidates on various factors considered important for the job to be performed and include cognitive ability tests, physical ability tests and personality tests. empowerment  The delegation of power and authority to employees. encode  To select symbols with which to compose a message. engagement  An emotional and mental state in which employees enjoy their work, contribute enthusiastically to meeting goals, and feel a sense of belonging and commitment to the organisation.

diversification  The strategy of moving into new lines of business.

equity  A situation that exists when the ratio of one person’s outcomes to inputs equals that of another’s.

divisional structure  An organisation structure in which departments are grouped based on similar organisational outputs.

equity theory  A process theory that focuses on individuals’ perceptions of how fairly they are treated relative to others.

downward communication  Messages and information sent from top management down to employees.

ERG theory  A modification of the needs hierarchy theory that proposes three categories of needs: existence, relatedness and growth.

dynamic capabilities  Leveraging and developing more from the firm’s existing assets, capabilities and core competencies in a way that will provide a sustained competitive advantage.

escalating commitment  Overly supporting a strategy, decision or activity even though rational thought would indicate the contrary.

diagnosis  The step in the decision-making process in which managers analyse underlying causal factors associated with the decision situation.

E

differentiation  A type of competitive strategy with which the organisation seeks to distinguish its products or services from those of its competitors.

economic dimension   The dimension of the general environment representing the overall economic health of the country or region in which the organisation functions.

diligence  Diligence is the earnest and persistent application of hard work to required tasks.

economic forces  Forces that affect the availability, production and distribution of a society’s resources among competing users.

direct investing  An entry strategy in which the organisation is involved in managing its production facilities in a foreign country.

effective follower  A critical, independent thinker who actively participates in the organisation.

direction  Direction is the set of overall priorities of the organisation, which defines the

effectiveness  The degree to which the organisation achieves a stated goal.

E→P expectancy  Expectancy that putting effort into a given task will lead to high performance.

ethical dilemma  A situation that arises when all alternative choices or behaviours have been deemed undesirable because of potentially negative ethical consequences, making it difficult to distinguish right from wrong. ethical high road  The high standard of behaviour that will not cheat, lie or scam any stakeholder, and will pursue the highest standards of honesty and integrity. ethics committee  A group of executives assigned to oversee the organisation’s ethics by ruling on questionable issues and disciplining violators. ethics  The code of moral principles and values that governs the behaviour of a person or a group with respect to what is right or wrong. ethnocentrism  A cultural attitude marked by the tendency to regard one’s own culture as superior to others. GLOSSARY

703

euro  The single European currency that has replaced 17 national currencies in the European Union. The eight coins have one side common to all countries and a reverse side specific to each country. The seven different banknotes look the same in each country. evaluation  The step in the decision-making process that involves decision makers gathering information that tells them how well the decision was implemented and whether it was effective in achieving its goals. evidence-based decision making   A process founded on a commitment to examining potential biases, seeking and examining evidence with rigour, and making informed and intelligent decisions based on the best available facts and evidence. exchange rate  The rate at which one country’s currency is exchanged for that of another country. exit interview  An interview conducted with departing employees to determine reasons for their departure and learn about potential problems in the organisation. expectancy theory  A process theory that proposes that motivation depends on individuals’ expectations about their ability to perform tasks and receive desired rewards. expense budget  A budget that outlines the anticipated and actual expenses for a responsibility centre. expert power  Power that stems from special knowledge or skill in tasks performed by employees. exporting  An entry strategy, in which the organisation maintains its production facilities within its home country and transfers its products for sale in foreign markets. extinction  Withdrawing a positive or reinforcing reward, leading to the cessation of a behaviour. extrinsic reward  A reward given by another person.

F feedback  A response by the receiver to the sender’s communication. feedback control  Control that focuses on the organisation’s outputs; also called postaction or output control. femininity  A cultural preference for cooperation, group decision-making and quality of life.

focus  Focus is the prioritisation of work efforts on the ‘vital few’ elements that make a difference rather than the ‘trivial many’ less important tasks. focus strategy  A type of competitive strategy that emphasises concentration on a specific regional market or buyer group. force-field analysis  The process of determining which forces drive and which resist a proposed change. formal communication channels  Involve written and verbal ways of exchanging information among people who have recognised status in the organisation. forming  The stage of team development characterised by orientation and acquaintance.

grapevine  An informal, person-to-person communication network of employees that is not officially sanctioned by the organisation. greenfield venture  The most risky type of direct investment, in which a company builds a subsidiary from scratch in a foreign country. groupthink  Groupthink involves members of a group agreeing a position on a decision or issue to avoid conflict or disagreement, sometimes overly influenced by a dominating ‘opinion leader’.

H

frustration-regression principle  The idea that failure to meet a high-order need may cause a regression to an already satisfied lowerorder need.

halo effect  A type of rating error that occurs when an employee receives the same rating on all dimensions regardless of his or her performance on individual ones.

functional manager  A manager who is responsible for a department that performs a single functional task and has employees with similar training and skills.

Hawthorne Studies  A series of experiments on worker productivity, begun in 1924 at the Hawthorne plant of Western Electric Company in Illinois, attributed employees’ increased output to managers’ better treatment of them during the study.

functional structure  An organisation structure in which positions are grouped into departments based on similar skills, expertise and resource use. functional team  A team composed of a manager and his or her subordinates. functional-level strategy  The level of strategy concerned with the question: ‘How do we support the business-level strategy?’ It relates to all of the organisation’s major departments.

G general environment   The layer of the external environment that affects the organisation indirectly. general manager  A manager who is responsible for several departments that perform different functions. global mindset  The ability to appreciate and influence individuals, groups, organisations and systems that represent different social, cultural, political, institutional, intellectual and psychological characteristics.

first-line manager  A manager who is at the first or second management level and is directly responsible for the production of goods and services. flat structure  A management structure characterised by an overall broad span of control and relatively few hierarchical levels.

global team  A cross-border team that is made up of different nationalities whose activities span multiple countries.

GLOSSARY

goal-setting theory  Motivation can be increased and performance enhanced by setting specific, challenging goals and providing timely feedback.

free rider  A person who benefits from team membership but does not make a proportionate contribution to the team’s work.

global outsourcing  Engaging in the international division of labour so as to obtain the cheapest sources of labour and supplies regardless of country; also called global offshoring.

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goal  A desired future state that the organisation attempts to realise.

hero   A figure who exemplifies the deeds, character and attributes of a strong corporate culture. hierarchical control  The use of rules, policies, hierarchy of authority, reward systems and other formal devices to influence employee behaviour and assess performance. hierarchy of needs theory  A content theory that proposes that people are motivated by five categories of needs – physiological, safety, belongingness, esteem and selfactualisation – that exist in a hierarchical order. high-context culture  A culture in which people use communication to build personal relationships. high-performance culture   Created when managers emphasise both values and business results. horizontal communication  The lateral or diagonal exchange of messages among peers or co-workers. horizontal linkage model  An approach to product change that emphasises shared development of innovations among several departments. human capital  The economic value of the knowledge, experience, skills and capabilities of employees. human relations movement  A movement in management thinking and practice that

emphasised satisfaction of employees’ basic needs as the key to increased worker productivity. human resource management (HRM)  Activities undertaken to attract, develop and maintain an effective workforce within an organisation. human resource planning  The forecasting of human resource needs and the projected matching of individuals with expected job vacancies. human resources perspective  A management perspective that suggests jobs should be designed to meet higher-level needs by allowing workers to use their full potential. human skill  The ability to work with and through other people, and to work effectively as a group member. humanistic perspective  A management perspective that emerged around the late nineteenth century that emphasised understanding human behaviour, needs and attitudes in the workplace. humility  Being unpretentious and modest rather than arrogant and prideful. hygiene factors  Factors that involve the presence or absence of job dissatisfiers, including working conditions, pay, company policies and interpersonal relationships.

I idea champion  A person who sees the need for and champions productive change within the organisation. idea incubator  An in-house program that provides a safe harbour where ideas from employees throughout the organisation, can be developed without interference from company bureaucracy or politics. implementation  The step in the decisionmaking process that involves using managerial, administrative and persuasive abilities to translate the chosen alternative into action. income statement  A financial statement that summarises the firm’s financial performance for a given time interval; sometimes called a profitand-loss statement. individualism  A preference for a loosely knit social framework in which individuals are expected to take care of themselves. individualism approach  The ethical concept that acts are moral when they promote the individual’s best long-term interests, which ultimately leads to the greater good. influence  The effect that a person’s actions have on the attitudes, values, beliefs or behaviour of others. infrastructure  A country’s physical facilities that support economic activities.

initiating structure  The degree of task behaviour; the extent to which the leader is task oriented and directs subordinate work activities towards goal alignment.

job characteristics model  A model of job design that comprises core job dimensions, critical psychological states and employee growth-need strength.

initiative fatigue  Initiative fatigue is the attitude and subsequent behaviour of workplace tiredness, leading to less than full enthusiasm or cooperation with workplace programs because of their large number.

job description  A concise summary of the specific tasks and responsibilities of a particular job.

innovation by acquisition   A strategy to obtain innovation by buying other companies, recognising that the cutting edge of innovation often happens with young, small, entrepreneurial companies rather than inside the walls of established firms. integrative negotiation   A collaborative approach based on a win–win assumption, whereby the parties want a creative solution that benefits both sides of the conflict. integrity  Steadfast adherence to a strict moral or ethical code of honesty. intelligence team  A cross-functional group of managers and employees who work together to gain a deep understanding of a specific business issue and offer insight and recommendations for planning. interactive leadership  The focus on minimising personal ambition and developing others. internal environment   Includes elements within the organisation’s boundaries, such as employees, management and corporate culture. international dimension   The portion of the external environment that represents events originating in foreign countries, as well as opportunities for local organisations in other countries.

job design  The application of motivational theories to the structure of work for improving productivity and satisfaction. job enrichment  A job design that incorporates achievement, recognition and other high-level motivators into the work. job evaluation  The process of determining the value of jobs within an organisation through an examination of job content. job specification  An outline of the knowledge, skills, education and physical abilities needed to adequately perform a job. joint venture   A variation of direct investment in which an organisation shares costs and risks with another firm to build a manufacturing facility, develop new products or set up a sales and distribution network. justice approach  The ethical concept that moral decisions must be based on standards of equity, fairness and impartiality.

K key performance indicators (KPIs)  Key performance indicators (KPIs) are the focused set of important metrics that describe the organisation’s performance in delivering its strategy.

international management  The management of business operations conducted in more than one country.

knowledge management  The efforts to systematically find, organise and make available a company’s intellectual capital, and to foster a culture of continuous learning and knowledge sharing so that a company’s activities build on what is already known.

intrinsic reward  The satisfaction received in the process of performing an action.

L

intuition  The immediate comprehension of a decision situation based on past experience but without conscious thought. involvement culture   A culture that places high value on meeting the needs of employees and values cooperation and equality. ISO 9000 standards  A set of international standards for quality management, setting uniform guidelines for processes to ensure that products conform to customer requirements.

J job analysis  The systematic process of gathering and interpreting information about the essential duties, tasks and responsibilities of a job.

labour market   The people available for hire by the organisation. large-group intervention  An approach that brings together participants from all parts of the organisation (and may include key outside stakeholders as well) to discuss problems or opportunities and plan for major change. law of effect  The assumption that positively reinforced behaviour tends to be repeated, and unreinforced or negatively reinforced behaviour tends to be inhibited. Leadership Grid  A two-dimensional leadership theory that measures the leader’s concern for people and for production. leadership  The ability to influence people towards the attainment of organisational goals. GLOSSARY

705

leading  The management function that uses influence to motivate employees to achieve the organisation’s goals. legal–political dimension   The dimension of the general environment that includes federal, state and local government regulations, and political activities designed to control organisation behaviour.

applicant attempt to match each other’s needs, interests and values. matrix approach  An organisation structure that utilises functional and divisional chains of command simultaneously in the same part of the organisation. matrix boss  A product or functional boss, responsible for one side of the matrix.

legitimate power  Power that stems from a formal position in an organisation and the authority granted to it.

mentoring  When an experienced employee guides and supports a less experienced employee.

licensing  An entry strategy in which an organisation in one country makes certain resources available to organisations in another in order to participate in the production and sale of its products abroad.

message  The tangible formulation of an idea to be sent to a receiver.

line authority  A form of authority in which individuals in management positions have the formal power to direct and control immediate employees. liquidity ratio  A financial ratio that indicates the organisation’s ability to meet its current debt obligations. listening  The skill of grasping facts as well as feelings to interpret a message’s genuine meaning. low-context culture  A culture where people use communication primarily to exchange facts and information.

M making progress principle  The idea that the most important factor to boost motivation, positive emotions and perceptions is making progress towards meaningful goals. management  The attainment of organisational goals in an effective and efficient manner through planning, organising, leading and controlling organisational resources. management by means (MBM)  Focuses attention on the methods and processes used to achieve goals. management by objectives (MBO)  A method of management whereby managers and employees define goals for every department, project and person, and use them to monitor subsequent performance. management science perspective  A management perspective that emerged after the Second World War and applied mathematics, statistics and other quantitative techniques to managerial problems. market entry strategies   The various tactics that managers use to enter foreign markets. masculinity  A cultural preference for achievement, heroism, assertiveness, work centrality and material success. matching model  An employee selection approach in which the organisation and the

706

GLOSSARY

micro-management  Micro-management is the overly controlling detailed supervision of employees’ actions, often in a meddlesome manner, such that employees’ efforts and creativity become stifled and reduced. middle manager  A manager who works at the middle levels of the organisation and is responsible for major departments. mission  The organisation’s reason for existence. mission statement  A broadly stated definition of the organisation’s basic business scope and operations that distinguishes it from similar types of organisations. moral rights approach  The ethical concept that moral decisions are those that best maintain the rights of those people affected by them. motivation  The forces either within or external to a person that arouse enthusiasm and persistence to pursue a certain course of action. motivators  Factors that influence job satisfaction based on fulfilment of high-level needs such as achievement, recognition, responsibility and opportunity for growth.

new-venture team  A unit separate from the mainstream of the organisation that is responsible for developing and initiating innovations. non-directive interview  Interviewer asks broad, open-ended questions and permits the applicant to talk freely with minimal interruption, in an attempt to bring to light information, attitudes and behavioural characteristics. non-programmed decisions  A decision made in response to a situation that is unique, is poorly defined and largely unstructured, and has important consequences for the organisation. non-verbal communication  A communication transmitted through actions and behaviour rather than words. normative  An approach that defines how a decision maker should make decisions and provides guidelines for reaching an ideal outcome for the organisation. norming  The stage of team development in which conflicts developed during the storming stage are resolved and team harmony and unity emerge.

O on-the-job training (OJT)  A type of training in which an experienced employee ‘adopts’ a new employee to teach him or her how to perform job duties. open communication  Sharing all types of communication throughout the organisation, across functional and hierarchical boundaries. open innovation  Extending the search for and commercialisation of new ideas beyond the boundaries of the organisation.

multidomestic strategy  The modification of product design and advertising strategies to suit the specific needs of individual countries.

open-book management  Sharing financial information and results with all employees in the organisation.

multinational corporation (MNC)  An organisation that receives more than 25 per cent of its total sales revenues from operations outside the parent company’s home country; also called a global company or transnational company.

operating processes  Operating processes are the set of direct and support activities within every organisation that create its products and services.

N negotiation  Involves people engaging in giveand-take discussions and considering various alternatives to reach a joint decision that is acceptable to both parties. neutraliser  A situational variable that counteracts a leadership style and prevents the leader from displaying certain behaviours. new-venture fund  A fund providing resources from which individuals and groups can draw to develop new ideas, products or businesses.

operational goals  Specific, measurable results expected from departments, work groups and individuals within the organisation. operational plans  Plans developed at the organisation’s lower levels that specify action steps towards achieving operational goals and that support tactical planning activities. opportunity  A situation in which managers see potential organisational accomplishments that exceed current goals. organisation  A social entity that is goaldirected and deliberately structured. organisation chart  The visual representation of an organisation’s structure.

organisation development (OD)  The application of behavioural science techniques to improve an organisation’s health and effectiveness through its ability to cope with environmental changes, improve internal relationships and increase learning and problemsolving capabilities. organisation structure  The framework in which the organisation defines how tasks are divided, resources are deployed and departments are coordinated. organisational change  The adoption of a new idea or behaviour by an organisation. organisational control  The systematic process through which managers regulate organisational activities to make them consistent with expectations established in plans, targets and standards of performance. organisational ecosystem   Includes organisations in all the sectors of the task and general environments that provide the resource and information transactions, flows and linkages necessary for an organisation to thrive. organisational environment   All elements existing outside the organisation’s boundaries that have the potential to affect the organisation. organisational virtuousness   A principle in which an organisation pursues a positive human impact, moral goodness, and unconditional society betterment for its own sake. organising  The management function concerned with assigning tasks, grouping tasks into departments and allocating resources to departments. outsourcing  Contracting out to another company of a function or activity that could be, or was previously, produced in-house.

P P→O expectancy  Expectancy that successful performance of a task will lead to the desired outcome. panel interview  Where the candidate meets with several interviewers who take turns asking questions. passive follower  A person who exhibits neither critical independent thinking nor active participation. pay-for-performance  Incentive pay that ties at least part of compensation to employee effort and performance. people change  A change in the attitudes and behaviours of a few employees in the organisation. performance appraisal  The process of observing and evaluating an employee’s performance, recording the assessment and providing feedback to the employee.

performance gap  A disparity between existing and desired performance levels. performing  The stage of team development in which members focus on problem solving and accomplishing the team’s assigned task. permanent teams  A group of participants from several functions who are permanently assigned to solve ongoing problems of common interest. personal communication channels  Communication channels that exist outside the formally authorised channels and do not adhere to the organisation’s hierarchy of authority. personal networking  The acquisition and cultivation of personal relationships that cross departmental, hierarchical and even organisational boundaries. plan  A blueprint specifying the resource allocations, schedules and other actions necessary for attaining goals. planning  The management function concerned with defining goals for future organisational performance and deciding on the tasks and resource use needed to attain them. point of difference  A differentiating aspect of the organisation that distinguishes it from its competitors, as perceived by key stakeholders such as customers or investors. point–counterpoint  A decision-making technique in which people are assigned to express competing points of view.

practical approach  Bases decisions on prevailing standards of the profession and larger society, taking the interests of all stakeholders into account. pragmatic survivor  A follower who has qualities of all four follower styles, depending on which fits the prevalent situation. pressure group   An interest group that works within the legal–political framework to influence organisations to behave in certain ways. problem  A situation in which organisational accomplishments have failed to meet established goals. procedural justice  The concept that rules should be clearly stated, and consistently and impartially enforced. process theories  A group of theories that explain how employees select behaviours with which to meet their needs and determine whether their choices were successful. product change  A change in the organisation’s product or service outputs. profitability ratio  A financial ratio that describes the firm’s profits in terms of a source of profits (for example, sales or total assets). programmed decisions  A decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future.

political forces  The influence of political and legal institutions on people and organisations.

project management  Project management is the planning and implementation of projects in order to achieve outcomes of cost, timeliness of completion and quality of the specified outcome.

political instability  Events such as riots, revolutions, or government upheavals that can affect the operations of an international company.

project manager  A manager responsible for a temporary work project that involves the participation of other people in the organisation.

political model  A decision-making model that is useful for making non-programmed decisions when conditions are uncertain, information is limited and there is disagreement among managers.

punishment  The imposition of unpleasant outcomes on an employee.

political risk  An organisation’s risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments. portfolio strategy  A type of corporate-level strategy that relates to the organisation’s mix of strategic business units and product lines that fit together in such a way as to provide the organisation with synergy and competitive advantage. positive reinforcement  The administration of a pleasant and rewarding consequence following desired behaviour. power distance  The degree to which people accept inequality in power among institutions, organisations and people. power  The potential ability to influence the behaviour of others.

purpose  Purpose is the statement of intent and overall aims of the organisation, usually specified as a set of objectives.

Q quality circle  A group of six to 12 volunteer employees who meet regularly to discuss and solve problems affecting the quality of their work. quality partnering  A quality control approach that involves assigning dedicated personnel within a particular functional area of the business. quasirationality  Combining intuitive and analytical thought.

R re-engineering  The radical redesign of business processes to achieve dramatic improvements in cost, quality, service and speed. GLOSSARY

707

realistic job previews (RJPs)  A recruiting approach that gives applicants all pertinent and realistic information about the job and the organisation.

scenario building  Scenario building is the planning activity in which future possibilities are visualised by extrapolating current trends and considering future discontinuities.

recruiting  The activities or practices that define the desired characteristics of applicants for specific jobs.

scientific management  A subfield of the classical management perspective that emphasised scientifically determined changes in management practices as the solution to improving labour productivity.

referent power  Power that results from the characteristics that command employees’ identification, respect and admiration, so that they wish to emulate the leader. refreezing  The reinforcement stage of organisation development in which individuals acquire a desired new skill or attitude and are rewarded for it by the organisation. reinforcement  Anything that causes a given behaviour to be repeated or inhibited. reinforcement theory  A motivation theory based on the relationship between a given behaviour and its consequences. relational coordination  Refers to frequent horizontal coordination and communication carried out through ongoing relationships of shared goals, shared knowledge and mutual respect. relationship conflict   Conflict that results from interpersonal incompatibility that creates tension and personal animosity among people. responsibility centre  An organisational unit under the supervision of a single person who is responsible for its activity. responsibility  The duty to perform the task or activity an employee or other stakeholder has been assigned. revenue budget  A budget that identifies the forecasted and actual revenues of the organisation. reward power  Power that results from the authority to reward others. rightsizing  Reducing the company’s workforce intentionally so that the number of employees is deemed to be right for the company’s situation. risk  A decision has clear-cut goals and good information is available, but the future outcomes associated with each alternative are subject to chance. risk propensity  The willingness to undertake risk with the opportunity of gaining an increased pay-off. role  A set of expectations for one’s behaviour.

S satisficing  To choose the first solution alternative that satisfies minimal decision criteria regardless of whether better solutions are presumed to exist.

708

GLOSSARY

selection  The process of determining the skills, abilities and other attributes a person needs to perform a particular job. self-managed team  A team that consists of multiskilled employees who rotate jobs to produce an entire product or service, often led by an elected team member. servant leadership  occurs when a leader transcends self-interest to serve others, the organisation and society. single-use plans  Plans that are developed to achieve a set of goals that are unlikely to be repeated in the future.

socio–emotional role  A role in which the individual provides support for team members’ emotional needs and social unity. sociocultural dimension   The dimension of the general environment representing the demographic characteristics, norms, customs and values of the population within which the organisation operates. span of management  The number of employees who report to a supervisor; also called span of control. special-purpose team  A team created from outside the formal organisational structure to undertake a project of special importance or creativity. staff authority  The number of employees who report to a supervisor, also called span of control. stakeholder  Any group within or outside the organisation that has a stake in the organisation’s performance.

situational model  A contingency approach to leadership that links the leader’s behavioural style with the task readiness of employees.

stakeholder mapping  Provides a systematic way to identify the expectations, needs, importance and relative power of various stakeholders.

Six Sigma  A quality control approach that emphasises a relentless pursuit of higher quality and lower costs.

standing plans  Ongoing plans used to provide guidance for tasks performed repeatedly within the organisation.

skunkworks  A separate small, informal, highly autonomous, and often secretive group that focuses on breakthrough ideas for the business.

storming  The stage of team development in which individual personalities and roles, and resulting conflicts, emerge.

slogan   A phrase or sentence that succinctly expresses a key corporate value. social facilitation  The effect of other people on raising one’s effort and organisational motivation. social forces  The aspects of a culture that guide and influence relationships among people – their values, needs and standards of behaviour. social learning  Learning informally from others by using social media tools. social learning theory  Proposes that an individual’s motivation can result from observations of other people’s behaviour. social media  A group of Internet-based applications that allow the creation and exchange of user-generated content. social networking  Social networking is the expansion of an individual’s set of business or social contacts, often using Internet-based media. socially responsible investment  Socially responsible investment involves investing in companies which, in the judgement of the investor, do not harm people or the environment through their activities.

story   A narrative based on true events that is repeated frequently and shared by organisational employees. strategic business units (SBUs)  A division of the organisation that has a unique business mission, product line, competitors and markets relative to other SBUs in the same organisation. strategic conversation  Dialogue across boundaries and hierarchical levels about the team or organisation’s vision, critical strategic themes and the values that help achieve important goals. strategic goals  Broad statements of where the organisation wants to be in the future, they pertain to the organisation as a whole, rather than to specific divisions or departments. strategic management  The set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organisation and its environment so as to achieve organisational goals. strategic plans  The action steps by which an organisation intends to attain its strategic goals. strategy  A plan of action that describes resource allocation and activities for dealing with the environment, achieving a competitive advantage and attaining goals.

strategy formulation  The stage of strategic management that involves the planning and decision making that lead to the establishment of the organisation’s goals and of a specific strategic plan. strategy implementation  The stage of strategic management that involves the use of managerial and organisational tools to direct resources towards achieving strategic outcomes. strategy map  A visual representation of the key drivers of an organisation’s success, showing the cause-and-effect relationships among goals and plans. strengths  Natural talents and abilities that have been supported and reinforced with learned knowledge and skills. stretch goal   A reasonable yet highly ambitious and compelling goal that energises people and inspires excellence. structured interview  Uses a set of standardised questions that are asked of every applicant so comparisons can be made easily. substitute for leadership  A situational variable that makes a leadership style redundant or unnecessary. subsystems  Parts of a system that depend on one another for their functioning. survey feedback  A type of OD intervention in which questionnaires on organisational climate and other factors are distributed among employees and their results reported back to them by a change agent. sustainability  Economic development that generates wealth and meets the needs of the current population while preserving the environment for the needs of future generations.

T tactical goals  Goals that define the outcomes that major divisions and departments must achieve in order for the organisation to reach its overall goals. tactical plans  Plans designed to help execute major strategic plans and to accomplish a specific part of the organisation’s strategy. tall structure  A management structure characterised by an overall narrow span of management and a relatively large number of hierarchical levels. target customer  An effective strategy defines the customers to be targeted and which of their needs are to be served by the company. task conflict  Conflict that results from disagreements about the goals to be achieved or the content of the tasks to be performed. task environment   The layer of the external environment that directly influences the organisation’s operations and performance. task specialist role  A role in which the individual devotes personal time and energy to helping the team accomplish its task. team  A unit of two or more people who interact and coordinate their work to accomplish a specific goal. team building  A type of OD intervention that enhances the cohesiveness of departments by helping members learn to function as a team. team cohesiveness  The extent to which team members are attracted to the team and motivated to remain in it. team norm  A standard of conduct that is shared by team members and guides their behaviour.

sustainable development  Involves making balanced and equitable decisions so that financial, environmental and social outcomes are achieved in both the short and longer terms.

technical complexity   The degree to which complex machinery is involved in the production process to the exclusion of people.

SWOT (situation) analysis  Analysis of the strengths, weaknesses, opportunities and threats (SWOT) that affect organisational performance.

technological dimension   The dimension of the general environment that includes scientific and technological advancements in the industry and society at large.

symbol   An object, act or event that conveys meaning to others.

technology change  A change that pertains to the organisation’s production process.

synergy  The condition that exists when the organisation’s parts interact to produce a joint effect that is greater than the sum of the parts acting alone.

telecommuting  Using computers and telecommunications equipment to perform work from home or another remote location.

system  A set of interrelated parts that function as a whole to achieve a common purpose. systems thinking  An extension of the humanistic perspective that describes organisations as open systems that are characterised by entropy, synergy and subsystem interdependence.

technical skill  The understanding of and proficiency in the performance of specific tasks.

thriving workforce  A workforce in which people are satisfied, productive and engaged in creating the future for themselves and their organisation. top leader  The overseer of both the product and the functional chains of command, responsible for the entire matrix.

top manager  A manager who is at the top of the organisational hierarchy and is responsible for the entire organisation. top-down budgeting  A budgeting process in which middle- and lower-level managers set departmental budget targets in accordance with overall organisation revenues and expenditures specified by top management. total quality management (TQM)  A concept that focuses on managing the total organisation to deliver quality to customers. Four significant elements of this are employee involvement, focus on the customer, benchmarking and continuous improvement. total quality management  A concept that focuses on managing the total organisation to deliver quality to customers. Four significant elements of this are employee involvement, focus on the customer, benchmarking and continuous improvement. trade association   An association made up of organisations with similar interests for the purpose of influencing the environment. traits  The distinguishing personal characteristics of a leader, such as intelligence, honesty, self-confidence and even appearance. transactional leader  A leader who clarifies employees’ role and task requirements, initiates structure, provides rewards and displays consideration for employees. transformational leader  A leader distinguished by a special ability to bring about innovation and change. transnational strategy  A strategy that combines global coordination to attain efficiency with flexibility to meet specific needs in various countries. triple bottom line  Triple bottom line performance of an organisation involves measuring the three types of outcomes of an organisation’s activities, namely financial, environmental and community/social. two-boss employee  An employee who reports to two supervisors simultaneously.

U uncertainty   Managers know what goal they wish to achieve, but information about alternatives and future events is incomplete. uncertainty avoidance  A value characterised by people’s intolerance for uncertainty and ambiguity, resulting in support for beliefs that promise certainty and conformity. uncritical thinking  Failing to consider the possibilities beyond what one is told; accepting others’ ideas without thinking. unfreezing  The stage of organisation development in which participants are made GLOSSARY

709

aware of problems in order to increase their willingness to change their behaviour. upward communication  Messages that flow from the lower to the higher levels in the organisation’s hierarchy. utilitarian approach  The ethical concept that moral behaviour produces the greatest good for the greatest number.

V valence  The value or attraction an individual has for an outcome. vicarious learning  Occurs when an individual sees others perform certain behaviours and get rewarded for them. virtual network structure   An organisational structure in which the

710

GLOSSARY

organisation subcontracts most of its major functions to separate companies and coordinates their activities from a small headquarters organisation. virtual team  A team that uses computer technology and groupware so that geographically distant members can collaborate on projects and reach common goals. vision  An attractive, ideal future organisational state or outcome that is credible yet not readily attainable.

W wage and salary surveys  Surveys that show what other organisations pay incumbents in jobs that match a sample of ‘key’ jobs selected by the organisation.

whistleblowing  Disclosure by an employee of illegal, immoral or illegitimate practices by the organisation. wholly owned foreign affiliate  A foreign subsidiary over which an organisation has complete control. work redesign  The altering of jobs to increase both the quality of employees’ work experience and their productivity. work specialisation  The degree to which organisational tasks are subdivided into individual jobs; also called division of labour.

Z zero-based budgeting  A budgeting process that requires a complete justification for every line item in a budget.

NAME INDEX

A Abrashoff, Michael 468 Adams, Garry 541 Adler, Nancy J. 137 Al-Assad, Bashar 154 Alban, Billie T. 403 Alexander, Whit 388 Allen, Bill 304 Allis, Janine 498 Allpress, Michael 611 Amabile, Teresa 513 Anand, N. 138, 361 Anastasiou, Rose 42 Anderson, Simon 514 Angle, Harold L. 398 Anjali Raina 442 Ansett, Sean 190 Arbor, Ann 29 Argus, Don 8, 13, 219 Ashkenas, Ron 119, 404 Avery, Gayle C. 660 Avolio, B. 86

B Bahadur 286 Baker, Kent 569 Ballmer, Steven 85, 124 Balsillie, Jim 31 Barbaro, M. 670 Barnard, Chester I. 59 Barnes, Glenn 143, 144 Barnum, Cynthia 134 Bartlett, Christopher 137 Bartz, Carol 566 Basham, Robert 293, 523 Bass, Bernard M. 86, 477, 488 Bass, Steedman 361 Baxter, Patty 552 Bean, L. L. 659 Beaudan, Eric 271 Becker, S. W. 488 Begley, Thomas M. 288 Benetti, Laura 199 Bennet, Bill 361 Bennet, Larry 391 Bennett, Monica 620 Bennett, Stephen 567 Bennis, W. 490 Bentham, Jeremy 181 Bergsteiner, Harald 660 Berner, R. 396 Bernstein, E. 558 Betzell, Ray 167 Bezos, Jeff 248, 266, 609

Bilodeau, Barbara 69 Bingemann, M. 265 Bingham, Greg 298 Birger, J. 125 Blake, Robert R. 478 Blanchard, Kenneth 481 Blinder, Alan 451 Bodine, Ken 212 Boff, Linda 572 Bohlander, G. 435 Bohmer, Richard 608 Bolman, Lee G. 608 Bono, Edward de 391 Bonoma, T. V. 21 Boone, Garrett 435 Boutin, P. 416 Boyd, David P. 288 Boyman, Lauren 53 Braddock, Richard S. 638 Bradley L. 604 Branson, Richard 6, 49 Breen, B. 381, 414 Briggs, W. L. 508 Brin, Sergey 293 Brodsky, Norm 647 Brook, Tom Vanden 322 Brown, Lindsay 520 Brown, Michael 199 Bryant, Adam 18 Brygay, Marge 252 Brynjolfsson, Erik 571 Buffett, Warren 482 Bunker, Barbara Benedict 403 Burke, D. 404 Burns, L. R. 488 Burns, Ursula 10 Burrus, Daniel 315 Bushell, S. 851 Bustinza, Rocio 529 Butler, S. 189 Button, John 50 Byrne, J. A. 565 Byron, E. 396

C Caddy, Adrian 357 Cain, Susan 585, 563 Caluzny, A. 488 Caminiti, Susan 616 Campbell, James 278 Cantrell, Susan 426 Capowski, Genevieve 475 Carell, Steve 16 Carlton, Ritz 114 Carroll, A. B. 197 Carroll, Archie B. 197 Carter, B. 265 Carter, Dennis 310 Caruso, N. 471 Cascio, Wayne F. 300 Caulkin, S. 123 Chafkin, Max 362 Chamorro-Premuzic, T. 563 Chang, C. 687 Charisma, Jr. 490 Chen, Nick 573

Chenoweth, Ross 669 Chiu Wai 167 Chow, Chee W. 643 Chua, Sacha 640 Chuanzhi, Liu 324 Chugg, Juliana 150 Chung-Hsing Yeh 233 Clark, Regina M. 513 Clifford, S. 189 Cloyd, G. G. 396 Cohen, Elizabeth 607 Colbert, B. 190, 210 Coles, George 376 Collier, Greg 278 Collins, James C. 248 Collins, Jim 422, 469, 470 Colvin, G. 533 Conger, Todd 608 Conley, Chip 513 Constantine, Mark 116 Cook, Tim 30, 141, 142 Copps, Mary Jane 552 Cotte, June 179 Coughlin, Thomas 176 Craig, A. S. 189 Crandell, Julie 417

D Daft, Richard L. 86, 298, 300, 531, 554 Daley, K. 185 Dammon Loyalka, M. 92 Daniel, Diann 569 Danvers, Paul 167 Darger, Henry 127 Davenport, Thomas 514 David, James 286 Davidson, Harley 105 Davis, Michelle 495 Day, Peter 658 De La Merced, M. 195 de Uster, Maria Valdivieso 291 Deal, Terrence E. 608 DeCocinis, Mark 114 Delaney, K. J. 85, 125 Dell, Michael 244, 272, 635, 667 Deming, W. Edwards 657 Denison, D. R. 114 Dess, G. G. 361 Devine, M. J. 243 Dewhurst, Martin 513 Dias, Fiona 266 Dimon, Jamie 293 Dodd Pamela 29 Doexler, Mickey 268 Donahoe, John 452, 662 Dorsey, Jack 6, 385 Douglas 290 Douglas, M. E. 343 Dowler, Milly 110 Dreilinger, C. 212 Drucker, Peter 10, 227, 234 Dryen, Peter 20 Duckworth, A. L. 382 Dudley, Robert W. 31, 332, 580 Duersten, Althea 293 Duffy, M. K. 594

711

Dumaine, B. 112 Dunnette, M. D. 32, 619 Durie, J. 479 Dusenberry, Debbie 644 Dykstra, Chris 669

E Easen, Nick 123 Edelson, S. 100, 101 Edison, Thomas 60 Edmondson, Amy 608 Eisler, Peter 322 ElBennie, A. 259 Elliot, S. 268 Emerson, Bill 557 Engardio, P. 604 Epstein, G. 202 Erex, Lior 190 Erez, L. 189 Eric Johnson, M. 87 Evans, Jane 580 Evans, Jeffrey E. 29 Everest, A. 159 Ewing, J. 236

F Fackler, M. 414 Farooqi, Sajjad 31 Faughnder, R. 146 Feigenbaum, Armand 657 Feld, Anthony 655 Fenne, Steve Ove 572 Ferguson, Sir Alex 476 Ferris, Gerald R. 229 Ferrucci, David 605 Fiedler, Fred E. 483 Fields, Donald 166 Fields, Mark 140 Fils-Aimé, Reggie 518 Finegan, J. 523 Fink, Laurence S. 19 Finn, Bridget 388 Fisher, L. D’Angelo 35, 123 Fishman, C. 357 Fletcher, Sara 362 Flitter, Emily 92 Flora, Carlin 112 Folkman, Joseph 474 Forsythe, Abigail 499 Fox, M. 259 Freeman, R. E. 190, 210 Fried, Jason 600 Friedman, Milton 196 Friedman, Stephen 229 Fritsch, P. 210 Fujitsu 386

G Galpin, Timothy J. 540 Gannon, Timothy 293, 523 Ganos, Todd 275 Gates, Bill 85 George, Bill 472 George, Jill 608 Ghajar, Aydin 431 Ghosn, Carlos 335, 373–374

712

NAME INDEX

Gilbreth, Frank B. 55 Gilbreth, Lillian M. 55 Gi-Tae Yeo 233 Gittell, Jody Hoffer 367 Gleeson, Brent 228, 229 Gohring, John 200 Goldberg, Alan B. 300 Goman, C. K. 558 Gordon, Angela 481 Gore, W. L. 74 Goto, Shintara 653 Govindarajan, Vijay 400 Goyder, Richard 684 Graham, David 24 Graham, John 42 Grant, Adam M. 186 Gratton, Lynda 428, 604 Greenberg, Jack M. 116 Greenfield, R. 668 Greenhouse, S. 189 Greenleaf, Robert 471 Griffin, Jack 497 Guth, R. A. 85, 125 Guthridge, Matthew 513 Gutwald, Tim 573

H Hackman, J. Richard 535, 608 Haddad, Kamal M. 643 Haley, C. V. 92 Haley, Kevin 298 Hall, Douglas T. 428 Hall, Edward T. 159 Hall, Mike 390, 578 Halliday, F. 407 Hamel, Gary 270, 271 Hamm, S. 414 Handelsman, M. 508 Harland, D. 229 Harrington, Mike 331 Harris, Tracy 540 Hartman, Laura Pincus 199 Hastings, Reed 323 Hatami, Homayoun 291 Hawthorne, M. 240 Heath, Chip 322 Heisler, Y. 687 Henkelman, Leo 507, 543 Hennings, Jasper 127 Hering, John 136 Hersey, Paul 481 Hewlett, Bill 270 Heyer, Steven J. 176 Heyward, Alan 445 Hill, Liezel 236 Hill, Linda A. 24 Hines, Charlotte 86 Hiranand, R. 471 Hitt, Michael A. 281, 288 Hockwarter, Wayne A. 248 Hof, R. D. 396 Hofer, Charles W. 267 Hofstede, Geert 156, 157 Holmes, Stephen 496 Holpp, L. 616 Hooijberg, R. 114

Horton, Thomas R. 343, 484 Hoskisson, Robert E. 281, 288 Hottovey, R. J. 100 House, Robert J. 158 Howe, J. 416 Hsieh, Tony 111, 112 Huston, L. 396 Huy, Q. 572

I Iacocca, Lee 113 Immelt, Jeffrey R. 284, 400, 495 Ireland, R. Duane 281, 288 Ive, Jonathan 141 Iwata, Satoru 518

J Jackson, Bruce H. 512 Jackson, J. H. 437 Jacobs, Roger 42 James, R. 421 Janssen, Christopher 135 Jasper, Leigh 604 Javidan, Mansour 158 Jean, Carol 43 Jelinek, Craig 299 Jemal, Norman 649 Jenks, J. J. 440 Jensen, M. A. 613 Jobs, Steve 13, 30, 267, 490, 678 Johnson, Dewey 481 Johnson, H. Thomas 237 Johnson, Ron 293 Jones, C. 268 Jones, David 22 Jones, R. 421 Jossey-Bass 608 Joyce, Alan 384 Juran, Joseph 657

K Kahneman, Daniel 320 Kamen, M. 471 Kanter, Rosabeth Moss 388 Kaplan, R. S. 230 Kaplan, Robert S. 230, 643 Kaptein, Muel 178 Kastens, M. L. 270 Katel, P. 85 Katzenbach, Jon R. 597 Kelleher, Bob 409 Keller, Fred 472 Keller, Scott 291 Kellerman, B. 490 Kelley, Robert E. 492 Kelly, Cannell 27 Kelly, Gail 20 Kelly, K. 212 Kelman, Glenn 566 Kelso, Laura 27 Kennedy, John F. 159, 489 Kennedy, Robert 489 Kent, Muhtar 90, 289 Kepner, C. 315 Kerr, Steven 119, 248, 404 Kestelman, Larry 290

Kim Jung Tae 106 King, Martin Luther 490 King, Paula J. 191 King, Rachael 272 Kirkpatrick, D. 275 Kirkpatrick, S. A. 477 Kitney, D. 479 Klayman, Joshua 322 Kloppers, Marius 219 Knauss, Donald 493 Knudstorp, Jørgen Vig 119 Koehler, Berrett 86 Kogan, Ruslan 261 Kohler, C. 471 Kohn, A. 533 Kokalitcheva, K. 687 Kotter, J. P. 408 Kramer, Steven 513 Kraut, A. I. 32 Krim, J. 125 Kroc, Ray 116 Kun-Hee Lee 381 Kusy, Mitch 575

L Lafley, A. G. 225, 396, 554 Lancourt, Joan 123 Land, Edwin 388 Landauer, Steffan 248 Langston, Richard 588 Larrick, Richard P. 322 Larry 588 Lashinsky, A. 662 Latham, Gary 524 Lawler, J. C. 21 Lawton, Jim 98 Lazaridis, Mike 31 Lee, Sara 277, 434 Lees, John 293 Legato, Marianne 557 Lencioni, Patrick 606 Lengel, R. M. 86 Leonardt, D. 116 Leontiades, Milton 267 Lepird, Jennifer 516 Levinson, M. 440 Levy, S. 266 Lewis, Cathy 540 Lewis, Mark 111 Lewis, P. 414 Li Shufu 263 Li, M. J. 457 Lieberman, Pamela Forbes 480 Liker, Jeffrey 421 Lindhe, J. 99, 448 Little, Paul 240 Locke, E. A. 477, 524 Loffhagen, M. 146 Longenecker, Clinton O. 19 Lopez, Tomas 184 Loscher, Peter 236 Lowry, Karen 86

M Mac, R. 6 Maciariello, J. 671

Mackey, John 121 Macris, Achilles 293 Maestri, Luca 96, 141 Mahatma Gandhi 192 Majchrzak, Ann 603 Malhotra, Arvind 603 Mapes, T. 210 Marcic, Dorothy 157, 260, 298 Markham, D. 596 Maryland, R. H. 72 Masarech, Mary Ann 119 Maslow, Abraham 61 Mathis, R. L. 437 Mathys, Nicholas J. 248 Matson, Eric 608, 616 Mayer, Marisa 238 Mayo, Elton 60 Mayor, Tracy 660 Mazzola, Mike 150 McCain, John 489 McCanse, Anne Adams 478 McClure, L. 563 McColl, G. 407 McConnaughy, Eileen A. 416 McDonald, Pete 473 McFarlane, John 17, 551, 585 McGregor, D. 61 McKeever, Jeffrey 323 McKenna, D. D. 32 McLaughlin, K. J. 361 McNerney, James 306 Mehls, Shannon 519 Meledandri, Christopher 16 Mercedes, Edwin 639 Merrill, Amelia 429 Mestral, George de 388 Meyer, David E. 29 Mezni, Jalilia 154 Miller, John W. 424 Miller, R. 146 Miller, William 260 Milton-Smith, J. 203 Milward, S. 471 Mintzberg, Henry 29, 554 Mirvis, Philip 200 Mishra, A. K. 114 Mitchell, Chuck 121 Miyamoto, Shigeru 517 Mizrahi, Susan 192, 193 Mohr, Elizabeth 513 Moore, D. 185 Moore, Jess 465, 500 Moran, S. 265 Moravec, Bruce 616 Morgan, Philip 569 Mornell, P. 440 Morrison, Blake 322 Morrison, Denise 480 Moss, Jonathan E. 428 Mother Teresa 490 Mourdoukoutas, Panos 271, 272 Mulally, Alan 10, 475, 651 Mulally, Alay 139 Mulcahy, Anne 86–87 Murdoch, Rupert 137, 479 Murphy, P. 404

Musk, Elon 10, 15 Mustafa, S. 189 Myer, R. 604

N Neferis, Penny 246 Neilson, G. L. 340 Nelson, K. 212 Nelson, Marilyn 471 Neubert, Mitchell J. 19 Newell, Gabe 331 Newton, Jo 481 Nicastri, D. 579 Nina 286 Nocera, J. 259 Norton, D. P. 230 Norton, David P. 230, 643 Noskin, Gary 579 Novak, David 597

O O’Shaughnessy, Tim 236 O’Keefe, Luke 467 Obama, Barack 489 Ohnsman, A. 374 Okum, Sherman K. 569 Oldham, G. R. 535 Oleaga, M. 268 Olsen, Patricia R. 246 Olson, M-L. 146 Ordóñez, Lisa D. 248 Ortmann, Laura 655 Ortutay, Barbara 275

P Packard, Dave 270 Pagano, A. M. 186 Page, Larry 293, 588 Palande, P. 138 Palihapitiya, Chamath 274 Pascale, Richard 62 Pasternack, B. A. 340 Patterson, Alex 626 Pau, Cissy 514 Peak, M. M. 440 Peck, Nan 619 Pedigo, P. R. 32 Pennington, S. 579 Perry, Martin 511 Peterson, Lance 579 Petrock, F. 114 Petzinger, T. Jr. 49, 85, 620 Pfeffer, Jeffrey 322 Phillips, Richard 471 Philpott, Rob 604 Pierce, Justin 109 Pisano, Gary 608 Piyaoui, Chanut 10 Pocock, David 467 Polizatto, Phil 616 Polman, Paul 227 Porras, Jerry I. 248 Porter, Michael E. 279, 280, 281 Post, J. E. 190, 210 Powers, V. 435

NAME INDEX

713

Pozin, Ilya 600 Preston, L. E. 190, 210 Price, Colin 291 Priem, R. L. 361 Prince, Sara 291 Prochaska, James O. 416 Pucik, Vladimir 168 Putnam, Cathy 587

Q Quinn, James Brian 388, 404 Quinn, P. D. 382 Quinn, R. E. 114

R Ram Charan 445 Rasheed, A. M. A. 361 Rasinghe, Gehan 587 Rees, Dan 190 Reuss, Mark 54 Rice, D. 212 Richardson, Peter 601 Rigby, Darrell 69 Rittenberg, Sidney 168 Ritter, Bill 300 Robbins, Chuck 567 Roberts, Nancy C. 191 Roberts, S. 490 Robertson, Rachael 349 Rodin, Rob 533 Rogers, James E. 566 Rohit Deshpandé, 442 Rollert, J. P. 490 Rollins, Kevin 667 Rometty, Virginia M. 554, 568 Rosen, Benson 603 Rosenthal, Jeff 119 Rowley, I. 414 Rozo, Megan 228 Rubinstein, Joshua S. 29 Rudd, Kevin 313 Rudisell, Cody 213 Rufer, Chris 514 Ruimin, Zhang 658 Rundle, M. 471 Rushe, Dominic 275

S Sachs, Goldman 174 Sachs, S. 190, 210 Sakkab, N. 396 Salon, Ginger Bay 655 Sandberg, Sheryl 24 Sarnacki, Ray 27 Satoru Iwata 470 Savage, Charles 123 Schaefer, Brad 650 Schaefer, George 340 Schendel, Dan E. 267 Schettino, Francesco 472, 581 Schlesinger, L. A. 408 Schmidt, Eric 475 Schuker, L. A. E. 16, 146 Schwartz, A. E. 343, 484 Schwartz, Mark S. 197

714

NAME INDEX

Schweitzer, Louis 335 Scott, A. 541 Sebenius, James K. 229 Sellers, P. 396 Seltzer, Joe 260 Semler, Ricardo 122, 123, 656 Senge, Peter M. 65 Shannon, Kyle 98 Sharer, Kevin 568 Shaw, Gary 87 Shaw, J. D. 594 Sheedy, Kevin 476 Sheppard, Laurie 362 Sherman, A. 437 Sherwin, Douglas S. 637 Sherwin-Williams 659 Shigeru Miyamoto 470 Shikha Sharma 138 Shill, Walt 270 Shipilov, A. 572 Shirouzu, Norihiko 229 Shortell, S. 488 Silver, Joshua 651 Silverman, Henry 496 Sinegal, James 299 Sinegal, Jim 100 Sloan, Ali 213 Smith, C. 6 Smith, Darwin 471 Smith, Douglas K. 597 Smith, F. 72 Smith, Mike 586 Smith, N. Craig 189, 190 Smith, Patrick 595 Smith, Paula 502 Snell, S. 437 Sommers, J. 490 Soyars, Maureen 224 Spolsky, Joel 559 Stafford, P. 290 Staley, Willy 649 Stangler, C. 189 Stark, E. M. 594 Stayer, Ralph 22 Steers, Richard M. 531 Stein, Laurie 493 Steiner, Gary A. 388 Steiner, Ivan 609 Stemberg, Tom 105 Stensholt, J. 240 Stevenson, H. H. 270 Stewart, Rosemary 322 Stires, D. 125 Stone, Brad 266, 275 Stonecipher, Harry 176 Stuart Mill, John 181 Sullivan, Chris 293, 523 Sullivan, N. 508 Sundheim Doug 29 Sutcliffe, Kathleen M. 86 Suters, E. T. 588 Sutton, Robert I. 322, 324, 388, 606 Swartz, Jeffrey 194, 195 Sweney, M. 224 Szadokierski, Cindy 473 Szaky, Tom 558

T Taber, Tom 481 Tait, Richard 388 Talpis, Yanna 389–390 Tannen, Deborah 557, 558 Tapscott, Don 271, 361 Taylor, Frederick 53 Taylor, Rob 415 Tergesen, Anne 200 Thiederman, S. 582 Thompson, Anne 696 Thompson, Kenneth R. 248 Thompson, Kevin 200 Tindell, Kip 435 Tischler, Linda 458 Topfer, Morton 667 Torres, Craig 655 Towler, A. 508 Toyoda, Akio 87, 88, 113 Trachtenberg, Jeffrey A. 271 Treacy, Michael 281 Tregoe, B. 315 Treviño, Linda Klebe 199 Trimble, Chris 400 Trudel, Remi 179 Trump, Donald 52, 83, 160, 490 Tucci, Joseph M. 575 Tuckman, Bruce W. 613

U Ulrich, Dave 119, 404 Useem, J. 268, 565 Utterbeck, Ron 572

V Van de Ven, Andrew H. 398 Vanian, J. 567 Vasquez, Michael 126 Velicer, Wayne F. 416 Verdin, J. A. 186 Verfaillie, Hendrik 209 Vithoulkas, Angela 448 Vithoulkas, Con 448 Vogl, A. J. 533, 656 Volkswagen 237 von Pierer, Heinrich 235 von Stamm, B. 396

W Waber, Ben 512 Wah, Louisa 428 Wallace, D. 42, 298, 376, 545 Walton, Sam 490 Wardle, K. 357 Watkins, J. 411 Weber, J. 212 Weber, Max 56 Weick, Karl E. 86 Welch, Jack 120, 471, 564, 659 Wellings, Richard S. 608 Werner, Beatrice 587 Westbrook, Jamie 43 Wheatley, M. 361 Wheeler, D. 190, 210 Wheeler, Tony 224

Whien-Chang Chou 233 Whitbourne, S, Krauss 563 White, Carol 99 White, Chris 357 White, E. 28 Whitford, D. 544 Whitman, Meg 394, 662 Whittington, J. Lee 540 Wielkiewicz, Richard M. 336 Wiersema, Fred 281 Wild, Russell 484 Wiley, John 619 Willard P. 128 William C. Byham 608 Williams, R. 240 Williams, Susan 579

Williamson, James E. 643 Wilson, H. James 640 Wilson, Jeanne M. 608 Winery, E & J Gallo 277 Winfrey, Oprah 13, 490 Winkler, Craig 265 Wolf, Michael J. 103 Wolfram, Stephen 640 Wolniansky, Natasha 134 Woodward, Joan 371 Woolworths, Lowes 19 Wyland, Connie 87

X Xin, Katherine 168

Y Yang Wenjun 202 Yang, Marjorie 303 Yeates, C. 138 Yergin, Daniel 581 Ying Wan 233 Yu-Hern Chang 233 Yukl, Gary 481

Z Zelleke, A. 490 Zenger, Jack 474 Zevnik, B. L. P. 440 Zuckerberg, Mark 10, 23, 24, 274, 319 Zulkiflee, Datuk Wan 17

NAME INDEX

715

SUBJECT INDEX

A AANZFTA. See ASEAN–Australia and New Zealand Free Trade Area (AANZFTA) ABB. See ASEA Brown Boveri Ltd (ABB) Ability 480 ABT. See Association for Bicycle Transportation (ABT) ABWS. See Alliance for Bangladesh Worker Safety (ABWS) Acceptance theory of authority 59 Accountability 292–293, 339, 694 Achievement culture 117 Aconex Team in Melbourne 604 Acquihiring 430 Acquired needs theory 522 Active behaviour 492–493 Activity ratio 651 Adaptability culture 115–116 Adaptive organisations 377 Adjourning stage of team development 614 Administrative model 310, 312 Administrative principles 58–59 Advanced manufacturing technology. See Digital factories Adventures in multitasking 25–26 Advertising 107–108 promotions 65 slugfest 281 Advocacy 192 Affirmative action 435 AFL. See Australian Football League (AFL) After-action review 324 Agile manufacturing. See Digital factories AIM. See Australian Institute of Music (AIM) Alienated follower 493 Alignment 291–292 Alliance for Bangladesh Worker Safety (ABWS) 189 Allpress Espresso 611 Alphabet Inc. 686–687 Alternative development 315 Amazon Prime 266 Ambidextrous approach 386 Ambiguity 305, 307 certainty 305–306 conditions affecting possibility of decision failure 306 risk 306 American Idol-style contest 390 Amgen Inc. 568 Analytical style 318 Anchoring bias 562 Anglo American PLC 424 Angus & Robertson Bookworld 93 Animal Compassion Foundation 121 Ansett, Sean 49 Apple 135, 695 strategy 267–268

716

Application form 436 Applied Biosystems 453 Argus, Don 8–9 Argyle Diamonds in Western Australia 100 Artefacts 111 ASEA Brown Boveri Ltd (ABB) 137, 690–691 ASEAN. See Association of South East Asian Nations (ASEAN) ASEAN–Australia and New Zealand Free Trade Area (AANZFTA) 163 Asiamoney magazine 10 Assertiveness 157 Assessment centre 436 Assets 647–648 Association for Bicycle Transportation (ABT) 457 Association of South East Asian Nations (ASEAN) 155, 163 Aussie Furniture Imports 212 Australia sustainable development in 203–208 Target stores 97 Australian car industry 91 Australian Football League (AFL) 240 Australian Institute of Music (AIM) 389 Australian Taxation Office 7 Authentic leadership 472–473 Authority 339–341 Auto-analytics 638, 640 Avoidance learning 530–531 Avoiding style 619 Axis of India 138

B B2B. See Business-to-business e-commerce (B2B) B2C. See Business-to-consumer e-commerce (B2C) Balance decisiveness 322 Balance sheet 647–648 Balanced scorecard 642–643 Banksia Awards 205 Barcelona Restaurant Group 459, 671 Bargaining power of buyers 280 of suppliers 280–281 Barnard, Chester I. 59 Barnes, Glenn 143–144 BARS. See Behaviourally anchored rating scale (BARS) BASF 137, 399 BBC. See British Broadcasting Corporation (BBC) BCA. See Business Council of Australia (BCA) BCG matrix. See Boston Consulting Group matrix (BCG matrix) Behavioural/behaviour approaches 477 leadership grid 478–480 task vs. people 477–478 behaviour-based rating technique 447 categories 477 interviews 437 modification 530 sciences approach 62 style 318 Behaviourally anchored rating scale (BARS) 447 Being progressive principle 206 Beliefs 111

Belongingness needs 516 Benchmarking 67, 659 Best management 53 BHAG. See Big hairy audacious goal (BHAG) BHP Billiton 666 BHP Limited 141, 695 Big data analytics 71 Big hairy audacious goal (BHAG) 248 Billiton PLC 695 Binational headquarters 141 Biographical interviews 437 Biotechnology companies in turbulent environments 453 Black Diamond Equipment 168 Blankfein, Lloyd (Goldman Sachs CEO) 175 BMW 410–411, 660 Boeing 228, 616 BOP. See Bottom of pyramid (BOP) Bossless environment, motivating in 514–515 Bossless workplace 73–74, 468 Boston Consulting Group matrix (BCG matrix) 276–277 Bottom of pyramid (BOP) 135, 142 Bottom-up approach 390 budgeting 646 Boundary-spanning roles 104–105 Bounded rationality 310 Brain teaser 438–439 Brainstorming 321 Branding company as employer of choice 429 Branson, Richard 6, 49 Brazil, Russia, India and China (BRIC) 135 Breadth of vision 205, 206, 295 BRIC. See Brazil, Russia, India and China (BRIC) Britain exit (Brexit) 161 British Broadcasting Corporation (BBC) 224 Budget(ing) 646 allocations 31 blockbusters 16 cash 645 Budgetary control 644, 645 capital budget 646 cash budget 645 expense budget 645 revenue budget 645 zero-based budgeting 646 Bureaucracy 56 bureaucratic organisations 56–58 Business. See also Effective management analytics 445 case for ethics 178–179 challenges for 8–9 growth rate 276 intelligence 104 performance dashboards 248 process 642 Business Council of Australia (BCA) 108 Business-level strategy 266–267, 278. See also Corporate-level strategy Porter’s competitive forces and strategies competitive strategies 281–283 five competitive forces 279–281 Business-to-business e-commerce (B2B) 70 Business-to-consumer e-commerce (B2C) 70 Bustinza, Rocio 529 Button, John 50 Buyers, bargaining power of 280

C C2C. See Consumer-to-consumer (C2C) Camp Bow Wow 44, 128, 503 Campbell, James 278 Campbell Soup Company 654–655 Candid communication 293, 566 Candour, communicating with 564–566 Capital budget 646 Careers, changing nature of 427 changing social contract 427–428 innovations in HRM 428–431 Carlton & United Breweries (CUB) 108 Carrot-and-stick controversy 533 Cash budget 645 Cash cow 276–277 Caterpillar 340 Central City Museum 253–254 Centralisation 344–345 Centralised network 559 CEO. See Chief executive officer (CEO) Ceremonies 114–115 Certainty 305–306 CFO. See Chief financial officer (CFO) CFS Investment Managers division. See Colonial’s First State Investment Managers division (CFS Investment Managers division) Chain of command 339 Change agent 403 Changing process 403 implementation 405 coercion 410 communication and education 409 creating sense of urgency 406 negotiation 410 participation 409–410 resistance to change 407–408 tactics 408 top management support 409 managing and innovation 380 cooperation 392–398 culture change 399–405 Honest Tea 417 innovation and changing workplace 383–386 people change 399–405 products change and technology change 387–392 Samsung managers 382–383 sustainable development 411–412 Changing world of management 2 Australia’s managers 37 innovative management 6–9 management functions 12–14 management skills 16–20 management types 20–22 managerial activities 25–32 managers 9–11, 23–25 organisational performance 14–15 small businesses and not-for-profit organizations 32–33 state-of-the-art management competencies 34–35 sustainable development 38–39 turbulent times 36–37 Channel 555 richness hierarchy 560–561 Charismatic leadership 488–490 Chief ethics and compliance officer 201

Chief ethics officer 201 Chief executive officer (CEO) 137 Chief financial officer (CFO) 141 Chief information officer (CIO) 338 Chief information security officer (CISO) 338 Chief operating officer (COO) 343 Chief sustainability officer (CSO) 372 China, Inc. 139–140 CI. See Competitive intelligence (CI) CIDP. See Critical infrastructure disturbance process (CIDP) CIL. See Committee on Industrial Lighting (CIL) CIO. See Chief information officer (CIO) Cisco Systems 14, 567 CISO. See Chief information security officer (CISO) Classical model 308–309, 312 Classical perspective 54. See also Humanistic perspective administrative principles 58–59 bureaucratic organisations 56–58 scientific management 55–56 Classroom training 444 Clickcorp 35 Cloning technology 93 CMP. See Crisis management plan (CMP) Coaching 444 style 480 Coalition 311 building 311 coalitional management 228 Coca-Cola 98, 137, 268, 288, 289, 394 410, 499 Code of ethics 200–201 Codified law 176 Coercion 410 coercive power 495 Cognitive ability tests 438 Cognitive dimension 139 Cognitive tasks 640 Coles 376 Collaborating style 619 Collaboration 363 Collaborative environments, success in 557 Collectivism 156 Colonial’s First State Investment Managers division (CFS Investment Managers division) 360 Comambault 58 Command team. See Functional teams Commitment, source of 223 Committee on Industrial Lighting (CIL) 60 Communication 409, 555, 678 among people 557 Cisco systems 567 communicating to persuade and influence others 563–564 communicating with candour 564–566 communication channels 560–562 gender differences in communication 557–558 listening 567–569 non-verbal communication 569–570 open communication climate 558–559 traditional model of primarily top-down communication 566 virtual brainstorming 562–563 apprehension 564 channels 560. See also Formal

communication channels hierarchy of channel richness 560–561 selecting appropriate channel 561–562 communications and sustainability 583–584 crisis 580–581 differences 159 electronic 561, 576 model 555–556 organisational and workplace communication 570–581 in organisations Metro Guide Publishing in Halifax 552 role of managers as communication 553–556 plan 245 Community development 192 Company Atlassian Campbell Soup Company 654–655 Danish company 13 ethics management 198 building ethical organisation 199 code of ethics 200–201 cultivating service mindset 199–200 ethical structures 201 whistleblowing 202 Ford Motor Company 692 GE Company 12 International pharmaceutical company 175 James Hardie Company 188 Malard Manufacturing Company 417 McCafe’s company 116 McDonald’s company 116 Spring Company 603–604 ‘The Big Australian’ Company 141 Compensation 449 compensation equity 450 equity 450 pay-for-performance 450–451 wage and salary systems 450 Compensatory justice 182 Competency-based pay 450 Competitive advantage 262 Competitive intelligence (CI) 104–105 predicament 126 Competitiveness 50 Competitors 98 Complete knowledge management system 71–72 Compromising style 619 Computer-based training 444 Computer-integrated manufacturing. See Digital factories Conceptual skills 16–17 Conceptual style 318 Conflict(s) 307 management 401–402 managing team 617 balancing conflict and cooperation 617–618 causes of conflict 618 McDevitt Street Bovis 619–620 negotiation 620–621 styles to conflict 618–619 types of conflict 617 Conformist 493 Connected Generation (Generation C) 94 Consideration 477–478 Consistency culture 117 SUBJECT INDEX

717

Consumer Reports magazine 659 Consumer safety 624–625 Consumer-to-consumer (C2C) 70 Container Store 435 Contemporary leadership 469 authentic leadership 472–473 gender differences 473–474 level 5 leadership 469–471 servant leadership 471–472 Contemporary management tools 68–69 Content perspectives on motivation 515 acquired needs theory 522 ERG theory 519–520 hierarchy of needs theory 515–516 Nintendo Wii U 517–518 two-factor approach to motivation 520–522 Content theories 514, 515 Contingency. See also Fiedler’s contingency theory approaches 480 situational model of leadership 480–482 factors 368 leadership approaches 485 plans 241 view 66 workers 429 Continuous improvement 67, 661 Continuous process production 370 Control(ling) 13–14. See also Managerial and quality control changing philosophy 652 Campbell Soup Company 654–655 hierarchical vs. decentralised approaches 652–654 open-book management 655 Semco’s open-book policy 656 meaning of 637–638 Conventional level 184 Conventional management states 468 Conversation(s) purposes of 557 ratio 651 COO. See Chief operating officer (COO) Cooperation 387, 392 external coordination 394–395 innovation roles 396–398 internal coordination 393–394 Coordination 363 model for innovation 395 Core competence 264 Core job dimensions 535–536 Core measurement system 697 Corporate credos 200 governance 663–664 university 444 Corporate culture 84, 88 changing and merging 121 four types 114 levels of 110 shaping for innovative response 118 combining culture and performance 119 high-performance culture management 118–120 Corporate social responsibility (CSR) 138, 188 evaluation 195–198 organisational stakeholders 188, 190–192 report 583

718

SUBJECT INDEX

Corporate-level strategy 266, 275. See also Business-level strategy BCG matrix 276–277 diversification strategy 277–278 portfolio strategy 275–276 Cost leadership strategy 282 Costco 299 winning formula 100, 101 Country club management 479 Course goal setting 253 CourseMate Express 373, 413, 455 CQ. See Cultural intelligence (CQ) Creativity 383, 387–388 economy 382 Credit Suisse Group 429 Crew Resource Management (CRM) 322–323 Crisis communication 580–581 Crisis management 36–37 Crisis management plan (CMP) 245 Crisis planning 243 CIDP 243 JetBlue Airways 246 post-event stage 245 pre-event stage 244–245 response and recovery 245 Critical infrastructure disturbance process (CIDP) 243 Critical psychological states 536 Critical thinking 492 CRM. See Crew Resource Management (CRM); Customer relationship management (CRM) Cross-functional teams 356, 365, 599–600 Crotonville 685 Crowdsourcing 395, 415–416 CSO. See Chief sustainability officer (CSO) CSR. See Corporate social responsibility (CSR) CUB. See Carlton & United Breweries (CUB) Cultural intelligence (CQ) 159 Cultural leadership 121 changing and merging corporate cultures 121 Culture 110, 111, 115–117 achievement 117 adaptability 115–116 change 399 GM 399–400 OD 401–405 training and development programs 401 consistency 117 crisis and performance 410–411 cultural marketing 285 gaps 121 involvement 117 Curious Sofa 644 Current assets 647–648 Current debt 647–648 Current ratio 650 Customer relationship management (CRM) 72 Customer(s) 97–98 customer-based divisions 351–352 focus practices 687–688 service 642 support 207

D D4D forums. See Design for delight forums (D4D forums) Danish company 13 Davis, Kathy 26 Day-to-day management 23–24 Debbie Dusenberry 644

Debt ratio 651 Decentralised/decentralisation 344–345 approaches 652–654 control 652, 653, 654 form. See Divisional approach network 559 planning 247 Decision alternatives 315 decision-making styles 557 decisional roles 31 making 304 criteria for ethical 181–183 guidelines for ethical 186 recognition of decision requirement 313–314 styles 317 types and problems 304 facing uncertainty and ambiguity 305–308 programmed and non-programmed decisions 304–305 Decodes 555 Deductable Gift Recipient status (DGR status) 389 Define, Measure, Analyse, Improve and Control approach (DMAIC approach) 659 Degussa Peroxide Ltd (DPL) 510–511 Delegation 339–341, 342–343, 375 Deliberately structured organisation 15 Delivering value 264–265 Dell, Michael 635 Dell technologies 271–272 controlling empire at 635, 667–668 Demand evidence 322 Deming, W. Edwards 66–67 Departmentalisation 346, 358–359 approaches to structural design 346–347 divisional approach 350–353 network approach to 359 vertical functional approach 347–349 Descriptive approach 309 Design for delight forums (D4D forums) 390 Desired alternative selection 316 Devil’s advocate 323 DGL International 503 DGR status. See Deductable Gift Recipient status (DGR status) Diagnosis and analysis of causes 314–315 Differentiation strategy 282 Diligence 694 Direct investing 147–148 Direct reinforcement 530–532 Directing style 480 Directions 693 Directive style 318 Directly responsible individual (DRI) 339 Discipline 694 Discretionary responsibility 196–197 Discretionary work effort 684 Disruptive innovation 385–386 Disseminator roles 30 Distributive approach 620 Distributive justice 182 Distributive negotiation 620 Disturbance handler role 31 Diversification strategy 277–278 Division of labour 338 Division of work 58 Divisional approach 350. See also Team-based approach advantages and disadvantages 352–353

customer-based divisions 351–352 geographic-based divisions 351–352 working process 350–351 Divisional structure 350 DMAIC approach. See Define, Measure, Analyse, Improve and Control approach (DMAIC approach) Dodo 290 Domestic stage 136 Dominating style 619 Donham, Dean Wallace B. 53 Downsizing 451 Downward communication 576–577 DPL. See Degussa Peroxide Ltd (DPL) Dr Pepper Snapple Group Inc. 571 DRI. See Directly responsible individual (DRI) Driving forces 407 Drop-off 577 Dryen, Peter 20, 114 Dryen Australia 20, 91, 114, 121, 264 Dual-authority structure 354 Dudley, Robert 31 Dutch Ministry of Infrastructure and Environment 233 Dynamic capabilities 284

E

80:20 rule 689 E → P expectancy 528 E-business, shifting world of 70–71 E-commerce 70 E-training. See Computer-based training Early advocates 59 eBay, global success of 662 Economic development 150 dimension 94–95 Economic Policy Institute 178 forces 52 growth 152–153 interdependence 151–152 responsibility 196 Economic environment 150. See also Global environment management; Legal–political environment; Sociocultural environment economic development 150 economic interdependence 151–152 exchange rates 152 inflation, interest rates and economic growth 152–153 infrastructure 150–151 resource and product markets 152 Education 409 EEO laws. See Equal employment opportunity laws (EEO laws) Effective follower 493, 494 Effective management. See also Business customer focus practices 687–688 ‘heartfelt leadership’ pays off at Toyota 681–682 innovation practices 690–691 knowledge management practices 691–692 leadership characteristics assessment 683 leadership practices 678–681 organisation as system 696–698 people management practices 683–687 principles to world’s best organisations 693–696 quality management practices 688–690 variation in organisational performance 676

Effective workforce maintenance 449 benefits 451 compensation 449–451 rightsizing organisation 451–452 termination 452 Effectiveness 5, 15 Efficiency 5, 15, 207 Egocentric leaders 471 eHarmony 71 Electric lighting 60 Electronic brainstorming 321 Electronic communication 561, 576 Embeddedness 291–292 Emergency relief 192 Emerging countries 150 Emotional intelligence quotient (EQ) 593 Emotional/emotion(s) 409, 467 Employee employee-centred leaders 478 engagement 74, 508, 539 growth–need strength 536 involvement 67 right way with 458–459 support 206 Employer brand 429 Employment tests 438–439 Empowering people to meeting higher needs 538–539 Empowerment 59, 538 Enabler 34 Encodes 555 Energy received–energy returned 41 Engagement 74 ENSR 409 Entrusting style 480–482 Entry-level Leadership Programs 685 Environment 84, 86. See also Global environment management for Australia’s telecommunications company 87 environmental uncertainty 103 external 89–101 general 89, 274 internal environment–corporate culture 110–115 organisation–environment relationship 102–108 sustainable development 123 EPA. See United States Environmental Protection Agency (EPA) EQ. See Emotional intelligence quotient (EQ) Equal employment opportunity laws (EEO laws) 435 Equity 526 compensation 450 theory 526–527 ERG theory 519–520 Escalating commitment 324 Esteem needs 516 Ethical decision making criteria for 181 individualism approach 181–182 justice approach 182 moral rights approach 182 practical approach 182–183 utilitarian approach 181 guidelines for 186 Ethical Trading Initiative (ETI) 190 Ethical/ethics 176 behaviour 177

and business costs 212 committee 201 crisis to milk 202 criteria for ethical decision making 181–183 CSR 188–192 dilemmas 179–180 ethical dilemmas 179–180 evaluating CSR 195–198 green movement 193–194 high road 695 hotline 201 individual manager and ethical choices 183–187 leadership 198 leadership dilemma at Timberland 194–195 management 177–178 and social responsibility 198–202 managerial ethics 176–179 and sustainable development in Australia 203–208 managers 177 Monsanto’s ethical challenges 173 responsibility 196 structures 201 Ethnocentric companies 141 Ethnocentrism 156 ETI. See Ethical Trading Initiative (ETI) Euro 161 European Union (EU) 155, 161–162 Eurozone 161–162 Evans, Jane 580 Evergreen Project 283 Evidence-based decision making 322 Evidence-based management 322 Exchange rates 152 Execution excellence 694 Executive compensation 178 plans 178 Existence needs 519 Exit interview 452 Expectancy theory 527–529 Expense budget 645 Experienced Leadership Programs 685 Expert power 495–496 Exploration 387 Export strategy 287 Exporting 145 External coordination 394–395 External environment 89, 103 dimensions 90 general environment 90–97 task environment 97–101 External opportunities 273–274 External recruiting process 433 Extinction 531 Extreme interviewing. See Panel interviews Extrinsic rewards 511–513

F 4P approach. See Philosophy, people, process, and problem solving approach (4P approach) FAA. See Federal Aviation Administration (FAA) Face readers 569–570 Face-to-face discussion 561 Facebook 23–24, 274 Facial expressions 569–570 Factors shaping structure 367 structure fits technology 369 service technology 370–371 SUBJECT INDEX

719

Factors shaping structure (Continued ) Woodward’s manufacturing technology 369–370 structure follows strategy 368–369 vertical hierarchies 367–368 Fair Isaac Corporation (FICO) 495 Family business 376 FASTPASS system 63 Father of scientific management. See Taylor, Frederick Winslow Father of the quality movement. See Deming, W. Edwards Favourable situation 482 Fayol, Henri 58 FBI. See Federal Bureau of Investigation (FBI) Federal Aviation Administration (FAA) 241 Federal Bureau of Investigation (FBI) 136 Feedback 555 Feedback control model 638 balanced scorecard 642–643 Justin 643–644 steps of 639 comparing performance to standards 641 establishing standards of performance 639 measuring actual performance 640–641 quantify yourself 640 taking corrective action 641–642 Femininity 156 Ferrucci, David 605 FICO. See Fair Isaac Corporation (FICO) Fiedler’s contingency theory 482. See also Contingency favourable or unfavourable 482 matching leader style to situation 482–484 Fierce competition in world’s video game market, coping with 517–518 Figurehead role 30 Financial analysis 650–651 Financial control 647 financial analysis 650–651 financial statements 647–649 income statement 649 7-Eleven 649 trends in 663 corporate governance 663–664 International Quality Standards 663 Financial crisis 64 Financial performance 179, 642 Financial statements 647–649 Finishing Touch 579 First-line managers 22 First-line supervisors 198 Fixed assets 647–648 Flat structure 343–344 Flensburger Shipbuilders (FSG) 264 Flexible manufacturing systems. See Digital factories Flexible work policies 520 Flight coordination 366–367 Focus 694 strategy 283 Follett, Mary Parker 59 Followership 492–494 Force-field analysis 407–408 Ford Falcon 599–600 Ford Motor Company 692 Forecasting 105 Formal communication channels 576. See also Communication—channels; Personal communication channels

720

SUBJECT INDEX

downward communication 576–577 horizontal communication 578–579 upward communication 577–578 Franchising 147 Free rider 606 Freelancer 430 FreshDirect 638–639, 641 Frugal engineering 51 Frustration-regression principle 519 FSG. See Flensburger Shipbuilders (FSG) Functional managers 22 Functional structure 347 functional vs. divisional structures 350 Functional teams 599 Functional-level strategy 267, 283–284 Future orientation 157, 158 “Future-facing” managers 35

G

GameChanger program 398 Gantt Chart 55 Gap Inc. 189, 197 stakeholders relevant to 190 GATT. See General Agreement on Tariffs and Trade (GATT) GDP. See Gross domestic product (GDP) GE. See General Electric (GE) GE Colab (2012) 572 Gen X. See Generation X (Gen X) Gender differentiation 157–158, 473–474 in communication 557–558 General Agreement on Tariffs and Trade (GATT) 155, 161 General and Industrial Management 58 General Electric (GE) 12, 119, 193, 277, 400, 429, 471, 564–565, 659, 685 work-out 404 General environment 89, 90, 274. See also Global environment management; Task— environment economic dimension 94–95 international dimension 90–91 legal–political dimension 96 natural environment 97 sociocultural dimension 94 technological dimension 92–93 General managers 22 General Motors (GM) 54, 68, 88, 106 135, 399 Generation C. See Connected Generation (Generation C) Generation Y (Gen Y) 430 Generation Z (Gen Z) 74 Genetic engineering 93 Geocentric companies 141 Geographic-based divisions 351–352 Geotagging 395 GFC. See Global financial crisis (GFC) Gilbreth, Frank B. 55 Gilbreth, Lillian M. 55 Givers 186–187 Glancee app 430 GlaxoSmithKline 175 GLC. See Growth and Leadership Center (GLC) Global environment management. See also Environment; General environment; Task— environment achieving international competitiveness 133 borderless world 136–142 demand for raw materials 134–135

direct investing 147–148 economic environment 150–153 exporting 145 global issue and opportunity 164 international business environment 148–149 international trade alliances 160–164 legal–political environment 153–155 licensing 147 organizations 145 outsourcing 146–147 sociocultural environment 156–159 Global financial crisis (GFC) 64, 88, 427–428, 475, 538 Global Leadership and Organizational Behavior Effectiveness Project (GLOBE Project) 157–159 Global matrix structure 354 Global mindset development 138–139 Global outsourcing 145, 146 Global positioning satellite navigation devices (GPS navigation devices) 266–267 Global service programs 199 Global stage 136 Global strategy 287 globalisation strategy 288–289 implementation 293–294 multidomestic strategy 289 transnational strategy 289–290 Global supply chain 190 Global team 601 Globalisation 136–138, 187 backlash 142 strategy 288–289 GLOBE Project. See Global Leadership and Organizational Behavior Effectiveness Project (GLOBE Project) GM. See General Motors (GM) Goal setting organisational planning and benefits and limitations of planning 239–240 crisis planning 243–246 goals, plans and performance 221–224 goals in organizations 225–230 innovative approaches to planning 247–249 lack of planning or poor planning 220–221 operational planning 231–239 planning in turbulent environment 241–242 sustainable development and goal setting 250 well-laid plans and vulnerability to external forces 219 theory 524–525 Goal(s) 221 acceptance 525 alignment 229–230 criteria for effective goals 231–232 difficulty 525 directed 15 levels of 222 messages and values in 223 guides to action 223 legitimacy 223 rationale for decisions 223 resource allocation 223 source of motivation and commitment 223 standard of performance 223–224

in organizations 225 aligning goals with strategy maps 229–230 goals and plans 226–228 manager vs. coalition 228–229 organisational mission 225–226 specificity 524 Google 17, 18, 200–201, 350, 512, 684–685, 686–687 Google X 397 Gopher 435 Government challenges for 7–8 laws and regulations 155 Goyder, Richard 684 GPC Electronics factory 133 GPS navigation devices. See Global positioning satellite navigation devices (GPS navigation devices) Grapevine 574–575 ‘Great Man’ approach 476 Green movement 193 sustainability and triple bottom line 193–194 Greenfield venture 147–148 Green Power 112 Gross domestic product (GDP) 7, 140 Gross margin 650, 651 Grossman, Mindy 113 Group control system 670 Groupon 637 Groupthink 321, 324, 617–618 Growth needs 519 Growth and Leadership Center (GLC) 401 Guanxi creation in China 92

H

H&M 73 Halo effect 447 Hard evidence 322–323 Hard power 494 ‘Hard’ position power 494 coercive power 495 legitimate power 495 reward power 495 Harvard Business Review (1922) 53, 56 Hawthorne effect 60–61 Hawthorne Studies 60 Hayward, Tony 18, 31 ‘Heartfelt leadership’ pays off at Toyota 681–682 Heineken 147 Heroes 113 Hewlett-Packard (HP) 283, 688 Hierarchy hierarchical approaches 652–654 hierarchical control 652, 654 of needs theory 515–516 High-context culture 159 High-performance culture management 118–120 culture management 118–120 Hill, Linda 24 Historical trends 64 contingency view 66 systems thinking 65–66 systems thinking and circles of causality 65 total quality management 66–67 Hoechst, German company 137 Hollywood studios 146 Honest Tea 377, 417

Honeybee style 660 Horizontal communication 578–579 Horizontal differences 22 Horizontal linkage model 393 Host governments 155 HP. See Hewlett-Packard (HP) HR. See Human resources (HR) HRM. See Human resources management (HRM) Human capital 423 building to drive performance 425–426 Human relations movement 60–61 Human resources (HR) 26, 332 perspective 61–62 planning 432 internships 435 jobs assessment 433, 434 legal considerations 435 recruiting process 433 RJPs 433 social media 434 practices 293 Human resources management (HRM) 423. See also Total quality management (TQM) changing nature of careers 427–431 cultural differences 421, 455–456 finding right people 431 effective workforce 432 human resource planning 432–435 selection process 436–440 innovations in 428–431 maintaining effective workforce 449–452 strategic role to driving organisational performance 423 building human capital to drive performance 425–426 factors for maintaining competitive success 424 strategic approach 424–425 sustainable development 454 talent development 441–448 Toyota 422–423 Human skills 17 Humane orientation 158 Humanistic perspective 59. See also Classical perspective behavioural sciences approach 62 early advocates 59 human relations movement 60–61 human resources perspective 61–62 Humanitarian 192 Humility 322, 469, 490 of production 52–53 Hygiene factors 521 Hypothetical dilemma 180 Hyundai 88

I

Idea champions 396 Idea incubator 392 IDS. See Innovative Design Lab (IDS) Imagination Ltd 357 Impoverished management 479 In-house snoops 105 Incentive pay. See Pay-for-performance Incentive programs 538 Income statement 648 India, axis of 138

India, service giant 140 Individual employee, challenges for 9 Individual manager 183 challenging boss on ethical issues 184–185 givers vs. takers 186–187 guidelines for ethical decision making 186 levels of personal moral development 185 Individualism 156, 181–182 Inequity 526 Inflation rates 152–153 Informal organisation 59 Information 496–497 Information channel, capacity of 560 Information technology (IT) 64, 71, 193 Informational roles 30 Infrastructure 150–151 Initial public offering (IPO) 293 Initiating structure 478 Initiative fatigue 694 Innovation(s) 284, 364, 383, 387, 393 by acquisition 395 approaches to planning 247 setting stretch goals for excellence 247–249 structural location of decentralised planning staff 247 and changing workplace 383 ambidextrous approach 386 different assessments and goals 385 disruptive innovation 385–386 lack of understanding and trust 384 self-interest 384 uncertainty 384 coordination model for 395 focused innovation in marketing 285–286 in HRM 428 acquiring start-ups to getting talent 430–431 branding company as employer of choice 429 promoting work–life balance 430 temporary and part-time employees 429–430 innovative decision making 321 managing change and 380 cooperation 392–398 culture change 399–405 Honest Tea 417 implementing change 405–410 people change 399–405 products change and technology change 387–392 Samsung managers 382–383 sustainable development 411–412 practices 690–691 roles 396–398 Innovative Design Lab (IDS) 414 Innovative management 6 challenges for business 8–9 challenges for government 7–8 challenges for individual employee 9 current challenges for managers 7 thinking for changing world 68 awareness of management trends 68 big data analytics 71 contemporary management tools 68–69 knowledge management 71–72 management tools and trends 69 people-driven workplace management 73–74 shifting world of E-business 70–71 social media programs 73 SUBJECT INDEX

721

Innovative management (Continued ) supply chain management 72–73 technology-driven workplace management 70 Inspire Learning Corporation 252–253 Integrative approach 620 Integrative negotiation 620 Integrity 695 Intelligence 212–213 team deployment 249 Interdependent organisations 596 Interest rates 152–153 Intermountain Healthcare 589 Internal analysis 273 Internal business processes 642 Internal coordination 393–394 Internal environment 89 Internal environment–corporate culture 110. See also Corporate culture ceremony 114–115 culture 111 hero 113 levels of corporate culture 110 slogans 113–114 story 113 symbols 112–113 Zappos.com 111–112 Internal recruiting process 433 Internal strengths 273 International business environment 148–149 International dimension 90–91 International landscape changing 139 China, Inc. 139–140 India 140 International management 148 International Organization for Standardization (ISO) 637, 663 International pharmaceutical company 175 International Quality Standards 663 International Service System (ISS) 13 International stage 136 International trade alliances 160 ASEAN 163 EU 161–162 GATT 161 NAFTA 163 WTO 161 Internet 98, 107, 282 Internships 435 Interorganisational partnerships 105–106 Interpersonal influence tactics 497–498 roles 30–31 Intervention 404 Interview(s) 436–438 behavioural 437 biographical 437 non-directive 437 panel 437 situational 437 structured 437 Intrinsic rewards 511–513 Intuition 310–311 Inventory turnover 651 Involvement culture 117 IPO. See Initial public offering (IPO) iSentia 105 ISO. See International Organization for Standardization (ISO) ISO 9000 standards 663

722

SUBJECT INDEX

ISS. See International Service System (ISS) IT. See Information technology (IT) Ixom. See Orica

J

James Hardie Company 188 Janssen, Christopher (GPC Electronics Managing Director) 135 Japanese corporate decision-making culture and processes 318 JBJ. See Jon Bon Jovi (JBJ) JetBlue Airways 246 JIT. See Just-in-time (JIT) Job(s) analysis 433 assessment 433, 434 characteristics model 535 core job dimensions 535–536 critical psychological states 536 employee growth–need strength 536 personal and work outcomes 536 description 433 design for motivation 534–536 enlargement 534 enrichment 534 evaluation 450 job-based pay 450 job-centred leaders 478 rotation 534 specification 433 John F. Welch Leadership Development Center 685 Joint ventures 106–107, 147, 286 Jon Bon Jovi (JBJ) 5 Jugaad 51, 68 Just-in-time (JIT) 98 inventory control systems 407 Justice approach 182

K

Kaizen 67, 661, 682 Kanban systems. See Just-in-time inventory systems (JIT inventory systems) Kelly, Gail 20 Key performance indicators (KPIs) 232, 697 Knowledge economy 382 Knowledge management 71–72 practices 691–692 Knowledge workload tracking 640 Knudstorp, Jørgen Vig 119 KPIs. See Key performance indicators (KPIs)

L

Labour market 100 Lady Cilento Children’s Hospital (LCCH) 225 Langston, Richard (president of WA Manufacturing) 588 Large-batch production 370 Large-group interventions 402–403 Lauren’s Balancing Act 546–547 Law of effect 530 Laws and regulations 155 Lawton, Jim 98 LCCH. See Lady Cilento Children’s Hospital (LCCH) LDCs. See Less-developed countries (LDCs) Leader role 30 Leadership 292

charismatic and transformational 488–491 contemporary 469–474 contingency approaches 480–484 dilemma at Timberland 194–195 Fiedler’s contingency theory 482–484 followership 492–494 grid 478–480 leading revitalization 465, 500–501 management to leadership 475–479 nature of 467–468 power and influence 494–498 practices 678–681 situational substitutes for 485–487 styles 502 sustainable development 499 team 622 traits 476–477 Leading 13. See also Team(s) revitalization 465, 500–501 Lean manufacturing 50 Lean services 371 Leaping over language barriers 582 Learning 538, 694–695 Lebeau, Suzanne 545 Legal responsibility 196 Legal–political dimension 96 Legal–political environment 153. See also Economic environment; Sociocultural environment laws and regulations 155 political instability 154–155 political risk 154 Legitimacy 223 Legitimate power 495 Less-developed countries (LDCs) 150 Level 5 leadership 469 developing solid core of leaders 471 level 5 leadership at work 470 Leverage ratios 651 Lewis, Mark 111 Liabilities 647–648 Liaison role 30, 32 Licensing 147 Lincoln Electric 670–671 Line authority 341 Line departments 341 Line managers 22 LinkedIn 71, 434 Liquidators 93 Liquidity ratio 650 Listening 567–569 Lonely Planet publications 224 Long-term debt 648 Long-term orientation 156–157 Loperamide 624–625 Loss aversion 320 Low-context culture 159

M

Magnetic resonance imaging (MRI) 146–147 Making progress principle 525 Malard Manufacturing Company 417 Management 10–11. See also Human resources management (HRM) communication 570 competencies 458 criterion 37 by exception 638 functions 12–14 controlling 13–14

leading 13 organising 12–13 planning 12 process 12 information systems 64 to leadership 475 behavioural approaches 477–478 leadership traits 476–477 levels in organisational hierarchy 21 and organisation 52 social business 53–54 things of production vs. humanity of production 52–53 science perspective 62–63 skills 16 conceptual 16–17 failure 18–20 human 17 technical 18 types 20–22 horizontal differences 22 vertical differences 20–22 Management by means (MBM) 237 Management by objectives (MBO) 231 234, 698 benefits and problems with 236–237 model of MBO process 235 Siemens of Germany 235–236 system 66 Management thinking evolution 48 classical perspective 54–59 competitiveness 50 historical trends 70–67 humanistic perspective 59–62 innovative management thinking for changing world 68–74 Jugaad 51, 68 management and organisation 52–54 management science 63–64 sustainable development 75 Managerial activities 25 adventures in multitasking 25–26 life on speed dial 27 manager finding time 28 manager roles 29–32 Managerial and quality control. See also Financial control Barcelona Restaurant Group 671 budgetary control 644–646 feedback control model 638–644 Group control system 670 Lincoln Electric 670–671 qualities of effective control systems 665–666 sustainable development 666 TQM 657–662 trends in quality control 663 corporate governance 663–664 International Quality Standards 663 Westwind Electronics 669–670 Managerial challenges 7 Managerial decision making 303 decision-making models 308 classical model 308–309 managers making decisions 309–311 political model 311–312 decision-making steps 313 development of alternatives 315 diagnosis and analysis of causes 314–315

evaluation and feedback 317 implementation of chosen alternative 317 personal decision framework 317–319 recognition of decision requirement 313–314 selection of desired alternative 316 managers making poor judgements 320 avoiding groupthink 324 brainstorming 321 engage in rigorous debate 323–324 escalating commitment 324 evidence-based management 322 hard evidence 322–323 innovative decision making 321 postmortem 324 sustainable development 325 plans and strategies 303 types of decisions and problems 304–308 Managerial ethics 176 business case for ethics and social responsibility 178–179 domains of human action 177 ethical management 177–178 and sustainable development in Australia 203–208 Managerial Grid 479 Managerial planning and goal setting 254 Managers 9, 23, 177, 198 current challenges for 7 difference 9, 10 making leap 23–25 management 10–11 as motivators 514 roles 29 decisional 31 informational 30 interpersonal 30–31 Managing ethics 213 Managing motivation at DPL 510–511 Manufacturing technology 371 MAP. See Mars Ambassador Program (MAP) Market entry strategies 145 Market share 276 Marketing, focused innovation in 285–286 Mars Ambassador Program (MAP) 509 Mars Corporation 696 Mars Inc. 279 Mars pet-food operations in Australia 14 Mars Volunteer Program (MVP) 508 MAS Holdings 197–198 Masculinity 156 Maslow, Abraham 61 Maslow’s hierarchy of needs 516 Mass production 370 Massachusetts Institute of Technology (MIT) 323, 393, 615 MasterCard 196–197 Match.com 71 Matching model 431 Matrix approach 353 advantages and disadvantages 355 working process 353–355 Matrix boss 355 Maureen and Tony Wheeler 224 MBM. See Management by means (MBM) MBO. See Management by objectives (MBO) McCafe’s company 116 McDevitt Street Bovis 619–620 McDonald’s company 116

McFarlane, John 551 McGregor, Douglas 61 Mean value 676 Mechanistic system 368 Mentoring 444 Mergers 106–107 and acquisitions 287 Message 555 Metal Trades Industry Association (MTIA) 108 Metro Guide Publishing in Halifax 552 Mi Ola Swimwear 254 Mike Boyle strength and conditioning 547 Micro-management 694 Microblogging platforms 73 Microsoft 85, 87, 124–125, 364, 695 Middle managers 21–22 Middle-of-the-road management 479 Milk, crisis to 202 Millennials. See Young Generation Y employees Mintzberg, Henry 23 Mission 225, 693 Mission statement 225–226 MIT. See Massachusetts Institute of Technology (MIT) Mitchell, Chuck 121 Mizrahi, Susan (human rights advocate) 192 MNCs. See Multinational corporations (MNCs) Model of communication 555–556 Monitor role 30 Monsanto’s ethical challenges 173, 209–210 Moral agent 180 Moral rights approach 182 Morning Star 514 Morrison, Denise 480 Motivating employees 547 carrot-and-stick controversy 533 content perspectives on motivation 515–523 individual needs and motivation 511–515 innovative ideas for motivating 537 building thriving workforce 538 empowering people to meeting higher needs 538–539 Prudential UK and Europe 540–541 staff motivating in Australia and New Zealand 541 work through engagement 539–540 job design for motivation 534–536 managing motivation at DPL 510–511 Mars office 509 MVP 508 outback steakhouse 523 process perspectives on motivation 524–529 reinforcement perspective on motivation 530–532 Sandstrom Products 507, 543–544 sustainable development 542 Motivation 509–510 individual needs and 511 intrinsic and extrinsic rewards 511–513 managers as motivators 514 motivating in bossless environment 514–515 source of 223 Motivators 521 Mouse 386 MRI. See Magnetic resonance imaging (MRI) MTIA. See Metal Trades Industry Association (MTIA) Multidivisional structure (M-form). See Divisional approach SUBJECT INDEX

723

Multidomestic strategy 289 Multinational corporations (MNCs) 135, 140–141 Multinational stage 136 Multitasking, adventures in 25–26 Murdoch organisation 110 Murray-Darling River system 8 Must-haves 646 MVP. See Mars Volunteer Program (MVP) MYOB 265 MySpace 103

N NAB. See National Australia Bank (NAB) NAFTA. See North American Free Trade Agreement (NAFTA) Nanoparticles 93 Nanotechnology 93 Nation’s culture 156 National Australia Bank (NAB) 9, 108, 121, 141, 143, 219 National Health Service (NHS) 344 Natural environment 97 NBO program. See New Business Opportunity program (NBO program) Nebraska planting camp 60 NEC in Mulgrave 593, 594, 623 Negative reinforcement 531 Negotiation 410 Negotiation 620–621 Nestlé 137 Netflix 259, 296–297 Network of relationships 496 Neutraliser 485 New Business Opportunity program (NBO program) 398 New-venture fund 398 team 397 News Corporation 110, 479 NGOs. See Nongovernmental organisations (NGOs) NHS. See National Health Service (NHS) Nintendo Co., Ltd 517 Nintendo Wii U 517–518 Nissan’s Sunderland factory 97 Non-directive interview 437 Non-programmed decisions 304–305, 315 Non-routine messages 561–562 Non-verbal communication 569–570 Non-verbal messages, interpretation of 558 Nongovernmental organisations (NGOs) 138, 199–200 Normative, classical model of decision making 309 Normative ethics 181 Norming stage of team development 613 North American Free Trade Agreement (NAFTA) 155, 163 Not-for-profit organizations 32–33

O

Obama, Barack 489 Observational learning 532 OD. See Organisational development (OD) Official goals 226 Offshoring. See Global outsourcing On-the-job training (OJT) 442 Online checks 440

724

SUBJECT INDEX

Open communication climate 558–559 Open innovation 394. See also Innovation(s) Open-book management 655 Operating processes 697 Operational goals 227 Operational planning 231 criteria for effective goals 231–232 MBO 234–237 planning and implementing infrastructure of future 233 single-use plans 238–239 standing plans 238–239 Operational plans 227 Operational research teams 63 Operations management 63–64 Operations research 63 Opportunit(ies) 273–274, 313 Optimism 476 Organic system 368 Organisation chart 337–338 Organisation structure 337 designing 334 departmentalization 346–353 factors shaping structure 367–371 matrix approach 353–355 organising for horizontal coordination 363–367 organising vertical structure 337–345 Renault and Nissan 335, 373–374 sustainable development 372 team-based approach 356–362 evolution 364 Organisation(s) 15, 174, 261 Organisational change 383, 398 Organisational communication 570 crisis communication 580–581 formal communication channels 576–579 personal communication channels 572–575 social media 571–572 Organisational control 637–638 Organisational conversations 566 Organisational culture 115 Organisational development (OD) 62, 400, 401–402 activities 402 conflict management 401–402 steps 403–405 Organisational ecosystem 89 Organisational environment 89 Organisational mission 225–226 Organisational performance 14–15 Organisational planning and goal setting benefits and limitations of planning 239–240 crisis planning 243–246 goals, plans and performance 221–224 goals in organizations 225–230 innovative approaches to planning 247–249 lack of planning or poor planning 220–221 operational planning 231–239 planning in turbulent environment 241–242 sustainable development and goal setting 250 well-laid plans and vulnerability to external forces 219 Organisational stakeholders 188 Gap Inc. 189 responsible investment 192 stakeholders relevant to car manufacturer 191 to Gap Inc. 190

Organisational sustainable development 204–205 Organisational virtuousness 197 Organisation–environment relationship 102 adapting to environment 104 boundary-spanning roles 104–105 forecasting and planning 105 interorganisational partnerships 105–106 mergers and joint ventures 106–107 shift to partnership paradigm 106 environmental uncertainty 103 external environment and uncertainty 103 influencing environment 107 advertising and public relations 107–108 organisational responses to environmental changes 108 political activity 108 trade associations 108 Organising 12–13, 337 for horizontal coordination 363 need for coordination 363–364 relational coordination 366 task forces, teams and project management 365 vertical structure 337 authority, responsibility and delegation 339–341 centralisation and decentralisation 344–345 chain of command 339 span of management 342–344 work specialisation 338–339 Orientation training 444 Outback steakhouse 523 Outsourcing 72, 146–147, 358

P

P → O expectancy 528 P&G. See Procter & Gamble (P&G) PACIA. See Plastics and Chemicals Industry Association (PACIA) Pacific Hydro 49 Panel interviews 437 Part-time employees 429–430 Participation 409–410 Partnership Ownership Account Plan (POA) 523 Passive behaviour 492–493 Passive follower 493 Patterson, Scott 64 Pay-for-performance 450–451 PDDs. See Primary digital devices (PDDs) Pedigree 508 ‘People before profits’ approach 682 People change 399 GM 399–400 OD 401–405 training and development programs 401 People management practices 683 discretionary work effort 684 GE people/talent management 685 Google 686–687 Goyder, Richard 684 leaders 686 logical and rational side of person 685 need for achievement 684 organisations 687 People-driven workplace management 73 bossless workplace 73–74 employee engagement 74

People-oriented behaviour 477 ‘People’, ‘planet’ and ‘profit’ (Three Ps) 194 PepsiCo 199, 342, 429, 597 Per capita income 150 Perception 467 Performance appraisal 445 assessment 446 business analytics 445–446 dashboards 248–249 evaluation errors 447–448 gap 406 management approach 642 measurement 642 orientation 158 performing stage of team development 614 review ranking system 446 Permanent teams 356 Personal ‘soft’ power 495–496 Personal and work outcomes 536 Personal change implementation 416 Personal communication channels 572. See also Formal communication channels developing personal communication networks 573–574 grapevine 574–575 written communication 575 Personal communication networks 573–574 Personal decision framework 317–319 Personal effort 496 Personal identity 24 Personal networking 573 Personal power 495 Personality 467 tests 438 PETRONAS 3, 17, 40–41, 444, 642 Philosophy, people, process, and problem solving approach (4P approach) 421 Physical ability tests 438 Physiological needs 515 Pierce, Justin 109 Piyaoui, Chanut 10 Plans/planning 12, 105, 221, 226–228 benefits and limitations of 239–240 for bigger toll 240 innovative approaches to 247 setting stretch goals for excellence 247–249 structural location of decentralised planning staff 247 levels of 222 messages and values in 223 guides to action 223 legitimacy 223 rationale for decisions 223 resource allocation 223 source of motivation and commitment 223 standard of performance 223–224 in turbulent environment 241 contingency plans 241 scenario planning 242 Plastics and Chemicals Industry Association (PACIA) 108 Pluralist Generation 74 POA. See Partnership Ownership Account Plan (POA) Pocock, David 467 Point of difference 695 Point–counterpoint 323–324 Policy

challenges 7 policy-based statements 200 tackling injustice through policy change 192 Political activity 108 forces 52 instability 154–155 model 311–312 risk 154 turmoil in Syria 154 Polycentric companies 141 Porter’s competitive forces and strategies competitive strategies 281–283 five competitive forces 279–281 Portfolio strategy 275–276 Positive reinforcement 530 Post-event stage 245 Post-mortem 322, 324 Postconventional level 184 Potential new entrants 279–280 Power and influence 494 ‘hard’ position power 494–495 interpersonal influence tactics 497–498 personal ‘soft’ power 495–496 sources of 496 information 496–497 network of relationships 496 personal effort 496 Power distance 156 Practical approach 182–183 Pragmatic survivor 493, 494 Pre-event stage 244 preparation and planning 244–245 Preconventional level 184 Pressure groups 96, 274 PricewaterhouseCoopers (PwC) 140, 390 Primarily top-down communication, traditional model of 566 Primary digital devices (PDDs) 94 Principle-based statements 200 Principled level 184 Problem 313, 577 Procedural justice 182 Process control and capability 689 perspectives on motivation 524 equity theory 526–527 expectancy theory 527–529 goal setting 524–525 theories 514, 524 Procter & Gamble (P&G) 396, 554 Product change 386, 387 exploration 387–392 Red 197 and service innovation 387 Professional development 694–695 Profit margin on sales 651 Profit-and-loss statement (P&L statement). See Income statement Profit-maximising view 196 Profitability ratios 651 Programmed decisions 304–305 Project management 365, 694 Project manager 22, 365 Project team. See Special-purpose team Prudential UK and Europe (Pru UK) 540–541 Public perception of safety 50 Public relations 107–108, 605 Punishment 531

Purpose 693 of conversations 557 purpose-directed communication 553 PwC. See PricewaterhouseCoopers (PwC)

Q

Qadoumi, Zaid (CEO of Canada’s BroadGrain) 155 Qantas 49, 105,120, 188, 281, 384, 410, 445 QCC. See Quality control circles (QCC) Quality circles 401, 658, 661 management practices 663, 688–690 or closing 166 partnering 661 Quality control circles (QCC) 682 Quasirationality 310–311 Queensland Tourism Board 113–114 Question mark 276, 277 Queuing theory 64 Quick ratio 650

R R&D. See Research and development (R&D) Rational decision making 308–309 Rationale for decisions 223 RATR experiment. See Relay Assembly Test Room experiment (RATR experiment) Re-engineering process 364 Re-Generation (Re-Gens) 74 Ready-made garment (RMG) 189 Realistic job previews (RJPs) 433 Recruiting process 433 Referent power 496 Refreezing 404–405 Regulators, support of 207 Reinforcement 530 perspective on motivation 530 direct reinforcement 530–532 social learning theory 532 theories 514, 530 Relatedness needs 519 Relational coordination 366 Relationship conflict 617 relationship-oriented leaders 482–483, 484 Relay Assembly Test Room experiment (RATR experiment) 60 Renault and Nissan 335, 373–374 Research and development (R&D) 264, 350 Research in Motion (RIM) 31 Resource allocator role 31 constraints 245 and product markets 152 Response and recovery 244, 245 Responsibility 339–341 centre 645 for quality control 652 Responsible investment 192 Restraining forces 407 Retail Information System (RIS) 649 Return on assets (ROA) 340, 651 Revenue budget 645 Reverse innovation 385 Reward power 495 Richardson, Peter 601 Richmond Supply Co. 127 Rightsizing organisation 451–452 RIM. See Research in Motion (RIM) SUBJECT INDEX

725

RIS. See Retail Information System (RIS) Risk 306 appetite 316 propensity 316 Risk Management Solutions (RMS) 429 RJPs. See Realistic job previews (RJPs) RMG. See Ready-made garment (RMG) RMS. See Risk Management Solutions (RMS) ROA. See Return on assets (ROA) Robertson, Rachael 349 Roles, manager 29 Routine messages 561–562 Ruimin, Zhang 658

S

7-Eleven Inc. 649 64 Disk Drive (64DD) 517 Safety needs 515, 516 SAL. See Systems analysis laboratory (SAL) Samsung 695 reinventing 381, 413–414 Sandstrom Products 507, 543–544 Sarbanes-Oxley Act of 2002 (SOX) 664 SARS. See Severe acute respiratory syndrome (SARS) Satisficing 310 SBUs. See Strategic business units (SBUs) Scalar chain 58 principle 339 Scenario building 242 planning 242 Schedules 13, 227, 228, 579 Scientific management 55–56 characteristics 56 principles 534 Scratch–Lavender, business from 99 SEA. See Syrian Electronic Army (SEA) Selection process 436 application form 436 employment tests 438–439 interview 436–438 online checks 440 Self-actualisation needs 516 Self-directed learning 444 Self-interest 384 Self-managed teams 600 Semco 13, 74, 122, 656 open-book policy 656 Servant leader 471–472 Servant leadership 471–472 Service technology 370–371 Serving BOP 142 Severe acute respiratory syndrome (SARS) 49 Sexual harassment 203 complaint 26 Sharma, Shikha 138 Sharpstyle salons 43–44 Short-term orientation 156–157 Shui Fabrics 167–168 SIA. See Subaru Indiana Automotive (SIA) Siemens of Germany 235–236 Simon, Herbert A. 310 Single-use plans 231, 238–239 Situation analysis. See SWOT analysis Situational interviews 437 Situational model of leadership 480–482 Situational substitutes for leadership 485–487

726

SUBJECT INDEX

Six Sigma 67, 659–660 principles 658 process 660 Six thinking hats model 391 Skill-based pay systems 450 Skunkworks 397, 398 Slogans 113–114 Small business(es) 32–33 developing strategy for 298 innovative approach to Small-batch production 369–370 Smart factories. See Digital factories SNES. See Super Nintendo Entertainment System (SNES) Social business 53–54 Social contract 52 changing 427–428 Social entity 15, 610 Social facilitation 598 Social forces 52 Social learning theories 514, 532 Social loafing 606 Social media 434, 554, 571 communicating to customers 571 engaging employees 572 listening to customers 571 programs 53, 73 Social networking 440, 571 Social outcomes 175, 666 Social responsibility 213 business case for ethics and 178–179 managing company ethics and 198–202 Social values 156–159 Socially constructed goals 225 Socially responsible investing 191 Sociocultural dimension 94 Sociocultural environment 156. See also Economic environment; Legal–political environment communication differences 159 social values 156–159 Socio–emotional role 610 Soft power 494 Soft skills 616 Sole traders. See Sole proprietorship SOPs. See Standard operating procedures (SOPs) SOX. See Sarbanes-Oxley Act of 2002 (SOX) Span of control 342 Span of management 342 tall vs. flat structure 343–344 Special-purpose team 600 Speed 394 Spin-off 228 Spokesperson roles 30 Spring Company 603–604 Square 6, 385 Staff authority 341 departments 341 managers 22 motivating in Australia and New Zealand 541 Stakeholder 188 empowerment 206 mapping 188 relevant to car manufacturer 191 relevant to Gap Inc. 190 support 206–207 Standard of performance 223–224, 639

Standard operating procedures (SOPs) 689, 690 Standing plans 231, 238–239 Star 276 Starpharma 453 State-of-the-art management competencies 34–35 Stateless stage. See Global stage ‘Stateless’ organizations 137 Steiner, Ivan (psychologist) 609 Stem cell research 93 Stereotyping approach 447 Stockless systems. See Just-in-time inventory systems (JIT inventory systems) Storming stage of team development 612–613 Stories 113 Strategic business units (SBUs) 276 Strategic/strategy aligning goals with strategy maps 229–230 alliances 335, 373–374 approach 424–425 business-level strategy 278–283 conversations 553 decay 270 and execution 300 formulating corporate-level strategy 275–278 formulation 272 functional-level strategy 283–284 global strategy 287–290 goals 226 implementation 272, 291 global strategies 293–294 roles and accountability 292–293 testing quality of strategy 294 tools for strategy into action 292 issues 104 management 261 Netflix 259 partnerships 270–271, 285–287 plans 227 process 269 Dell technologies 271–272 strategy 270–271 strategy formulation vs. implementation 272 SWOT analysis 272–274 purpose 262 build synergy 264 delivering value 264–265 exploit core competence 264 target customers 263 strategic management process 269–274 strategic thinking 261 Amazon Prime 266 levels of strategy 266–267 MYOB 265 purpose of strategy 262–265 strategic management 262 trends in strategy 284 innovation 284–285 strategic partnerships 285–287 Strategy execution. See Strategy implementation Strengths 273, 477 Stretch goal setting for excellence 247 birth of Kindle 248 deploying intelligence teams 249 use performance dashboards 248–249

Strida bicycles 361 Structural/structure 373 design 346–347 following strategy 368–369 interview 437 Subaru Indiana Automotive (SIA) 596 Substitute for leadership 485 Subsystems 65 Sunk cost effect 320 Super NES. See Super Nintendo Entertainment System (SNES) Super Nintendo Entertainment System (SNES) 518 Supertemps 430 Supplier(s) 98–99, 206 bargaining power of 280–281 Supply chain 98 Supply chain management 72–73 Supporting style 480 Survey-feedback activities 402 Sustainability 193 orientation 205 Sustainable development 175, 193, 372, 666 in Australia 203 being progressive 206 breadth of vision 205 efficiency 207 generic strategic requirements 206 market edge 207 organisational sustainable development 204–205 practices 207–208 stakeholder empowerment 206 stakeholder support 206–207 sustainability orientation 205 team 622 Swartz, Jeffrey (chief operating officer of Timberland) 194–195 SWOT analysis 272 external opportunities and threats 273–274 internal strengths and weaknesses 273 Symbols 112–113 Synergy 65, 264 Syrian Electronic Army (SEA) 154–155 System(s) 65 thinking 65–66 Systems analysis laboratory (SAL) 228

T

360-degree feedback 446 Tacit knowledge 692 Tactical goals 227 plans 227 Taj Mahal Palace, Mumbai 441–442 Takers 186–187, 468 Talent acquisition 433, 434 Talent development 441 training and development programs 441–445 Tall structure 343–344, 346 Talpis, Yanna 389–390 Target customers 97, 263 Task conflict 617 environment 89, 97. See also General environment competitors 98 customers 97–98 labour market 100 suppliers 98–99

forces 365, 599–600 specialist role 610 task-oriented behaviour 477 leaders 482–483 Tata Group 51, 226 Taylor, Frederick 53, 70 Taylor’s approach 55 TDI. See Turbocharged direct injection (TDI) Team-based approach 356. See also Divisional approach advantages and disadvantages 357–358 virtual network approach 358–361 working process 356–357 Team(s) 365, 596–597 Aconex Team in Melbourne 604 Allpress Espresso 611 characteristics 609 diversity 609–610 member roles 610–611 size 609 cohesiveness 614 consequences of 614–615 determinants of 614 commitment 624–625 contributions of 597–598 dilemma of 605–606 dysfunctions in 606 management 479 team conflict 617–621 model of team effectiveness 607–608 norms 615–616 processes 612 real-world application 626 SIA 596 Spring Company 603–604 stages of team development 612 adjourning stage 614 forming stage 612 norming stage 613 performing stage 614 storming stage 612–613 sustainable development 622 team leader 608, 616 team-building activities 402 types of 599 cross-functional teams 599–600 functional teams 599 self-managed teams 600 virtual teams 601–603 value of 596 work 357 team effectiveness model 608 Technical complexity 370 skill 18 Technology 369 change 387 exploration 387–392 technological dimension 92–93 technology-driven workplace management 70 Ted’s cameras 406–407 Telecommunications technologies 93, 601 Telecommuting 72, 362, 429, 430, 457 Telepresence 567 Telstra 8, 64, 87, 107, 121, 188, 223, 264 TELUS Corp. 105 Temporary employees 428–430 Terrible floods 636–637

Testing quality of strategy 294 ‘The Big Australian’ company 141 The Fifth Discipline 65 The Five Whys 315, 322 The HP Way 112 Theo Chocolate 213, 300 Theory X 61, 62 Theory Y 61, 62 Things of production 52–53 Threat(s) 273–274, 512 of terrorism 31 Three Ps. See ‘People’, ‘planet’ and ‘profit’ (Three Ps) Thriving workforce, building 538 Timberland, leadership dilemma at 194–195 Toll, planning for bigger 240 Top leaders 110, 244, 355, 554, 664 Top management support 201, 409 Top managers 18, 21, 222, 249, 364 496, 645 Top-down budgeting 646 Total quality management (TQM) 66–67, 637, 657. See also Human resources management (HRM) success factors 661–662 techniques 658 benchmarking 659 continuous improvement 661 quality circles 658 quality partnering 661 Six Sigma 659–660 Zhang Ruimin 658 Tough Mudder 626 Toyoda, Akio 87 Toyota 88, 335, 364 Toyota Way 81, 329, 421, 629, 682 TQM. See Total quality management (TQM) Trade associations 108, 191 Training and development programs 401, 441 corporate university 444 mentoring and coaching 444 methods of training and intended training expenditures 443 OJT 442 performance appraisal 445–448 promotion 445 social learning 443–444 Taj Mahal Palace 441–442 Traits 476 Transactional leaders 491 Transactional leadership 490–491 Transformational leaders 490–491 Transformational leadership 490–491 Transnational strategy 289–290 Transparency International 187 Trickle-up innovation 385 Triple bottom line 193–194 Tupperware Nordic 572 Turbocharged direct injection (TDI) 196 Turbulent environment, planning in 241 contingency plans 241 scenario planning 242 Turbulent times 36–37 Twitter 6, 53, 73, 155, 434, 562, 577 Two-boss employee 355 Two-factor approach to motivation 520–522 Two-pizza rule 609 SUBJECT INDEX

727

U

Uber 389 UberCab. See Uber Uncertainty 103, 304, 307, 384 avoidance 156 conditions affecting possibility of decision failure 306 risk 306 Uncritical thinking 492 Unethical behavior 177, 196, 202, 538 Unfavourable situation 482 Unfreezing 403, 409 Unit production 369–370 Unitary structure (U-form structure). See Functional structure United Nations World Food Programme (WFP) 196–197 United States Environmental Protection Agency (EPA) 196 Unity of command 58, 339 Unity of direction 58 Unlocking innovative solutions through people 122 UPS 113 Upstream 332 Upward communication 577–578, 665 Utilitarian approach 181 Utterly destroy motivation 513

V

Vaccari, Andrea 430 Valence 528 Value innovation program (VIP) 413 Value(s) 111 delivering 264–265 packages 264–265 Valve Software 74, 331–332 Verbal, sources of communication 569–570 Vertical chain of command 356 differences 20–22 functional approach 347–349 integration 277–278

728

SUBJECT INDEX

Vicarious learning 532 VIP. See Value innovation program (VIP) Virgin Airlines 49 Virtual brainstorming 562–563 Virtual network 359 approach 358 advantages and disadvantages 359–361 departmentalisation 358–359 Strida bicycles 361 working process 359 structure 359 Virtual teams 601–603 Visible artefacts 111 Visible leadership 292 Vision 490 Visionary leadership 490 Vitality 22, 538 VIVO Cafe 448 Vocal, sources of communication 569–570 Vodafone 107 Voice over Internet protocol technologies (VOIP technologies) 583 Volkswagen (VW) 87, 88, 135, 154, 196, 237

W

WA Manufacturing 588 Wage and salary surveys 450 systems 449, 450 Wall Street Journal’s Lessons in Leadership The 28 Waste minimisation 207 Water Cube 619 Weaknesses 270, 273 Web-based technology 279 Weberian bureaucracy 57 Wesfarmers 684 Westwind Electronics 669–670 WFP. See United Nations World Food Programme (WFP) Whiskas 508, 696 Whistleblowing 202

Whole Planet Foundation 121 Wholly owned foreign affiliate 147 Wicked decision problem 307 ‘WIFM’ question 698 Williams, Susan 579 Willingness 480 Win–lose approach 620 Win–win solution, rules for reaching 620–621 Wolfram, Stephen 640 Woodward’s manufacturing technology 369–370 Work redesign 535 specialisation 338–339 Workforce management 26 Work–life balance, promoting 430 Workplace changing and innovation 383–386 communication 570 crisis communication 580–581 formal communication channels 576–579 personal communication channels 572–575 social media 571–572 World Economic Forum 37 World Trade Organization (WTO) 161 World’s economic ‘pyramid’ 142 Written communication 561, 562, 572 575, 678

Y

Young Generation Y employees 52, 74

Z

Zappos family 111–112 Zero inventory systems. See Just-in-time inventory systems (JIT inventory systems) Zero-based budgeting 646 Zuckerberg, Mark 23, 319