MANAGEMENT
WDB 1007
COLLEGE OF BUSINESS
6th Edition
July 2013
Acknowledgements
These learning resources were developed by Victoria University, Melbourne Australia.
Edition / Publication
Subject:
Subject code:
Fifth Edition:
Management
WDB 1007
July 2013
Contents i
Contents
Introduction i
What This Subject Is About
i
Symbols Used in This Publication
Subject Learning Objectives
Introduction
ii
ii
Functions of Management
Management Roles
5
Management Skills
6
Emotional Intelligence (EI) 7
Management Competence
Competency
Good Managers
8
8
Management Jobs9
Vertical Dimension 9
Horizontal Dimension
Contemporary Management
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28
Systems Approach28
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Contents ii
TQM Principles
30
The Learning Organization 31
The Karpin Report 31
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Organizational Culture
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Power Culture
50
Role Culture
50
Task Culture
50
Person Culture
51
Forward Looking Cultures 51
Backward Looking Cultures
51
Entrepreneurial Culture 51
Promoting Innovation Through Cultural Change
Management Cultures
54
Changing Organisational Culture
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Social Stakeholders
61
Shareholders
62
Employees-Managing diversity
Customers
62
Local Community 63
Society
63
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Contents iii
International Community
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Individual Values 75
Situational Factors Influencing Ethical Behaviour
Mechanisms for Ethical Management 77
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Top-management commitment 78
Codes of Ethics 78
Ethics Committees78
Ethics audits
78
Ethics Hot Lines 79
Ethics training
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Contents iv
Differences in Decision-Making Situations
Programmed Decisions
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Non-programmed Decisions
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Benefits of goals
Levels of Goals
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Contents v
How Goals Help or Facilitate Performance
Challenging
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Attainable 109
Specific and Measurable
Time-limited
109
Relevant 109
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Contents vi
Managing diversity: Alternative work schedules.
Flexitime 133
Job sharing
133
134
Types of Departmentalisation
Functional structure
134
Common functions
134
Divisional structure
135
Forms of divisional structure
Product Divisions 136
Geographic divisions
136
Customer/Market Divisions136
Hybrid structure 138
Matrix structure
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134
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Downsizing
147
Centralisation versus decentralisation 148
Why do companies decentralise their organisation? 149
Delegation 149
Line and staff positions 150
Methods of Horizontal Coordination
151
Slack resources 152
Information systems
152
Lateral relations 152
Direct contact
153
Liaison roles
153
Task forces and teams 153
Managerial integrators 154
Organisational Communication Channels
Vertical communication
155
Downward communication 155
Upward communication
156
Horizontal communication 157
Informal communication: The grapevine
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Contents vii
Chapter 7 Groups and Teams
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Work-group Processes
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Group norms
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Group cohesiveness
182
Consequences of group cohesiveness
182
Determinants of group cohesiveness
183
Group development
184
Communication 186
Basic components of the communication process 187
Influence on Individual Communication and Interpersonal Processes
Perceptual processes
189
Attribution processes
189
Semantics 190
Communication Skills
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Chapter 8 Motivation
What is Motivation?
Need Theories
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Cognitive Theories
202
Equity theory
204
Goal-setting theory
Reinforcement Theory
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Types of reinforcement
206
Schedules of reinforcement
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Contents viii
Fixed interval
Fixed ratio 209
Variable interval
Variable ratio
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Chapter 9 Leadership
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Contents ix
Handling complex situations
Decentralising authority
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Levels of control 244
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Bureaucratic control
256
Clan control
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Market control
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Promoting innovation: Controlling while nurturing innovation258
Four levers for strategic control: A balancing act
258
Incrementalist approach 259
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Organisational Development
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Contents x
Why individuals resist change
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Overcoming resistance to change 273
Force-field analysis
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Managing Conflict277
Conflicts between individuals and organisations
277
Causes of conflict 279
Benefits of Positive conflict and Consequences of Negative conflict 279
Consequences of Negative Conflict
281
Skills to resolve conflict
282
Five Interpersonal conflict handling Methods
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Managing intergroup conflict through resolution
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Intergroup training 287
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NOTES:
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Preface i
INTRODUCTION
Interesting stuff in here about the subject and the development of the theory and
application of these theories into the current Business Environment including
Globalisation and the need for organisations to be immediately reactive to market,
global, environmental and technological forces.
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SUBJECT LEARNING
OBJECTIVES
Introduction
The following Learning Objectives are applicable for each of the Chapters in this
Student Manual
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Outline ethical guidelines for managers and explain actions they can
take to handle ethical situations and avoid ethical conflicts.
Describe situational factors influencing ethical behaviour and outline
mechanisms for ethical management.
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Chapter 8 Motivation
Learning Objectives:
After studying this chapter, you should be able to:
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Chapter 9 Leadership
Learning Objectives:
After studying this chapter, you should be able to:
Outline the major sources of leader power and explain how leaders
can use power to encourage subordinate commitment.
Explain the different findings of lowa, Michigan and Ohio State studies
of leader behaviours and discuss their implications.
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Chapter 1
Management
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CHAPTER 1 WHAT IS
MANAGEMENT?
Why study Management?
Today, more students are studying Management in diploma and degree courses
than in the past. This trend reflects an increasing interest in management as a
profession and the need for managerial competencies (knowledge, skills and
values) to cope with the changing nature of work and people throughout the
world.
Most of us will spend our working lives in organizations where we will be
managed by others or we will manage others. In all, understanding management
is relevant to everyone and studying management is a way of increasing our
preparedness for employment as well as for life.
What is Management?
1.1. Purpose of Management
The purpose of organisations (businesses and institutions) is to create wealth.
If the basic purpose of the business or institution is to create wealth, then the
primary role of the manager is to add value to this wealth-creating process.
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Efficiently (in the least time and at the least cost usually
measured as output divided by inputs; both inputs and output may be
measured in units of quantity, money or time).
Effectively (doing the right things to a required standard of
quality).
The competent manager evaluates any completed or planned course of
management action by asking the following questions:
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There are four main management functions that managers perform - planning,
organizing, leading and controlling all are crucial to the success of any
manager. Managers do the same types of tasks in all businesses whether they
manage a hair salon or a factory. Planning, organizing, leading and controlling
are interrelated serving an important part in achieving managements vision.
2.1. Planning
Planning involves defining the organizations goals, setting objectives for the goal
and deciding on plans, actions and strategies to achieve these goals are two
critical components of the planning function. For example, a manager of a new
local restaurant will need to have a marketing plan, a hiring plan and a sales
plan.
2.2. Organizing
Organizing involves allocating and arranging resources, both human and nonhuman so plans can be successfully implemented. Organising allows managers
to determine tasks to be done, how to combine them into specific jobs and how
jobs can be grouped into units to form the organisations structure. The manager
of the new restaurant must know how many employees are needed for particular
shifts. Provide the necessary resources to complete their jobs group employees
into kitchen staff and front-end staff to provide an organisational structure to
serve customers arriving to dine in the restaurant.
2.3. Leading
A manager manages employees making sure that tasks are completed on time
and policies are followed. Leading involves outlining a vision of what can be
achieved, focusing on interpersonal relations by communicating with each
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2.4. Controlling
Controlling involves regulating organisational activities to ensure that actual
performance conforms to the standards and goals expected. To regulate,
managers monitor ongoing activities, establish standards, compare results with
established standards or progress towards goals and take necessary corrective
action to change work processes and practises.
For example customer service standards require evaluating employees job
performance and product standards involve evaluating product freshness,
processing and presentation. The restaurants performance can be assessed by
monitoring costs versus profitability of the restaurant. Sometimes the strategies
and plans that were developed and implemented may not work out as initially
planned due to certain external factors e.g. competition. Controlling and
evaluating helps a restaurant manager recognize these failures and quickly
implement corrective measures to bring the staff back on track.
Being a manager of a new restaurant involves many different tasks. Planning,
organizing, leading and controlling are four of the main functions that must be
considered in any management position. Management is a balancing act of many
different components and a good manager will be able to maintain the balance
and keep employees motivated. Managers at all levels in an organisation may be
involved in all four management functions but the balance of activities varies at
different levels in an organisation.
Often incompetent managers concentrate on the organising and controlling
functions and forget the other two functions planning and leading. Effective
managers are likely to use all four functions in a systematic way.
Managers cannot be successful without being good leaders. Competence in
personal, interpersonal and group skills is critical for success in management.
Successful managers must be able to work effectively with people.
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Leading
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Organising
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Controlling
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Inputs
Outputs
Resources
Performance
Human
Financial
Materials
Technology
Information
Achieve goals
Products
Service
Efficiency
Effectiveness
Feedback from
the environment
i.e. customers &
competitors
The four main management functions (the transformation process), together with
the resources (inputs) and performance outcomes (outputs) are inter-related and
work together as a process with the business environment.
For a business:
1. Inputs include raw materials, human resources, capital, technology and
information.
2. The transformation process turns these inputs into finished products or
services through employees' work activities, management activities, and
the organisation's technology and operations methods.
3. Outputs include products and services, financial results (profits, breakeven or losses) information, and human results such as employees' levels
of job satisfaction and productivity.
4. In addition, the system's ultimate success depends on effective
interactions with its environment: those groups or institutions upon which
it depends. These might include suppliers, labour unions, financial
institutions, government agencies and customers. For a business
organisation, the sale of products and services generates revenue that
can be used to pay wages and taxes, buy more inputs, repay loans and
generate profits for the owners. If revenues are not enough to satisfy
various environmental demands, the organisation downsizes or dies.
Think, for example, of a day-shift manager at a local McDonald's restaurant who
every day must coordinate the work of individuals taking and filling customer
orders at the front counter and the drive-through windows, direct the delivery and
unloading of food supplies, and address any customer concerns that arise. The
manager 'manages' all the parts of this restaurant so that the restaurant's daily
sales goals are met.
Managers at all levels in an organisation may be involved in managing the
organisation but the balance of activities varies at different levels in an
organisation.
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INTERPERSONAL
Figurehead
Leader
Liaison
INFORMATIONAL
Monitor
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Disseminator
Spokesperson
DECISIONAL
Entrepreneur
Disturbance handler
Resource allocator
Negotiator
http://www.sublet.com/
Nancy Kelleher, (1995), Short-Term Rentals Is all Booked Up, Boston Herald, January 17, Pg.26.
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Figurehead
Leader
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Liaison
INFORMATIONAL
Monitor
Disseminator
Spokesperson
DECISIONAL
Entrepreneur
Disturbance handler
Resource allocator
Negotiator
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Management Skills
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Top level managers need conceptual skills that let them view the
organization as a whole, and recognize how the company is affected by
the community, customers and the competition.
Supervisors and team leaders need technical skills to manage employees
who make products and serve customers, train employees and help
employees solve problems.
All levels of management need human skills so they can interact and
communicate with other people successfully.
Activity 1.7
Referring to the Case study Creativity Overflowing explain management use of
the technical, human and conceptual skills using examples from the case:
Technical Skills
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(This case study can be used in the essay on the management process)
After its initial efforts stumbled, Whirlpool is reaping big dividends from its
push to jump-start innovation
David R. Whitwam had run out of tricks. The chairman and chief executive of
Whirlpool Corp. (WHR ) had built the company into the world's No. 1 of
appliances. The company's problem was not hard to diagnose: Its machines were
the same as their competitors products. Prices for its most important products
were actually falling each year. Whitwam remembers those days like this: "I go
into an appliance store. Now, I have pretty good eyes. I stand 40 feet away from
a line of washers, and I can't pick ours out. They all look alike. They all have
decent quality. They all have the same price point. It's a sea of white."
Nor was the solution a mystery: Whirlpool had to come up with exciting new
products that could command premium prices. But the appliance maker had
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Pfeffer also argues that companies that invest in their people will create longlasting competitive advantages that are difficult for other companies to duplicate.
Indeed, other studies clearly demonstrate that good management practices can
produce big advantages in four critical areas of organisational performance: sales
revenues, profits, stock market returns and customer satisfaction. In terms of
sales revenues and profits, a study of nearly 1000 US firms found that companies
that use just some of the ideas shown in Table 1 had US$27, 044 more sales per
employee and US$3814 more product per employee than companies that didn't.
For a 1000-person company, these differences amount to US$27 million more in
sales and US$4 million in annual profit.
Another study investigating the effect of investing in people on company sales
found that poorly performing companies that adopted management techniques as
simple as setting performance expectations and coaching, reviewing and
rewarding employee performance were able to improve their average return on
investment from 5.1 per cent to 19.7 per cent and increase sales by $134,400 per
employee. So, in addition to significantly improving the profitability of healthy
companies, sound management practices can turn around failing companies.
To determine the effect of investing in people on stock market performance,
researchers matched companies on Fortune magazine's list of '100 Best
Companies to Work for in America with companies that were similar in industry,
size and - this is the key - operating performance. In other words, both sets of
companies were equally good performers; the key difference was how well they
treated their employees. For both sets of companies, the researchers found that
employee attitudes such as job satisfaction changed little from year to year.
The people who worked for the '100 Best' companies were consistently more
satisfied with their jobs and employers year after year than were employees in
the matched companies. More importantly, those stable differences in employee
attitudes were strongly related to differences in stock market performance. Over a
three-year period,an investment in the '100 Best Companies to Work for' would
have result in an 82 per cent cumulative stock return compared to just 37 per
cent for the matched companies.63 This difference is remarkable given that both
sets of companies were equally good performers at the beginning of the period.
Finally, research also indicated that managers have an important effect on
customer satisfaction.
Many people find this surprising. They don't understand how managers, who are
largely responsible for what goes on inside the company, can affect what goes on
outside the company. They wonder how managers, who often interact with
customers in negative situations (when customers are angry or dissatisfied), can
actually improve customer satisfaction. It turns out that managers influence
customer satisfaction through employee satisfaction. When employees are
satisfied with their jobs their bosses and the companies they work for they
provide much better service to customers.
Table1.Factors influencing competitive advantage
1 Employment security
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6. Reduction of status
differences
7. Sharing information
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2 Selective hiring
6. Reduction of status
differences
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Management Competence
Developing highly competent managers is much more complicated than
developing trade or work skills.
First, management skills are behavioural, they are not personality
characteristics. Managers are not born they learn on the job so their
behaviour can undergo change from the time they start as they
progress and climb the corporate ladder
Second, people can develop and improve their management skills
through practice. Managers learn on the job and the wider the
experience the more skilled the manager gets handling operational,
human and technical matters.
Third, management skills are interrelated and overlapping in
other words they need combinations of skills. This chapter looked at
essential management functions, roles and skills all of which a
manager needs to be efficient and effective.
Fourth, some of these management skills may be conflicting, for
example effective managers may be required to be both participative
i.e. assisting employees and directive i.e. telling inexperienced or
unwilling employees what to do and flexible i.e. allowing for variation
in interpretation and performance, yet controlled i.e. sticking by the
rules, depending on circumstances.
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Chapter 1
Management
Part 2
History of
Management
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Activity 1.9.
Read: The Pyramids of Giza to the Sydney Opera house. What are the
similarities and differences between the project management of each?
Reflect on the functions, roles, skills that managers require for this
endeavour.
The Pyramids of Egypt
The Sydney Opera house
Similarities
Differences
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First, 'develop a science' for each element of work. Study it. Analyse it.
Determine the 'one best way' to do the work. For example, one of Taylor's
controversial proposals at the time was to give rest breaks to factory
workers doing physical labour. Today, we take breaks for granted, but in
Taylor's day, factory workers were expected to work without stopping.
Through systematic experiments, Taylor showed that frequent rest
breaks greatly increased daily output.
The fourth principle of scientific management was to divide the work and
the responsibility equally between management and workers. Prior to
Taylor, workers alone were held responsible for productivity and
performance. But, said Taylor, 'Almost every act of the workman should
be preceded by one or more preparatory acts of the management which
enable him to do his work better and quicker than he otherwise could'.
Above all, Taylor felt these principles could be used to determine a 'fair day's
work', for a Fair days pay for management and employees so that what was
good for employees was also good for management. One of the best ways,
according to Taylor, to align management and employees was to use incentives
to motivate workers e.g. payment for each product produced.
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Activity 1.12
Refer to Reading 2.3 Frank and Lillian Gilbreth Time and Motion Studies
Time and motion studies are now applied in a variety of industries including fastfood, in supermarkets, call centres, hospitals and public transport.
Explain how time and motion studies have changed the way people work in one
of these industries.
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Division of labour:
Impartial application of rules
and procedures:
Recorded in writing:
Managers separate from
owners:
Activity - 1.13
You apply for a job in a large family owned company. You do so because the
company is managed using the principles above? What are the advantages and
disadvantages working in this company?
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reengineering companies from the top to the bottom. He did this to better
manage a steel company that was losing money and would have been shut
down. Fayol is best known for developing five functions of managers (planning,
organising, leading, coordinating and controlling explored in Part 1 above) and
the 14 principles of management.
1. Division of work:
3. Discipline:
4. Unity of command:
5. Unity of direction:
6. Subordination of individual
7. Remuneration:
8. Centralisation:
9.Scalar chain:
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11.Equity
13. Initiative:
Apple
Vicroads
Similarities
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Differences
Apple
Vicroads
Similarities
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Differences
References:
Taylor, Fredrick Winslow,(1911), The Principles of Scientific Management, Harper
and Row, New York.
Williams Chuck and McWilliams Alan, (2010), MGMT, Cengage Learning
Australia, South Melbourne, pgs.28-29.
Fayol H, (1949) General and Industrial MAangement, Pittman and Sons, London.
Fells M., Fayol Stands the test or Time, Journal of Management History 6(2000):
340-360
Rodriguez C, Fayols 14 Principles of Management Then and Now: A Framework
for Managing Todays Organisations Effectively, Management Decision 39(2001):
880-9.
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Builder
Location
2584-2561 BC
Egyptians
Egypt
605-562 BC
Babylonians
Iraq
435 BC
Greeks
Greece
c. 550 BC
Lydians, Persians,
Greeks
Turkey
Mausoleum of Halicarnassus
351 BC
Carians, Persians,
Greeks
Turkey
292-280 BC
Greeks
Greece
c. 280 BC
Greeks
Egypt
Colossus of Rhodes
Lighthouse of Alexandria
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Managers take over all work for which it is better suited than the
workers.
The introduction of assembly line manufacturing by the Ford Motor Company at
this time is the most widely-used example for understanding and explaining
scientific management in practice.
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Planning
Organizing
Staffing
Directing
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Coordinating
Reporting
Budgeting
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Concern for people which is plotted using the vertical axis, and
The notion that just two dimensions can describe a managerial behaviour has the
attraction of simplicity.
This grid identifies five different types of leaderships styles. The grids show if
managers are concerned with people or production.
Country Club
Team Leader
High
Low
Middle of
the Road
Impoverished
Low
Produce or Perish
High
Concern for people means how leaders meet the needs of their employees and
takes into account their interests and how best they can complete a task.
Concern for production is where the manager concentrates on productivity,
objectives and efficiency.
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Team Manager creates committed people who accomplish work goals through
inter-dependence and a common commitment to the success of the organization.
This leads to relationships of trust and respect.
Impoverished Manager exerts minimum effort to get the required work done and
sustain organization membership.
Is an ineffective leader
Average performance
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Consultative system
In this type of management system, subordinates are motivated by rewards and
a degree of involvement in the decision making process. Management will
constructively use their subordinates ideas and opinions. However involvement is
incomplete and major decisions are still made by senior management. There is a
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Quantitative Management
Quantitative management focuses on improving decision making via the
application of quantitative techniques. Its roots can be traced back to scientific
management.
This approach focused on mathematics, statistics and information to support
management decision making and organizational effectiveness.
Three branches have emerged from this approach:
Management science
Operations management
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Contingency Management
The contingency approach to management (sometimes called the situational
approach) emerged in the 1960s from the increased diversity and environmental
uncertainty which characterises management in todays world.
Contingency management recognizes that as every situation is unique, there are
no universal rules which managers can apply in every situation, and that the style
of leadership and management required in an organisation will depend on a
range of variables confronting the organisation at the time.
Contingencies can be unforseen events which cant be anticipated, eg.
September 11, Hurricane Katrina etc.
Presently, governments, hospitals and a host of other organisations in many
countries are developing contingency plans (what- if plans) in the case of a
pandemic.
Common contingency variables that influence what approach will be effective in a
given situation include:
Environmental uncertainty. What is effective in a stable,
predictable environment may be inappropriate in an environment
characterised by change and unpredictability.
Organisation size. The type of organisational size and structure
suitable for an organisation of 50 workers is unlikely to be suitable for
an organisation of 5000 workers.
Routineness of tasks. Routine technologies used in mass
production require different management systems and structures than
for non-routine technologies producing customised products.
Individual differences. Taking account of individual differences is
important for management of people as not all people react to
situations in the same way.
Contemporary Management
Management research and practice continues to evolve and new approaches to
the study of management continue to be advanced. This section briefly reviews
contemporary approaches: systems theory, total quality management (TQM) and
the learning organization.
While none of these management approaches offers a complete theory of
management, they do offer additional insights into the management field.
Systems Approach
The systems approach defines a system as a set of interrelated and
interdependent parts arranged in a manner that produces a unified whole.
There are two types of systems, closed systems and open systems. A closed
system does not interact with and is not influenced by the environment in which it
operates. An open system approach recognises the dynamic interaction with the
environment - suppliers, labour unions, financial institutions, government
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Inputs
Processes
Outputs
Human
Planning
Products
Materials
Organising
Services
Equipment
Leading
Profit/Loss
Financial
Controlling
Human development
Information
Technology
Information
Facilities
The job of the management is to coordinate all parts of the system in order to
meet organisational goals and this done through setting up feedback
mechanisms.
The systems approach has several advantages, the main one being that it shows
how changes in one part of an organisation can affect the rest of the
organisation. This awareness ensures that activities are more likely to be properly
coordinated throughout the organisation.
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TQM Principles
Intense focus on the customer.
The customer includes not only outsiders who buy the organisations products or
services, but also internal customers - staff who interact with others in the
organisation.
Accurate measurement.
TQM uses statistical techniques to measure every critical variable in the
organisations operations.
Empowerment of employees.
TQM involves the people on the line in the improvement process.
Teams are widely used in TQM programs as empowerment vehicles for finding
and solving problems.
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Management strengths:
Management weaknesses:
Hard-working
Short-term view
Innovative
Technically sound
Poor at teamwork
Independent thinking
The Karpin Report concluded that Australian business needed to develop a more
positive enterprise culture through education and training.
The report saw 1995 - 2010 as a developmental period for improving Australian
business practices at leader and manager level.
The report went on to note that the critical importance of education, training and
ongoing professional development to ensure managers had the knowledge and
skills they needed to perform effectively in the workplace
Lifelong learning was recommended as a key ingredient in skilling workers and
managers for evolving work environments.
The report recommended that more emphasis should be placed on the important,
non-technical domains of management and on the soft skills of managers:
leading and managing people, communicating, negotiating, resolving conflict,
fostering creativity and innovation, and on managing change.
Australian businesses were also encouraged to focus on globalization, to
encourage and to value diversity in the workforce, and to implement best
practice management procedures.
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Chapter 2
Business
Environments
2011
External Environment
The external environment comprises of two environments, the Mega and Task
environments. The Mega environment is the general external environment in which the
organisation functions. The Task environment comprises more specific elements that
act directly on the organisation.
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The task environment represents more specific elements that act directly on the
organisation and is mainly concerned with products, services and the location of the
organisation.
The Task environment has five elements:
1. The Customer element
This is the environment which is concerned with satisfying customer needs
and expectations. The forces which exert pressure on the organisation can
include; customer expectations of product and service quality and value for
money.
2. The Competitor element
This is the environment which is concerned with competition. The forces
which exert pressure on the organisation can include; competitive pricing,
product innovation, service quality.
3. The Supplier element
This is the environment which is concerned with stability and continuity. The
forces which exert pressure on the organisation can include; working
relationships, costs, scheduling, and product and service quality.
4. The Government element
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Internal Environment
The Internal environment refers to the environment inside the organization. , , are
those forces acting on the organisation from within and take a similar form to those
discussed under External Forces.
The Internal environment has four elements:
1. The Economic element
This is the environment which is concerned with efficiency. The forces which
exert pressure on the organisation can include; cost recovery and
reductions in capital expenditure.
2. The Human element
This is the environment which is concerned with employee competence
productivity. The forces which exert pressure on the organisation can
include; the knowledge, skills and values of employees, employee
motivation, satisfaction and absenteeism.
3. The Resource element
This is the environment which is concerned with the allocation of physical,
human and financial resources. The forces which exert pressure on the
organisation can include; financial constraints, employee availability,
adequate facilities.
4. The Technology element
This is the environment which is concerned with existing technological
capability of the organization. The forces which exert pressure on the
organisation can include; the skill levels of staff and the currency of existing
technologies to deliver efficient and effective outcomes.
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The population ecology model argues that organisations with the right characteristics
will survive regardless of the environmental factors.
This view is also known as the natural selection model.
Therefore, some organisations will always continue to prosper while others are
destined to fail at some point in time.
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Constraints: The effect that the dependencies have on the ability of the
organisation to function and survive.
Management: The effect of the action of the organisation to manage the
dependence.
Dependencies: The dependencies created as a result of the unequal
exchange of resources.
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The resources one organization needs are thus often in the hands of
other organizations.
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Environmental Uncertainty
Environmental uncertainty occurs in the absence of full information about the
environment.
There are 2 dimensions of environmental uncertainty:
Environmental complexity whether the environment is simple or complex. The
number and dissimilarity of external elements relevant to the organization's operations.
Environmental stability whether the environment is stable or unstable. The extent to
which the environment is changing rapidly and unpredictably
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Environmental Complexity
Environmental complexity is to do with the number of elements in an organisations
environment and their degree of similarity.
When there are only a few similar elements, the environment is said to be
homogeneous (all the same).
But when there are many dissimilar elements, the environment is said to be
heterogeneous (very different). Managers find heterogeneous environments very
challenging because of the many variables that need to be considered.
Environmental Stability
Environmental stability is to do with the rate and predictability of change in the
elements in an organisations environment.
When changes take place slowly and in a predictable manner, the environment is said
to be stable.
But when changes take place in a fast and unpredictable manner, the environment is
said to be unstable. Managers find unstable environments very challenging because of
the many variables that need to be considered.
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Buffering
This is a risk management strategy which is designed to guard against unforeseen
environment variables. It involves holding additional stock of inputs and outputs from a
manufacturing or service processes.
However, this strategy is not appropriate when the stock is high value or perishable. It
is also not feasible to stockpile services.
Bridging
Another strategy involves sourcing supply of resources from two or more organisations.
This has the advantage of reducing the risk of running out of inputs or outputs due to
fluctuations in the supply of materials or the demands of customers.
Smoothing
Smoothing is a strategy which is designed to reduce the impact of fluctuating market
demands. An example of this strategy is to reduce prices to increase sales during low
demand periods.
Forecasting
Another way that organisations can manage risks is by forecasting (predicting) future
environmental fluctuations or changes. However, the higher the degree of uncertainty,
the less accurate the forecasts will be.
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Boundary Spanning
Boundary spanning involves influencing environmental elements through the actions of
people in specific roles, both inside and outside of the organization.
Within the organization it could involve the collection, processing, filtering and
distribution of information to specific people for actioning. E.g. real-estate agency may
provide their salespeople with a list of likely customers such as newlywed couples.
Outside the organization it could involve the distribution of selected information to
specific interest groups. Eg. a health food company may provide advertising materials
and free samples of their products, to fitness clubs, in order to reach their target
market, the club members.
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Contracting
When negotiating contracts with customers or suppliers, terms and conditions could be
included, that lead to more favourable outcomes for the organization. Eg. Specifying
minimum order quantities.
Co-opting
Large public organizations employ high profile people to serve as directors on their
boards. Eg. These directors are usually drawn from key environmental elements and
can provide important insights into how the organization should manage specific
environmental elements.
Strategic Alliances
Organisations often enter into strategic alliances when they have complementary skills
or resources. Eg. A civil engineering business and a road surfacing business may form
a joint venture company to bid for road construction projects.
Industry Associations
Similar or related organisations may join an industry association to promote themselves
as members of a credible and respected industry body.
Political Lobbying
Organisations can try to influence governments to provide assistance or favourable
conditions for doing business. Eg. company directors, who usually have large networks
of influential contacts, can use their resources to lobby government decision-makers.
Domain Change
Domain change can involve changes to products, service or locations. Eg. Changing
the product mix or relocating to another city or region.
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Organizational Culture
When we walk into an organisation and get a certain 'feel' for it, whether it is fast
moving and responsive, or whether it feels old and backward looking, this 'feeling' is
referred to 'organisational culture'.
How the organisation organises itself, its rules, procedures and beliefs make up the
culture of the company.
Culture is about a shared system of values, assumptions, beliefs and standards.
Organizational culture describes the psychology, attitudes, experiences, beliefs and
values (personal and cultural values) of an organization. It has been defined as "the
specific collection of values and norms that are shared by people and groups in an
organization and that control the way they interact with each other and with stakeholder
outside the organization."
Organizational values are the beliefs and ideas about what kinds of goals members of
an organization should pursue and ideas about the appropriate kinds or standards of
behaviour organizational members should use to achieve these goals. Organizational
values guide management in the development of organizational norms, guidelines and
expectations. These values also guide the appropriate kinds of behaviour by
employees in particular situations and control the behaviour of organizational members
towards one another.
Organizations include for-profit businesses, religious institutions, not-for-profit groups,
and government agencies. Organizational culture is the total sum of the values,
customs, traditions, and meanings that make an organisation unique. The values of an
organisation influence the ethical standards within an organisation, as well as
managerial behaviour.
Management may try to create a corporate culture by imposing corporate values and
standards of behaviour that specifically reflect the objectives of the organization. To do
this they will often have to change an existing internal culture within the workforce.
Work-groups within organizations often have their own behavioural values which can
affect the whole system. Sometimes organizational culture can be imported. For
example, computer technicians will have expertise, language and behaviours gained
from their industry that are independent of the organizations culture. This can influence
the culture of the organization as a whole.
The impact of an organisations culture can be analysed and measured across three
main areas.
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Power Culture
Within a power culture, control is the key element. Power cultures are usually found
within a small or medium size organisation.
Decisions in an organisation that display a power culture are centralised around one
key individual. That person likes control and the power behind it.
As group work is not evident in a power culture, the organisation can react quickly to
dangers around it as no consultation is involved.
However this culture has its problems, lack of consultation can lead to staff feeling
undervalued and de-motivated, which can also lead to high staff turnover.
Role Culture
Common in most organisations today is a role culture. In a role culture, organisations
are split into various functions and each individual within the function is assigned a
particular role.
The role culture has the benefit of specialisation.
Employees focus on their particular role as assigned to them by their job description
and this should increase productivity for the company.
This culture is quite logical to organise in a large organisation.
Task Culture
A task culture refers to a team based approach to complete a particular task.
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Person Culture
Person cultures are commonly found in charities or non profit organisations.
The focus of the organisation is the individual or a particular aim.
However, high profile and dynamic leaders like Richard Branson, the CEO of Virgin
Airlines, has also created a person culture based on him.
Entrepreneurial Culture
Culture is about how the organisation organises itself, its rules, procedures and beliefs
make up the culture of the company.
Whenever two or more people come together with a shared purpose, they form a
culture with its own written and unwritten rules for behaviour.
Our families, workplaces and communities all have cultures.
These cultures have a tremendous, though rarely recognized, impact upon our
behaviour as individuals.
Each cultural environment provides a unique set of standards to which we must adapt.
Our behavioural patterns change dramatically from cultural context to cultural context.
For example, on the job we are expected to behave in accordance with certain social
standards.
Expectations about behaviours at work usually differ from what is expected of us in our
kitchens and in our bedrooms.
We may choose not to behave in accordance with our cultures, but if we choose not to
go along, we must be prepared for ongoing consequences.
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Adaptive/Entrepreneurial Culture
Characteristics
Administrative Culture
Characteristics
Strategic
View
Approach to
change
Commitment
of resources
Control of
resources
Management
structure
Management Cultures
There are three different approaches that define Management Culture. They are,
Operator Culture, Engineering Culture and Executive Culture. Each of these cultures
having their own value sets.
Operator Culture focuses on the value of people and assumes that
organisational success or failure is ultimately due to the actions of people.
Engineering Culture focuses on systems and procedures and solutions
that dont involve people.
Executive Culture focuses on the need to maintain an organisations
profitability and is preoccupied with board meetings, investors and capital
markets.
Organisational failure occurs when cultures are unaligned. Typically, operator and
engineering cultures dont align with executive culture.
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Chapter 3
Social
Responsibility
and Ethics
2011
114
CHAPTER 3 SOCIAL
RESPONSIBILITY AND ETHICS
Ethics and Morals
The following two statements provide a simple way of understanding the
differences between ethics and morals.
Ethical behaviour can be defined as obeying the laws of the country you live in.
Moral behaviour can be defined as obeying the rules or accepted values of the
society you live in.
When the rules of a society are supported by the laws of a country, there is no
tension or conflict between what behaviours that people consider to be right or
wrong.
However, when the laws of a country do not support the rules of a society, there
will always be a tension or conflict between what behaviours people consider to
be right or wrong and those that are prescribed as right or wrong in the laws.
Business Ethics
Simply put, ethics involves learning what is right or wrong, and then doing the
right thing but "the right thing" is not nearly as straightforward as conveyed in a
great deal of business ethics literature. Most ethical dilemmas in the workplace
are not simply a matter of "Should Bob steal from?" or "Should Jack lie to his
boss?" (Many ethicists assert there's always a right thing to do based on moral
principle, and others believe the right thing to do depends on the situation
ultimately it's up to the individual.)
Many philosophers consider ethics to be the "science of conduct." They explain
that ethics includes the fundamental ground rules by which we live our lives.
Philosophers have been discussing ethics for at least 2500 years, since the time
of Socrates and Plato. Many ethicists consider emerging ethical beliefs to be
"state of the art" legal matters, i.e., what becomes an ethical guideline today is
often translated to a law, regulation or rule tomorrow.
Values which guide how we ought to behave are considered moral values, e.g.,
values such as respect, honesty, fairness, responsibility, etc. Statements around
how these values are applied are sometimes called moral or ethical principles.
The concept of business ethics has come to mean doing whats right in the
workplace. i.e. doing what's right in regard to the stakeholders (customers,
employees, shareholders and suppliers) of the business.
Today, ethics in the workplace can be managed through use of codes of ethics,
codes of conduct, ethics committees, policies and procedures, to resolve ethical
dilemmas, ethics training, etc.
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Social Responsibility
Social responsibility refers to an organisations commitment to support and
improve societys wellbeing and its own interests. Social responsibility is called
often called corporate responsibility when it is applied to a business.
Opinions differ in terms of how much social responsibility an organisation should
accept.
The level of corporate social responsibility undertaken by organizations is
influenced by the approach that management wants to take:
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The Hand-of-Government
Under the hand-at-government perspective, the role of businesses is to be
profitable within the law. However, this view argues that society's interests are
best served by having the regulatory hands of the regulatory hands of law and
political process, rather than the invisible hand, guide businesses' work.
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The Hand-of-Management
The hand-of-management perspective says businesses and managers must act
to protect and improve society's welfare while advancing corporate economic
interests.
Typically, three arguments are used to support organisational social
responsibility.
The anti-freeloader argument holds that businesses benefit from a better
society, and should bear some costs of improvement by working towards
solutions to social problems.
The capacity argument states that the private sector must compensate for
government cuts to social programs.
The enlightened self-interest argument holds that businesses exist at society's
pleasure and, for their own legitimacy and survival; they must meet public
expectations of social responsibility or suffer financially. This relates to the iron
law of responsibility, which states that 'in the long run, those who do not use
power in a manner that society considers responsible will tend to lose it.
Generally, society's expectations of the social responsibilities of business are
growing. Consequently, the hand-of-management approach is increasingly
relevant.
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Social Stakeholders
If businesses and managers are to be socially responsible, it is important to
identify where this responsibility lies. Six overlapping groups are identified:
shareholders, employees, customers, the local community, general society
(regional and national) and the international community.
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Shareholders
Despite a perception that the business has obligations to several constituencies,
it is still agreed that the main management role of public businesses is to earn
profits and distribute them as shareholder dividends. Shareholders provide
capital for companies to survive and grow.
Managers see themselves as responsible for the businesses survival, for
developing and expanding it, balancing stakeholders' demands so that multiple
demands do not result in a failure to achieve company goals. Different
shareholder and management perspectives may produce conflict, particularly
over dividend levels (versus reinvestment allocations) or executive benefits such
as stock options and club memberships.
Shareholders may pressure management to change their social stance.
Currently, shareholders are concerned about CEOs being paid millions while their
companies perform poorly. Top managers rarely disclose their full compensation.
Employees-Managing diversity
Organisations must at least honour specific employee agreements and obey
relevant employee-employer relationship laws. Laws and regulations specify
employer responsibilities on equal employment opportunity, pensions and
benefits, and health and safety. Recognition of workforce diversity and public
feelings about employer abuses has led to increased regulation.
Top managers frequently refer to employees as 'family', but employee treatment
is quite variable.
Customers
Although the motto of many businesses was once caveat emptor ('let the buyer
beware'), consumers now expect more. Two current areas of social concern for
consumers are health and safety, and quality issues.
Product liability law suits are increasing, which negatively affect business
prospects. Increasing liability cases mean many businesses find liability
insurance harder to find. As business's social responsibilities have been
questioned, the pendulum may have swung too far to the consumer. It is argued
that a manufacturer should be liable for the safety of a product only if it 'knew, or
should have known, about its dangers'. However, this is risky, as it can be l hard
to determine what research a manufacturer needs to do to ensure all safety
contingencies are considered. A 100 per cent standard may mean products
would take years to reach the market, if at all, and be expensive. Thus
businesses that are concerned for consumers compromise by trying to be 99 per
cent certain a product is safe, buying large insurance policies and hoping.
The importance of quality as a consumer issue has grown. Keeping up with the
competition is important, and some have linked quality to social responsibility.
The Australian Competition and Consumer Commission (ACCC) has taken a
stance against misleading 'country of origin' labelling.
Greater focus on customer relationship management shows that many
organisations realise the need to focus on the customers needs.
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Adequate transport
Fair taxes
Sufficient schools
Recreational facilities
Public services
Police
Fire services
Sewage
Water
Gas
Electricity
Through these needs, businesses and communities are interrelated and may
function more effectively with mutual support.
Society
Social responsibility at a societal level involves regional and national issues. For
example, many business leaders are involved in educational reform to prepare
future labour pool members.
When the links between corporate social expenditures and business-related
results are weak, supporters of the invisible-hand view of social responsibility will
object. Conversely, the hand-of-government view favours government regulation
of social expenditures, and higher taxes to allow governmental funding.
International Community
International issues can impact social responsibilities. The Union of International
Associations in Brussels listed 10,000 global problems, in categories such as
international tensions, scarce resources and growing pollution. Many businesses
responded by changing their practices.
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Social Forecasting
Social forecasting is the systematic identification of social trends, evaluation of
the organisational importance of those trends, and their integration into an
organisations forecasting program. One approach is using futurists; that is,
individuals who track important environmental trends and try to predict their
organisational impact, usually ten or more years ahead.
Others use consultants and research institutes that specialise in social
forecasting.
Opinion Surveys
Associations and business publications conduct surveys on social issues. These
often identify different groups views of social responsibility. One poll, for
example, showed that only 31 per cent of people saw business executives as
having good moral and ethical standards.
Social Audits
A social audit is the systematic study and evaluation of social, rather than
economic, organisation performance. It includes assessment of the social impact
of a businesss activities, evaluation of programs with social goals, and
identification of areas for action. Social audits are difficult because disagreements
can arise about what to include, results can be intangible and or difficult to
measure, and opinions may vary about what makes adequate or good social
performance. Nevertheless, organisations increasingly assess their performance
by social audits.
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Social Scanning
Social scanning is the general surveillance of task-environment elements to find
evidence of impending changes that will affect organisational social
responsibilities. Unlike issues management, social scanning is more informal and
unsystematic. Executives use their own experience of issues likely to affect the
organisation, but may rely on systematic assessments.
Individual Executives
Using individual executives as a social response mechanism means either
appointing or allowing individuals to handle critical social issues as they happen.
This is more common in smaller rather than larger businesses.
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Permanent committees
There are many types of permanent committees, Almost 100 of the Fortune 500
companies have special committees on the board of directors to deal with social
issues. These may be called public policy, public issues, social responsibility and
corporate responsibility committees.
Permanent departments
Businesses may have a permanent department to co-ordinate social
responsibilities, and identify and recommend policies for new social issues. This
is often called the public affairs department. It may co-ordinate government
and/or community relations with other external activities.
Combination approaches
In practice, organisations use a combination of mechanisms to build social
performance. For example, division-level committees or a public affairs
department may make recommendations to an executive-level committee or to
certain key executives.
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Figure 3.7 Three Major Levels of Moral, or Ethical, Judgment that Characterise
Managers
Immoral Management
In business, 'immoral' and 'unethical' may be synonymous. Thus, immoral
management lacks ethical principles, actively opposing ethical behaviour.
Concern is exclusively with profit and success at any cost, readiness to treat
others unfairly, seeing laws as obstacles, and an inclination to 'cut corners'.
Amoral Management
Amoral management is neither immoral nor moral but ignores or is oblivious to
ethical issues. Intentionally amoral managers exclude ethical concerns from
decisions and actions, as they think general ethical standards are inapplicable.
Unintentionally amoral managers are inattentive or insensitive to the moral
implications of their decisions and actions, and ignore ethical issues. Overall,
amoral managers are well-meaning, but give little attention to the impact of their
behaviour as they pursue profitability. They allow other managers to behave as
they wish unless the behaviour generates notoriety or pressure.
Moral Management
In contrast to both immoral and amoral management, moral management follows
ethical principles and precepts. While moral managers want to succeed, they do
so only within ethical standards and ideals of fairness, justice and due process.
As a result, moral managers pursue the twin business objectives of profit making
and engaging in legal and ethical behaviours.
They follow both the letter of the law and the spirit of the law, realising that moral
management means working above legally mandated levels.
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Institution investors
End-consumers
114
Figure 3.9 Six Factors that Might Influence Corporate Social Responsibility
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ILLUSTRATIVE BEHAVIOUR
Kohlberg concluded many people are limited to 'conventional morality' and very
few over the age of 16 display the ethically principled orientation implied by stage
6. The following response, from a 16-year-old, to Heinz's ethical dilemma is an
example of this ethically principled orientation:
By the law of society he was wrong but by the law of nature or of God the
druggist was wrong and the husband was justified. Human life is above financial
gain. Regardless of who was dying, if it was a total stranger, man has a duty to
save him from dying.
Relationships between stages of moral development and styles of conflict
management have also been explored.
Organisational/Culture
The 2005 documentary of Enron's collapse, Enron: The Smartest Guys in the
Room, demonstrates how organisational culture can corrupt its members. 'Since
unethical behaviour can be learnt at work, so too can ethical behaviour'. It is not
enough, however, for management to simply sign-off on ethical codes it must
actively implement and support the codes. To support this, the company values
should underpin an organisations systems, including recruitment, performance
management and reward and recognition systems. Ethics are then embedded
into every organisational aspect, and become viable and ingrained in
management language and processes.
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Individual Values
Individual value systems play a vital role in ethical decision-making. Ethical
decision-makers positive value systems. A value is a concept that defines what a
decision-maker considers as acceptable and can be viewed in four modes;
practical, moral, gratifying and economic.
Managers use one or more of these modes that they consider compatible with
their set of values.
The Practical Mode deals with a drive to stay with what has worked in the past.
The idea is to reduce risk and increase the probability of success.
The Moral Mode makes strong judgments with regard to right and wrong of a
decision or act. This of value system usually rests on religious beliefs. A manager
in this mode will view decisions in a clear-cut manner.
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Internal Factors
Environmental Competitiveness
Environmental Munificence
Labour dissatisfaction
Extreme Dependency
Delegation
Encouragement of innovation
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Top-management commitment
Managers can show their commitment through several mechanisms set out
below and the positive examples of their own.
Codes of Ethics
It is estimated 90 per cent of major businesses have a written code of ethics. A
code of ethics is a document organisations prepare to guide members in
encountering ethical dilemmas. While almost all businesses with a code say it
helps maintain staff's ethical behaviour, a study showed only 36 per cent issue
their code to all staff and only 20 per cent display it widely. Only about 40 per
cent of businesses in a comparative study in Britain, France and West Germany
(prior to unification) had codes of ethics, and with great variation between
countries based on political, legal and socio-cultural variations.
Ethics Committees
According to an Ethics Resource Centre survey, about a third of Fortune 1000
companies have ethics committees. An ethics committee is a group that helps set
up policies and resolve major ethical questions facing company members at
work. The committee may oversee ethics training programs. Often, the committee
has members from top management and/or the board of directors.
Ethics audits
Some businesses conduct ethics audits-systematic efforts to assess conformity
to organisational ethical policies, aid understanding of these policies and identify
serious breaches needing remediation. Even so, ethical problems can be hard to
identify.
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Ethics training
Many organisations use ethics training to encourage ethical behaviour. Training
can focus just on ethical issues or be integrated into training on many other
issues. Clarifying expectations and ethical standards helps reduce unethical
behaviour. Better understanding company standards leads to more appropriate
decisions by members of the organisation.
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Chapter 4
Managerial
Decision
Making
2011
139
CHAPTER 4 MANAGERIAL
DECISION MAKING
In this chapter we explore the nature of managerial decision making. We evaluate
managers as decision makers and consider steps in an effective decision-making
process. We examine how to overcome barriers to effective decision making, and
weigh the advantages and disadvantages group decision making. Finally, we show how
managers can promote innovation by using creativity in decision-making processes.
139
Crisis
A crisis problem is a difficulty serious enough to need immediate action. An example of
a crisis is a discovery of a severe cash-flow deficiency, potentially a serious loss.
Non-crisis
A non-crisis problem is an issue that needs resolution but does not have the
importance and immediacy of a crisis. Many managerial decisions involve non-crisis
problems. Non-crisis problems are significant, but do not immediately threaten
organisational viability. For example, a factory that needs to meet new anti-pollution
standards over the next three years, or a staff member often late for work.
Opportunity
An opportunity problem is a situation with potential organisational gain if the right
actions are taken. Typically, these problems involve new ideas and directions, and are
major opportunities for innovation. Opportunities involve ideas for use, not problems for
resolution. In a study of 78 managerial decision-making situations, 13 per cent of
problems were crises problems, 62 per cent were non-crisis and 25 per cent were
opportunity taking. As well as these three problem types, managers face different
decision-making situations.
139
Decision type
Lower
Middle
Top
Managerial level
Figure 4.3 Decision Situations
Organisation Type
Programmed Decision
Non-Programmed Decision
Fast-food
restaurant
University
Car-manufacturer
Programmed Decisions
Programmed decisions are for routine, repetitive, well-structured situations using
predetermined decision rules. These can result from habit, computational techniques or
policies and procedures. Such rules usually use prior experience or technical
knowledge about what works. For example, most organisations have policies and
procedures for occupational, health and safety practices.
Programmed decisions fit routine, well-structured situations, but may be very complex.
Computers have made sophisticated, programmed decision making easier, by
collecting and analysing vast amounts of data. For example, when someone uses a
credit card, a computer will make a programmed decision authorising the purchase.
However, if the amount is unusually large or over the account limit then the purchase
will not be authorised routinely. Instead, a human will make a programmed decision
based on policies and procedures.
Most first-line managers' decisions and many middle managers' decisions are
programmed. Top-level managers face few programmed decisions.
139
Non-programmed Decisions
Non-programmed decisions occur when predetermined decision rules are impractical
due to novel and/or relatively unstructured situations. Most major management
decisions are non-programmed. Non-programmed decisions, therefore, usually mean
considerable uncertainty, where the decision maker selects a course of action without
being completely sure what the effects will be.
Decisions made under uncertainty involve risk. The chance an action chosen could
yield losses rather than the desired results. Uncertainty has many sources, so
unpredictable or uncontrolled environmental elements can affect a decision's success.
Cost and time constraints limit information collection. Social and political issues, such
as poor inter-unit communication, make collecting needed information hard. Situations
change rapidly, so current information becomes obsolete. For example, Woolworths is
shown over 25000 new lines annually but takes up only 2000.
The frequency of managers non-programmed decisions grows by organisational level.
As these decisions need effective decision-making skills and, often, creativity, they are
the most challenging managerial decision-making type. This chapter focuses mainly on
non-programmed decisions.
139
Non-rational Models
In contrast to the rational view, non-rational models of managerial decision making
suggest that limitations on information-gathering and processing make optimal
decisions hard. Within the non-rational framework, researchers have identified three
major decision-making models:
Satisficing model
In the 1950s, Herbert Simon studied the behaviour of managerial decision makers and
developed the bounded rationality concept as a framework for understanding actual
managerial decision making.
Bounded rationality means managers' ability to be perfectly rational in decision making
is limited by factors such as cognitive capacity and time constraints.
The concept suggests some common factors limit the ability of managers to make
perfectly rational decisions:
Decision makers may have inadequate information about the nature of
the issue to be decided and also about possible alternatives and their
strengths and limitations.
Time and cost factors often limit information gathering for a particular
decision.
Decision makers' perceptions about the relative importance of various
pieces of data may cause them to overlook or ignore critical information.
The part of human memory used in decision making holds only a
relatively small amount of information at once.
139
Incremental model
Another decision-making approach is the incremental model, which holds that
managers make the smallest possible response to reduce a problem to a tolerable
level. This approach is geared to short-run problem fixes rather than to long-term goal
achievement. Like the satisfying model, the incremental model frees managers from
information processing. Incremental sing can be likened to a situation where a home
owner uses various multi-outlet adaptors rather than have more electrical power
sockets installed. Eventually, the incremental decisions fail, as extra appliances
overload electrical circuits and may blow fuses.
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Rubbish-bin Model
The rubbish-bin model of decision making says managers act randomly in nonprogrammed decision making, In other words, outcomes occur by chance, depending
on those involved, the problems they are concerned with, opportunities they stumble
across and favoured solutions available. The rubbish-bin strategy is most likely when
managers have no goal preferences, unclear means of achieving goals and/or the
participants in the decision-making process are rapidly changing. Desirable outcomes,
such as capitalisation of unexpected opportunities, can be reached with this strategy,
but there can be serious problems.
Intuitive Model
The intuitive model also depicts a non-rational decision-making process. Intuition is the
gut feel for a complex situation or an 'instinct' for quickly grasping key issues based on
experience and subconscious mental processing, The ability to quickly recognise
whether an investment is likely to produce the result desired, whether a new product
will succeed or whether a potential hire is good or bad are all examples of intuitive
decision making. Intuition may be considered a viable and valuable managerial
decision-making method, because rational decision making is imperfect, intuition
becomes as important as rational analysis in many decisions. Rational and intuitive
models are parallel decision-making systems rather than substitutes. According to the
CEO of a major energy corporation, 'Ignoring intuition has led to some bad decisions,
when you have gathered enough data to be 99,9 per cent certain that the decision you
are about to make is the correct one, that decision has become obsolete'.
Research suggests executives use intuition in strategy and planning, marketing, human
resource development, research and development, investment and acquisition, merger
and alliance decisions. It is also suggested that the proportion of executives with an
intuitive preference increases with seniority.
139
Activities
Scan the environment for changing circumstances
Categorise the situation as a problem or non-problem
Diagnose the problems nature and causes
Generate alternative
solutions
Evaluate feasibility
Evaluate quality
Evaluate acceptability
Evaluate costs
Evaluate reversibility
Evaluate ethics
139
Scanning Stage
The scanning stage involves monitoring the work situation for changing circumstances
signalling an emerging problem. At this point, a manager may only be vaguely aware
an environmental change could lead to or that a present situation is a problem. For
example, in the 1970s, Swiss watchmakers saw inexpensive watches emerge from
Japan and Hong Kong.
Categorisation Stage
The categorisation stage entails trying to understand and verify any discrepancy
between the current state and the desired state. Here the manager has to categorise
the situation as a problem or a non-problem, though it may be hard to specify the
nature of the situation exactly. For example, a discrepancy would have occurred in the
1970s when sales of the relatively expensive Swiss watches fell.
Diagnosis Stage
The diagnosis stage involves collecting further information and specifying the nature of
the problem and its causes. Without diagnosis, success in the remainder of the process
is difficult. The problem is to be stated in terms of the gap between current conditions
and those desired, and causes of the discrepancy must be specified. Watchmakers first
thought cheaper watches were only a fad. By 1983, however, conditions worsened, and
Switzerland's two largest watchmakers, SSIH and Asuag, were deep in debt. The two
firms controlled many of the world's best-known watch brands-Omega, Longines,
Tissot and Rado. Clearly, cheaper watches from Japan and Hong Kong were a serious
threat. The banks for SSIH and Asuag called in Zurich-based management consultant
to help find a solution.
139
All may not be equally important. Therefore, to make the evaluation process more
precise, weights should be allocated to each criterion.
139
Feasibility
The feasibility criterion refers to the extent to which an option can be achieved within
organisational limitations, such as time, budgets, technology and policies. Options that
do not meet the feasibility criterion should be cut. The watch companies, for instance,
at first did not see fighting the overseas threat as feasible.
Quality
The quality criterion refers to how effectively an option solves the problem. Options that
partly solve the problem or are questionable are cut now.
Acceptability
This criterion refers to how much decision makers and others affected by
implementation of an option will support it. Acceptability is seen as an important
criterion to assess decisions.
Costs
The costs criterion refers to both needed resource levels and the extent to which
options may have negative side effects. Thus 'costs' are not only direct financial issues
but also intangible issues, such as competitor retaliation.
Reversibility
Overconfident managers may assume their decisions are good and are not going to
fail. They may also unconsciously ignore possible negative outcomes of decisions.
Managers should be prepared and take a proactive role to overcome such biases. In a
highly uncertain and fluid environment, managers must recognise when commitments
for resources or even the decision itself should be halted or reversed.
Options must be carefully considered. For example, if the watchmakers had been
liquidated, reversing this would have been hard. Instead, the group merged the two
firms, forming the Swiss Corporation for Microelectronics and Watchmaking (or SMH),
with the consultant as chairperson. SMH then launched an inexpensive, innovative
plastic Swatch watch, assembled on a fully automated, low-cost assembly line. By
1995, over 150 million Swatch timepieces had been sold, competing with Seiko of
Japan to be the world's number-one watchmaker. Unlike the Japanese firms, SMH also
makes both medium-priced and luxury watches.
Ethics
The ethics criterion refers to how well an option fits with the firm's social responsibilities
and managers' ethical standards. For example, the Swiss consultant is considered a
Swiss hero for saving the watchmaking industry and many jobs.
139
139
139
Complacency
Complacency occurs when people either do not see or ignore danger or opportunity
signs. With complacency, failing to detect signs usually flows from poor environmental
scanning. Ignoring signs is the 'ostrich' effect of sticking your head in the sand and
hoping the danger or opportunity will go away or fix itself.
Complacency can occur even if there is a response. For example, someone may
quickly accept a seemingly good job offer, without taking the time or effort to assess it
properly.
Defensive Avoidance
With defensive avoidance, individuals deny the importance of a danger or an
opportunity, or deny responsibility for action. Defensive avoidance has three forms:
When Barings Bank in Londons officials ignored signs that their Singapore based
derivatives trader, Leeson, was taking unwarranted risks that eventually led to a loss of
more than $1billion and the bank's collapse, all three forms occurred.
Investigation showed bank officers had 'failed to follow up on a number of warning
signals over a prolonged period', Among them were:
Panic
With panic or panic-like reactions, people get upset, seeking frantically for a way to
solve a problem. They seize a quickly formulated option without seeing its severe
problems and considering other, possibly better, options. Panic is more common with
crisis problems.
Deciding to Decide
With a deciding-to-decide response, decision makers accept the challenge of deciding
what to do about a problem and following effective decision-making processes.
Deciding to decide is important in a legitimate problem situation. Of course, managers
cannot check all potential problems that appear, no matter how minor and remote.
The following guidelines can be useful in deciding what to decide.
Action
Appraise credibility of
Method
Is the source in a position to know the truth?
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Ascertain importance of
threat or opportunity
Figure 4.14 Three Approaches for Expanding the Search for Alternatives
139
Framing
This is the tendency to make different decisions depending on how a problem is
presented.
Representativeness
This is the tendency to be overly influenced by stereotypes in making judgements
about the likelihood of occurrences.
Availability
This is the tendency to judge the likelihood of an occurrence on the basis of the extent
to which other like instances or occurrences can easily be recalled.
Overconfidence
A related issue is the tendency of decision makers to be over-confident. These biases
affect decision makers' evaluation of alternatives, but also influence the identification of
problems and alternatives.
Prospect Theory
This theory suggests that decision makers find the prospect of an actual loss more
painful than giving up the possibility of a gain.
139
139
139
139
139
139
Basic Ingredients
Creativity needs the following three basic ingredients:
139
Creativity-Relevant Skills
These skills include a cognitive style, or method, of thinking that involves exploring new
directions, awareness of ways to generate novel ideas, and a work style helpful to
developing creative ideas. A creative work style includes the ability to focus attention
and effort for long periods of time, the ability to abandon unproductive avenues,
persistence and high energy levels.
Task Motivation
The individual must be truly interested in a task for itself, not just for any available
external reward, such as money. A primary concern for external rewards can inhibit
creativity. For example, the creativity of a researcher developing a new drug to obtain a
bonus or prize will probably be lower than someone who is focused on uncovering a
promising new idea.
Stages of Creativity
The creativity process has several stages. One commonly used creativity model has
four stages, as shown below.
Preparation
This stage involves gathering initial information, defining the problem or task needing
creativity, generating alternatives, and seeking and carefully analysing related data. At
this stage, the person is immersed in every aspect of the problem. For complex
technical problems, this may take months or years.
Incubation
This stage of creativity involves subconscious mental activity and divergent thinking to
explore unusual alternatives. In this stage, the person generally does not focus on the
problem consciously, letting their subconscious work on a solution.
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Verification
This stage has ideas tested to check the insight's validity. Here, convergent, logical
thinking evaluates the solution. If it is not feasible, cycling back through some or all of
the earlier stages may be needed.
Brainstorming
The brainstorming technique has group members generate as many novel ideas as
they can on a topic, without evaluation. The technique has four basic rules:
139
Chapter 5
Organisational
Goals, Plans
&Strategies
2011
157
CHAPTER 5 ORGANISATIONAL
GOALS, PLANS AND STRATEGIES
The management function of planning, setting goals and deciding how to achieve them
is vital for survival of the organisation.
Strategic goals and plans are vital to the planning function of management as they give
overall company direction.
Mission
Goals
Plans
Goal Attainment
(organisational
efficiency and
effectiveness)
Organisational Mission
An organisations mission is its purpose or fundamental reason for existence. It is a
broad statement distinguishing the organisation from others of its type. It can be a
written document or it may be implicit.
157
Levels of Goals
Strategic Goals
These are defined targets or future results set by top management. They address
whole organisational issues and are stated in general terms.
Strategic
Goals
Strategic
Plans
Top Management
Organisation-wide perspective
Tactical
Goals
Tactical
Plans
Middle Management
Department perspective
Operational
Goals
Operational
Plans
First-Line Management
Inut/Individual perspective
157
Operational Goals
These are targets or future results set by lower management that address specific
measurable outcomes required from the lower management.
Hierarchy of goals
These goals can be seen as hierarchy. Goals at each level must be synchronized in
order to focus on achieving the organisations major goals. Operational goals (means)
must be achieved to reach tactical level goals (ends)
MISSION
STRATEGIC
GOALS
TACTICAL
GOALS
OPERATIONAL
GOALS
Figure 5.3 Hierarchy of Goals for a Department Store
Challenging
Within some limits, challenging, difficult goals result in better performance. People
tend to try harder when they face a challenge.
Attainable
Goals work best when attainable. Setting impossible tasks hinders performance.
157
Time-limited
There should be a set time period within which to goal is to be achieved. Goals may be
set annually but may be reviewed quarterly.
Relevant
Goals will be supported when they are clearly relevant to the major work of the
organisation.
Job knowledge
and ability
Task
complexity
GOAL CONTENT
WORK BEHAVIOUR
Direction
Effort
Persistance
Planning
Challenging
Attainable
Specific
Measurable
Time-limited
Relevant
GOAL COMMITMENT
Supervisory authority
Peer and group pressures
Public display
Expectations of success
Incentives and rewards
Participation
Knowledge of
results or
feedback
PERFORMANCE
Situational
constraints
(tools, materials
and equipment)
Supervisory Authority
Goals may be assigned by a supervisor who explains the reasons for the goal to the
staff and gives needed instructions. A supportive supervisor will be more effective than
an authoritative one. A supervisor must encourage and offer opportunities.
157
Expectations of Success
If individuals have high expectations of success then they might be more committed. If
they think they cannot accomplish the tasks, commitment to the goal is less likely.
Participation
Where the individual participates in goal setting commitment will be stronger.
Participation aids in plan development for goal implementation. Managers should
include subordinates in goal setting and then in planning how to achieve those goals.
157
Work Behaviour
Goal content and commitment affects a persons work behaviour through four factors.
Direction
When people are committed to specific goals, this helps improve choices of activities to
undertake.
Effort
Individuals try harder for difficult goals than for easier ones.
Persistence
Direction and effort are maintained in reaching a goal.
Planning
Those committed to difficult goals will develop plans or methods to attain those goals.
Easy goals may need little planning.
157
Possible Solution
Increased stress
Undermined self-confidence
Short-term thinking
Levels of Plans
Strategic Plans
These are detailed action steps laid out to achieve strategic goals. These have a time
horizon of 3 to 5 years. These plans often include their mission and goals as these are
the basis for action steps. These plans address issues such as response to changed
conditions , resource allocation and efforts required to achieve strategic goals.
Tactical Plans
These focus on intermediate time frames, usually one to three years. They are more
specific and concrete than strategic plans and they outline the major steps towards
tactical goals. Middle managers consult with lower level managers in developing them,
before making commitments to top-level managers.
Operational Plans
These support tactical-plan implementation and operational-goal achievement. These
plans involve time frames of up to a year, such as months, weeks or even days. Lower
level managers consult with middle managers to develop these plans. Unless
operational goals are achieved, tactical and strategic plans will fail and goals at those
levels will not be achieved.
157
A Program
This is a comprehensive plan coordinating a set of activities for a major non-recurring
goal. These programs often have a budget. There may be six basic steps:
1. Dividing tasks into parts or projects
2. Determining relationships between parts and developing a sequence.
3. Deciding who will be responsible for each part
4. Determining how each part will be completed and the resources needed.
5. Estimating the time required for each part to be completed.
6. Developing a schedule for implementing each step.
A Project
This is a plan coordinating a set of limited activities not needing to be divided into parts.
Several projects may comprise a program.
Standing Plans
These guide the performance of recurring activities. Three types are:
1. A Policy
A general guide specifying the broad parameters for the activities of
organisation members pursuing organisational goals. Boundaries are given
for general action.
2. A Procedure
This is a set of steps to be taken in certain recurring circumstances. These
give detailed step by step instructions. They do not allow flexibility or
changes to be made.
3. A Rule
These dictate exact action to be taken or not taken without flexibility or
ability to make changes.
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Single-usePlans
Projects
Budgets
Organisational
Plans
Policies
StandingPlans
Procedures
Rules
157
Have top management show strong support for the planning process.
157
157
Strengths
Weaknesses
Assessing MBO
MBO system failures stem from a lack of top-management support and poor goal
setting and communication skills among managers who must carry out the system.
How mangers implement MBO impacts on its effectiveness.
Strategy Implementation
This is carrying out strategic plans and controlling their operation. Any strategic plan
will fail if it is not carried lout effectively.
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Strategic Formulation
Strategic Implementation
Assess
Environmental
Factors
Conduct
Competitive Analysis
Strengths
Weaknesses
Opportunitites
Threats
Identify current
Mission
and
Strategic Goals
Develop
Specific Strengths
Corporate
Business
Functional
Carry out
Strategic Plans
Maintain
Strategic Control
Assess
Organisational
Factors
Levels of Strategy
Corporate
Strategy
Operations
Management
Strategy
R&D
Strategy
Corporate
Level
Business 1
Strategy
Business 2
Strategy
Business 3
Strategy
Business
Level
Financial
Accounting
Strategy
Marketing
Strategy
Human
Resources
Strategy
Functional
Level
157
Environmental Assessment
Achieving strategic goals may be influenced by technological factors, the legal-political
environment, socio cultural and international environments. Managers must also
understand the influences of customers, competitors and suppliers on their goals and
plans.
Competitive Forces
Rivalry
Bargaining power of
customers
Bargaining power of
suppliers
Threat of substitute
products or services
157
157
Strategy implementation
This is important but needs effective implementation. This involves management
activities to put the strategy in place, set up strategic goals to monitor progress and
ultimately achieve organisational goals.
Strategic Implementation
Carry out Strategic Plan
Strategy
Formulation
Technology
Human Resources
Reward Systems
Decision Processes
Structure
Figure 5.13 The Strategy Implementation Phase of the Strategic Management Process
Technology
This organisational knowledge, tools, equipment and work techniques used to deliver
product or service. If the strategy is low cost then technology changes may help cut
costs.
Human resources
Having people with necessary skills in appropriate positions is essential for effective
strategy implementation. Matching human resources to strategies can provide a
competitive advantage. A skilled workforce can reduce costs or produce new products
or services better than less experienced staff.
Reward Systems
These include bonuses, awards or promotions as well as intangible rewards such as
personal achievement and challenge. These can be a source of motivation supporting
a given strategy.
157
Structure
This is the formal interaction and coordination pattern that management designs to link
individual and group tasks to achieve organisational goals. When structure supports
strategic direction there is more likelihood of success in achieving goals.
Chapter 6
Organisational
Design &
Structure
2011
202
CHAPTER 6 ORGANISATION
DESIGN AND STRUCTURE
Organising is defined as the process of creating an organisations structure. The
challenge for managers is to design an organisational structure that allows
employees to effectively and efficiently do their work while accomplishing
organisational goals and objectives (Robbins, 2003).
Organisational structure
Child (1984) describes this structure where job tasks are split into smaller tasks,
put into departmental teams and coordinated by managers. Organisational
structure has four elements
1. Job descriptions for employees and managers in units and
departments
2. Grouping employees into units and departments to form an
Organisation top to bottom (vertical)
3. Creating a system to give employees the power to talk to their
manager and the managers the power to make decisions
4. Giving units and departments the power to invite employees from
different areas of the organisation to communicate with other units
and departments (horizontal).
Organisational design
Organisational design is the process used to develop the structure of an
organisation. The organisation chart is used to allow employees and managers to
create a visual structure.
Position titles, as well as the names of the managers who hold the
positions
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Chair
Managing director and
chief executive officer
Secretarys office
General
manager
Marketing
Communication
Market
support
General
counsel
General
manager
operations
Insurance
operations
Actuarial
Field
Managerment
region one
Information
management
systems
General
manager
Human
resources
Human
Resources
development
Health unit
Training
and
conference
centre
Field
Management
Region 2
General
Manager
finance
Internal
Audit
Investment
Real estate
Financial
analysis
Tax
202
Job Design
Different job types can involve very different activities. A buyer's job for a
department store chain, may involve supplier contact for products e.g. shoes,
new product range previews, brand development and consumer taste trend
studies. By contrast, a salesperson's job includes learning a department's new
items, tidying displays, assisting customers and recording sales.
Work Specialisation
Work specialisation is the degree to which work is divided into different jobs e.g.
buyer and salesperson referred to above. Specialisation is important in
organisations as no one person can have every skill required to run an effective
organisation.
Job design involves specifying task activities associated with a particular job.
Job design is important to organising for two reasons:
1. The logical grouping of task activities to enable employees to function
efficiently.
2. Job design influences employee motivation. When designing jobs
managers must consider efficiency and motivational issues to achieve
effective performance.
Job analysis
Job analysis is the systematic process of collecting information on a job's task
functions and identifying employee specifications for job success (see Fig. 6.2).
Two outcomes of job analysis are:
Job description, which sets out an employees duties and responsibilities
A Job specification, which details the skills, abilities, education and previous
work experience required to do a job.
Job analysis can improve all of the following:
Recruitment and selection- Job descriptions allow an organisation
to accurately describe the job to the applicants and job specifications
give important decision criteria in candidate selection for the job
Performance appraisal Clearly defined tasks and specifications
to establish performance baselines against which an individuals
performance is measured
Remuneration - Accurate job descriptions and specifications allow
organisations to value the job relative to the market and to other
employees in the organisation.
Training and development - Job analysis outcomes allow planning
of initial and consequent training requirements and for later
development opportunities.
202
Identification of job
functions:
tasks
work behaviours
functions
equipment
work conditions
Identification of person
Specification:
Knowledge
Skills
Abilities
competencies
Position description
and
specifications
Job simplification
Job simplification is the designing of jobs with only a narrow range of activities
(see Fig. 6.3).
Adam Smith, almost a century ago, identified the benefits of work specialisation
using an example involving pins, noted that a lone worker could make 20 pins a
day, while 10 who specialised could make 48,000 pins a day (McShane &
Travaglione, 2003).
The clearest job simplification example is an assembly line e.g. an assembly line
worker tightening just one nut on the wheel of a car.
Task variety does not reduce boredom as employees quickly learn new simple
jobs and get bored again (Kinicki & Williams 2003).
The negative effects of such jobs include boredom, low job satisfaction,
absenteeism, high turnover, sabotage and inflexible customer service (Hackman
& Oldham 1980).
Job rotation
Job rotation is the short-term movement of workers through a set of jobs in
sequence
Rotation cross-trains workers (training them on tasks in several
jobs), allowing more flexible job assignments.
Job rotation has more value in employee development, allowing
employees to increase their capabilities and job assignment flexibility,
by building their grasp of many organisational aspects as they rotate
through more challenging jobs (Waterman 1988).
202
Job enlargement
Job enlargement is the allocation of a wider range of similar tasks to a job to
increase challenge (Killbridge, 1960). Enlargement increases
202
(a)Job simplification
worker
1
worker
2
task
1
(b)
task
2
worker
3
task
3
Job rotation
worker
2
worker
3
task
1
(c)
task
2
worker
1
task
3
Job enlargement
worker
1
tasks
1, 2,3
worker
2
worker
3
tasks
1, 2, 3
tasks
1, 2, 3,
202
According to the model, these lead to outcomes (listed in Fig. 6.4) that include:
growth-need satisfaction,
202
Moderators:
1.knowledge and skills
2.growth-need strength
3.context satisfactions
Figure 6.4 Job characteristics model (adapted from Hackman & Oldham 1980)
202
Flexitime
Flexitime specifies core hours when people must be on the job, with flexible
starting and finishing times as long as required total hours are worked. For
example, core hours may be 10 am to 3 pm (with an hour for lunch). Workers
then choose a schedule, such as 7am to 4 pm or 10 am to 7pm, making eight
hours of work a day including core hours. The most popular core tends to be
school hours, freeing parents and caregivers for pre- and post-school hours
activities (Jones & George 2004).
Table 6.1 Advantages and disadvantages of flexitime
Advantages of Flexitime
Disadvantages of flexitime
understaffing and,
202
Job sharing
Job sharing is where two or more people share one or sometimes more than one
position. In job sharing, one person may work in the morning, the other in the
afternoon, or they can work alternate days or develop some other schedule. Job
sharers may be parents sharing work and family responsibilities, or mothers
combining home and work activities (Thomas 1987; Cohn 1995). Job sharing is
convenient option for both employer and employee.
Types of Departmentalisation
How individual jobs are arranged is an important dimension of organisation
structure. Another is departmentalisation.
Departmentalisation is grouping individuals into units, and units into departments
and larger units to achieve organisational goals. Different patterns of
departmentalisation are called organisation designs. Functional, divisional, hybrid
and matrix are four common departmentalisation patterns (Duncan 1979; Daft
1998). Two emerging structure types are process structure and networked
structure, or the virtual corporation (Galbraith 1995).
Functional structure
Functional structure is a type of departmentalisation where positions are grouped
into functional (or specialisation) areas. In other words, positions are combined
on the basis of similarity of expertise, skill and work activity(Refer to Figure 6.5).
Common functions
Functional structures have several common features: (Miles & Snow 1992). For
example,
production, or operations, combine activities for product
manufacture or service delivery.
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202
Advantages:
Disadvantages:
Divisional structure
Divisional structure is a type of departmentalisation, with positions grouped by
product, service or market similarity. Figure 6.6 shows how functional and
divisional structures differ. A divisional structure has each division with major
functional resources to pursue its positions without depending on other divisions.
Divisional structures are called self-contained structures with each division
containing all major functions (Patrick 2003).
202
Product Divisions
Product divisions focus on a single product or service or a relatively
homogeneous product or service set. This structure is used when large
differences in product or service lines make coordination in a functional design
slow and inefficient. With a divisional structure, departments have their own
functional specialists such as marketing, manufacturing and personnel working
with their specific division's product only.
Geographic divisions
Geographic divisions serve different geographic areas. This departmentalisation
type is often used where products and services must be tailored to different
regions' needs. So the Bell Atlantic telephone divisions in Figure 6.7 are
organised by geography.
Customer/Market Divisions
Customer divisions service particular client or customer types. This design is best
where there are major differences among customer types, making adequate
coordination of the customers' various needs within a standard functional
structure difficult. With customer divisions each department has individuals
performing functions necessary for a specific type of customer (Albert 1985).
202
202
Disadvantages:
Simultaneous emphasis on
organisational goals
Accurate measurement of
performance
Hybrid structure
A Hybrid structure is a form of departmentalisation with both functional and
divisional structure elements at the same management level (Daft 1998). It
combines advantages of both functional and divisional structures. Many large
firms have both functional and divisional departments.
Table6.4 comparing functional and divisional structures
Functional
Divisional
Efficiencies in:
Focus on:
Resource usage
Products
Economies of scale
Services
In-depth expertise
Markets
202
Board of Directors
Management committee
(A) Chair of the Board
(B) President
Two senior vice-presidents
Functional departments
VicePresident
Law and &
external
relations
VicePresident
&General
counsel
VicePresident
Science &
technology
Research
division
-Manufacturing
-Systems &
programming
D
-Controller
-Economics
-Real estate &
Construction
-Secretary &
Organisation
-Strategy &
Business develop.
-Treasurer
-Communications
-Marketing &
Service
-Quality
-Information &
telecommunications
systems
A
Senior
vicePresident
Personnel
IBM
Credit
Corporation
Geographic divisions
Senior
vice-president &
general manager
IBM United States
Vice-president &
Group executive,
IBM World Trade
Americas Group
Vice-president &
Group executive,
IBM world TradeAmericas Group
Senior
vice-president &
president,
IBM World Trade
Europe Middle East
Africa Corporation
202
Disadvantages:
Matrix structure
A matrix structure is both functional and divisional at once. There are two chains
of command, one vertical and one horizontal. A basic matrix structure is shown in
Figure 6.8.
Vice presidents of operations, marketing, finance, engineering,
and research and development represent functional departments,
making up the vertical hierarchy.
Managers of businesses A, B and C represent divisional units
operating horizontally at the same time.
Functional and divisional department heads forming the matrix
(e.g. vice presidents and business managers are called matrix
bosses.
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202
Matrix stages
Organisations adopting a matrix structure go through several structural stages
(Davis & Lawrence 1977; Bateman & Snell 2004):
Stage 1 is a traditional structure, usually functional, following the
unity-of-command principle.
Stage 2 is a temporary overlay, where managerial integrator
positions are created to manage specific projects (e.g. project
managers), oversee product launches (e.g. product managers), or
handle matters of urgency needing coordination across the functional
departments. These managers often lead or work with temporary
interdepartmental teams set up to manage a specific project/problem.
Stage 3 is a permanent overlay, where managerial integrators
operate permanently (e.g. a brand manager coordinates issues
related to a brand on an ongoing basis), often through permanent
interdepartmental teams.
Stage 4 is a mature matrix, in which matrix bosses have equal
power.
Advantages:
Disadvantages:
Decentralised decision-making
202
Formalisation
Formalisation is a common way to achieve vertical coordination. Formalisation is
the written policies, rules, procedures, job descriptions and other documents
specifying actions to take, or not to take, in a set of circumstances (Hall 1996;
Child 1984). Vertical coordination is helped by formalisation specifying
appropriate behaviours (Moutkheiber 1995). For example, policies give members
general guidelines for activities; procedures spell out actions for recurring events
and rules specify what should or should not be done in a situation (refer to Figure
6.9)
202
202
202
202
Downsizing
Owing to the problems that arise with tall structures, and influenced by the need
to cut staffing costs, many firms have downsized. Downsizing is the significant
cutting of middle management layers, growing spans of control, and shrinking
workforce size for greater organisational efficiency and effectiveness (Smallwood
& Jacobsen 1987; BaIley & Szerdy, 1988; Freeman & Cameron 1993).
'Downsizing' is the same 'restructuring'. Restructuring is a major change in
organisation structure brought about by reducing management levels and
possibly changing some major organisational structures.
Advantages
Disadvantages
202
Decentralisation
202
Delegation
Delegation means that decision-making authority and responsibility moves from
one organisational level to the next lower level. Delegators (Senior Managers)
remain responsible for results and from duties or expected accountable to their
own managers.
Advantages of Delegation
The result of not delegating can be middle managers who are untrained for upper
level positions, overloaded managers and demotivated junior staff (Bateman &
Snell 2004).
202
Positions and departments seen as line or staff vary between organisations. For
example, in a grocery chain, line departments might be store operations,
pharmacy, and food (directly linked to major organisational goals); staff
202
Staff positions
Conflict can arise when staff departments grow, and begin overseeing
departments they should be assisting. Conflict is not inevitable though if
responsibility areas are clear and line and staff personnel operate as a team that
is jointly accountable for final results.
First, new ideas are pr more likely when many views exist.
202
Slack resources
Slack resources, are resources that are not being used to assist the company to
adapt to internal and external pressures, as well as change management.
Organisations often use slack resources, such as extra people, time, equipment
and inventory, to reduce the need for constant inter-departmental coordination
and allow some flexibility in resource use.
Slack resources can help foster creativity and innovation (Bourgeois 1981). For
example, 3M researchers spend 15 per cent of their time on projects of their own
with long-term payoff potential (the company calls this 'bootlegging'). This
promotes slack resource use (time, equipment and materials to enhance chances
or innovation).
Information systems
A growing horizontal coordination method is information systems, largely
computerised ones, firm to coordinate company parts. For example, Mitsubishi
Motors Australia is moving to use suppliers already linked to its parent
companies' electronic systems in order to fully utilise gains from the larger
corporation's information systems.
Lateral relations
Lateral relations is the coordination of efforts by communicating and problemsolving with peers in other departments or units. Working together through
communicating produces innovative solutions and helps with creative responses
to events. Direct contact, liaison roles, task forces, teams and managerial
integrators are major lateral relations methods. (Galbraith 1977).
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Direct contact
One lateral relations method is direct contact or communication between two or
more staff in different units at similar levels to coordinate tasks and solve
problems. Direct
contact systems means issues can be resolved at middle and lower levels
without involving upper-level managers. In fact, problems can often be handled
better by lower level managers as they are more familiar with the issues
Liaison roles
A liaison role is a role to which someone is appointed to facilitate communication
and issues resolution between two or more areas. Liaison roles are used where
continuous coordination between departments is needed for effective functioning.
An example is appointing an engineer to set up contact between engineering and
manufacturing departments (Reynolds &Johnson 1982).
The liaison person builds horizontal coordination by working with departments
and the customer to satisfy customer needs. A liaison person cuts the red tape,
dealing directly with departments and problems.
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Managerial integrators
A managerial integrator, another means of lateral relations, is a separate
manager who coordinates related work across several functional departments.
They have titles like 'project rep manager', 'product manager' or 'brand manager'
and do not belong to departments whose activities they help coordinate. Project
managers usually coordinate a project until it is finished e.g. a building project
which is technically complex, must finish on schedule and at the price contracted
(Supervisory Management 1995).
Product managers launch new products and services and may continue coordinating interdepartmental work on them.
Brand managers coordinate company work on brand name products, in soap,
food and toiletries industries. Brand managers devise and implement brand
strategies and plans, monitor results and correct problems.
Managerial integrators are horizontal coordinating agents (Child 1995b):
They allow a rapid response to environmental change and efficient
resource use as they move between projects; they can also sponsor
innovative ideas.
Managerial integrators typically have no line authority, so they
must work with functional managers, who control resources (Denton
1995).
They compete with others (e.g. managerial integrators for other
projects) who want functional departments to help make their projects,
products or brands successful too.
They can also aid in initial company development. Benjamin
(2003) explains the value of a Business Review Group (BRG) in
ensuring that the diverse factions involved in setup are melded into a
coherent group.
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Vertical communication
Vertical communication is message exchange between two or more
organisational levels (see vertical Fig. 6.14). So vertical communication can
involve a manager and a subordinate, or several communication hierarchical
layers. It can flow down or up. Managers are found to spend about two-thirds of
communication time on vertical communication (Porter & Roberts 1976; Rue &
Byars 2003).
Downward communication
When vertical communication flows from higher to lower levels, it is downward
communication. This has many forms, such as staff meetings, company policy
statements, newsletters, informational memos and face-to-face contact. Most of
the communication downward involves information in one of five categories:
1. job instructions on specific tasks,
2. job rationales explaining relationships between tasks,
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Upward communication
Upward communication is vertical communication flow from lower levels to one or
higher organisation levels. Upward communications includes one-to-one
meetings with immediate superior, staff meetings with superiors, memos and
reports, suggestion higher levels in the rand systems, grievance procedures and
employee attitude surveys. Information spread through upward communication
typically relates to:
1. current work project progress,
2. unsolved problems and situations where subordinates need help from
superiors,
3. new developments within or affecting the work unit or organisation,
4. improvement and innovation suggestions, and
5. employee attitudes, morale and efficiency
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Horizontal communication
Horizontal communication is lateral or diagonal message exchange within work
units involving peers reporting to the same supervisor, or across work-unit
boundaries, involving staff reporting to different supervisors (see Fig. 6.14).
Horizontal communication takes many message exchange either forms, including
meetings, reports, memos, telephone conversations and face-to-face within workunit discussions. Managers spend about a third of their communication time in
horizontal boundaries, involving communication (Porter & Roberts 1990) related
to one or more of the following:
1. (1) task coordination,
2. (2) problem solving,
3. (3) information sharing,
4. (4) conflict resolution, and
5.
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202
Board of Directors
Finance
Marketing
Production
Finance
Officers
Marketing
Assistants
Factory
Operatives
Figure 6.16 - Vertical (black arrows , up and down) and lateral (blue arrows)
communication
Strategy
Technology
Environment
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Strategy
A company adopts four main strategies:
1. Niche differentiation - This strategy distinguishes one's products and
services from those of competitors for a narrow target market. An
example is the revival, by BMW; of the Mini (Howarth & Thomson
2003).
2.
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Strategy
Functional
Niche differentiation
Functional
Divisional or hybrid
Matrix, integrators
Innovative differentiation
Technology
Different organisations need different structures, partly owing to technology
-knowledge, tools, equipment and work techniques an organisation uses to
deliver a product or service. Technological complexity and interdependence are
two critical aspects (Fry 1982).
Technological complexity
Research on technology's importance was conducted in the 1950s by a team led
by Joan Woodward (1958; 1965). The team were interested in how much
classical theorists' management principles were practised by a group of 100
British manufacturing firms.
The researchers were surprised to find no connection between use of classical
principles in structuring firms and their success. Actual practices varied
considerably. Eventually, Woodward found three different technology types often
predicted structural firms' practices: produced to meet customer specifications or
1. In unit and small-batch production, products are custom-produced
to customer are made in small specifications or made in small
quantities largely by craft specialists. Examples are quantities
primarily by e diamond cutting in New York's diamond centre and
stretch limousine production.
2. In large-batch and mass production, products are made in large
quantities, often on Examples are most car production, chocolate
Easter eggs such as large-batch and mass those made by Cadbury's
chocolate factory (Cadbury.co.nz) and manufacture of production
microchips for computers and related products.
3. In continuous-process production, products are liquids, solids or
gases made through a continuous process. Examples are petroleum,
chemical and some food products.
The team noted technologies are increasingly complex to manage, with the least
complex being small-batch and unit production and the most complex
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Structural characteristics
Small batch
Mass production
Continuous
process
Levels of management
10
23
48
15
8.1
5:5:1
2:1
Formalisation
Low
High
Low
Centralisation
Low
High
Low
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Technological interdependence
Another technology aspect affecting organising considerations is technological
interdependence, or how much different organisation parts need to exchange
information and materials to perform required activities (Fry 1982). There are
three major types of technological interdependence: pooled, sequential and
reciprocal (Thompson 1967).
Pooled interdependence - the type with least interdependence is,
where units operate independently but individual efforts impact on the
whole organisation's success (hence 'pooled'). For example, you go to
your bank's local branch and they will rarely need to contact another
branch to complete your transaction. If, however, the branch's
performance customers will leave, ultimately affecting the whole
bank's health.
Sequential interdependence - the task of one unit must be
finished before the next unit in the sequence can start. For example, a
strike at one General Motors Holden may mean workers at other
plants have to be temporarily stood down. This happens when the
sequential interdependent assembly means non-striking plants need
parts from the striking plant.
Reciprocal interdependence - where one unit's outputs are
inputs to another unit and vice versa. When a plane lands, the flight
crew hand the plane to the maintenance crew. After refuelling,
resupplying and other activities, maintenance releases the plane to
the flight crew so the aircraft can leave. Thus the flight crew's output is
maintenance's input, after which the process reverses. Clearly,
reciprocal interdependence calls for the most horizontal coordination.
In designing organisation structure, technological interdependence
and complexity must be considered.
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Size
Woodward's research also looked at how size and structural aspects were
related, but nothing definitive emerged. Research has since tried to determine
how size and structure relate, with some success. The issue is complicated
because size as well as environment and technology affect organisation
structure. In addition, size can be assessed in many ways, such as by gross
sales, profits or even employee numbers (most common).
Studies of size effects on structure have identified four trends:
1. As organisations grow, departments and levels are added, and
structures grow more complex. With functional forms, this drives a
change to divisional structure (Astley 1985; Cullen, Anderson &
Baker 1986).
2. Increasing size means the number of staff positions are increased to
help top management cope. When critical mass is reached this levels
off (Cullen et al. 1986), but leads to the third trend.
3. Organisational growth requires more rules and regulations. Guidelines
help with vertical coordination, but can lead to excessive formalisation
and lower efficiency (Goodling & Wagner 1985).
4. As organisations grow, decentralisation increases. This is probably
due to the rules and regulation guiding lower level decision making
(Robbins 1990).
Environment
Burns and Stalker (1961) studied the effects of environment on organisation
structure, Studying 20 British industrial firms, they found different structural
characteristics, depending on whether the environment was stable with little
change or unstable with rapid change and uncertainty.
202
202
Mechanistic
Organic
202
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Vital roles
Successful innovations are rarely just one individual's work. The innovative
process is more likely to occur if three vital entrepreneurial roles are filled: idea
champion, sponsor and orchestrator.
An idea champion generates a new idea or believes in a new
idea's value, supporting it against potential obstacles. These are often
entrepreneurs, inventors, creative individuals or risk takers. Generally
low in the hierarchy, they find it hard to get innovations accepted
without a sponsor.
A sponsor, usually a middle manager, sees an idea's significance
and helps get needed funding to continue an innovation's
development, helping the implementation of the new idea. However,
innovations also need an orchestrator's help (Kinicki & Williams 2003).
An orchestrator is a high-level manager, who articulates the need
for innovation, funds activities, creates middle-manager incentives for
sponsoring innovative ideas, and protects ideas people. Orchestrators
are vital as innovations upset the status quo and are resisted by those
who must adjust to the new ideas. These roles are significant and
their effectiveness can be enhanced by creating special units or
reservations.
Reservations
Reservations are organisational units devoted to the generation of innovative
ideas. The aim is to create relaxed atmospheres where new approaches can be
tried out. Steven Jobs and Steven Wozmak created the first Apple computer in a
garage, which was a reservation.
Kevin Roberts, the New Zealand director of the advertising company Saatchi
and Saatchi, has a similar philosophy. In a recent interview with CNN he said of
his employees, And all we need to do is give them an idea liberate them get the
hell out of their way. The reservations in his company are fun places with
comfortable lounge chairs, coffee tables and fruit in baskets to enjoy.
Reservations can be fairly permanent, such as research and development
departments. New venture units can be set up as separate divisions or specially
incorporated companies to develop new products or business ideas and
initiatives (Burgelman 1985; Bart 1988).
Reservations can be temporary task forces or teams of people relieved of normal
duties to develop a new process, product or program. These are new venture
teams. Though differentiation, particularly establishing reservations, effectively
encourages innovation, there is an associated paradox.
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Differentiation Paradox
The differentiation paradox occurs when innovative departments are separated
from the rest of the organisation. This separation increases the chances of the
department developing a radical idea which is never implemented. The reason is
that new ideas are often viewed as so radical they are threatening or even
rejected outright. The paradox is strongest when a radical innovation is
introduced to an organisations operating units. Under these circumstances, the
ideas may be rejected. For example, during the 1970s at Xerox's Palo Alto
Research Centre, scientists invented the first personal computer, mouse, pictureoriented layout based on icons, and word processing software displaying fonts as
they appear on the page. Sadly, the company did not appreciate the inventions'
value and Xerox never capitalised on them (Chakravarty 1994). Instead, Apple,
Microsoft and others did. The PARC situation at Xerox shows the differentiation
paradox and the need for concern about technological transfer.
Transfer process
As the differentiation paradox suggests, the more apart innovators are from the
company, the harder moving innovations into marketable products or services
becomes. For example, Bell Labs averages around a patent a day since being
founded in 1925 to give cutting-edge research the support to AT&T. Yet AT&T has
largely failed to translate Bell's research into products and services to fuel growth
(Schrage 1987).
The effective transfer, or transition, process entails several stages.
In the first stage, an idea generator, or champion, develops an
idea in a reservation. If initial results are positive but the idea needs
more work, organisation experts hone it.
Then, if results are still positive, the next stage tests the idea in an
operating division.
The final stage implements the innovation. Of course, this may
not happen smoothly and could be easier if the innovation involves
incremental change.
However, to develop and implement significant innovations, efforts must be
fostered and new ideas transferred from innovating units to the whole firm.
Organisations can set up separate new venture units and, when they are large
enough, bring them into the main structure as separate divisions, lessening
transfer problems.. (2000).
Chapter 7
Groups & Teams
2011
227
227
Command or
functional
groups
Formal
groups
Permanent
task groups
Task groups
Work
groups
Temporary
task groups
Interest
groups
Informal
groups
Friendship
groups
Formal Groups
A formal group is one that is created by an organisation for a specific purpose.
There are two types of formal groups: command and task
A command or functional group is a formal group and consists of a manager
and all the subordinates reporting to that manager. Each organisational work unit
(manager and subordinates) is a command group. For example, if you shopped
at Harvey Norman you would be served by a sales assistant who reports to a
sales manager. Along with other sales assistants reporting to the same sales
manager, they form a command group. The sales manager in turn reports to the
state sales manager who consequently reports to the national sales manager.
Each manager reports to a higher level manager, belonging to the higher level
command group. In this way, managers link lower level and higher level groups. A
linking pin is someone who coordinates different command-group levels by acting
in a supervisory role in a lower level group and a subordinate role in a higher
one. Organisations are thus made up of command, or functional groups in a
pyramid, with linking pins holding them together.
227
A task group is a formal group that is formed to supplement or replace work that
is normally undertaken by a command group. Task groups can be permanent or
temporary. A permanent task group or standing committee or team is generally
concerned with recurring issues within a narrow field over a lengthy time period.
A temporary task group deals with a specific issue in a specified time frame.
Temporary task groups or ad hoc committees may be called task forces, project
groups, or teams. Names can vary, so the length of time dictates whether a task
group is permanent or temporary.
Informal Groups
Whereas a formal group is created by an organisation, an informal group is set
up by the employees, to serve the groups interests or social needs. The group
may or may not support the organisational goals. An informal groups
membership may be the same as a formal group, for example when members of
a work group eat together. At other times, an informal group has members from
one or more formal groups (see Fig. 7.2).
There are two types of informal groups: interest and friendship
An interest group is an informal group set up to help employees with common
concerns. Interests can vary widely, from a group of engineers examining ways to
improve a troublesome new technology, to sport (e.g. basketball), or even a need
to have a company policy changed.
A friendship group differs from an interest group in that it exists to fulfil social
needs. They are based on mutual attraction arising from shared characteristics
such as similar work, language, background, values and beliefs. Informal groups
can be detrimental if the concerns of the group are put above the organisational
goals or there is a serious falling out with management. Managers must be aware
and understand informal groups because of their potential to negatively or
positively impact on organisational effectiveness.
227
Formal groups
required activities
required interactions
required sentiments
Given sentiments/values
Organisational outputs
(e.g. productivity, satisfaction)
Informal groups
emergent activities
emergent interactions
emergent sentiments
227
Inputs
group composition
member roles
group size
Processes
group norms
group cohesiveness
group development
Outcomes
group performance
member need satisfaction
future work-group compatibility
227
Work-Group Inputs
For groups to operate effectively, variables such as group composition, members
roles and group size must be considered.
Member characteristics
Managers must consider three types of member characteristics in establishing
work groups. One is that member skills are task-relevant. Another is that
members interpersonal skills are appropriate. Finally, and most importantly for
challenging tasks, some diversity is required (e.g. personalities, gender, ethnicity,
attitudes, background or experience). Homogeneous groups may get along
together, but be unable to generate new ideas as they lack different perspectives.
However if the group is too heterogeneous, the benefits of different perspectives
are lost because of difficulties in coordinating diverse efforts. Studies show that
diverse groups are more creative and flexible around changing requirements and
make better decisions.
Managers need to be patient to benefit from group diversity. A study of culturally
homogeneous versus culturally diverse groups (various nationalities and ethnic
backgrounds), showed that diverse groups performed poorly initially, but over
time did better than homogeneous ones in assessing and solving business
situations. Managers can improve diversitys benefits by having members trained
to function well in groups. Diversity training helps members understand,
appreciate and effectively use individual differences.
227
Member roles
Why do we expect a chairperson to call a meeting to order, or someone from
finance to give relevant financial advice and the secretary to take notes? This is
because each has a role, a set of behaviours expected from someone in a group
position. In a work group, individuals can have many roles (Benne and Sheats
1948). For example, a person may be a technical expert, represent a command
group and be a workforce member interested in the outcome of some change.
In addition, the fact that someone is a member of a group brings with it other
roles. Common group roles fall into three categories: task, maintenance and selforiented roles.
Group-task roles help the group develop and reach goals. Among these are the
following:
Initiator-contributor: Proposes goals, suggests or recommends
ways of approaching a problem or task
Information seeker: Asks for information, viewpoints and
suggestions about a problem or task
Information giver: Offers information, viewpoints and suggestions
about a problem or task
Coordinator: Clarifies and synthesises various ideas to tie together
members work
Orienter: Summarises, points to departures from goals and raises
questions about discussion direction
Energiser: Stimulates the group to superior work and higher
quality levels
Group-maintenance roles do not address the task directly but help foster group
unity, positive interpersonal relations among group members and the
development of members ability to work together effectively. Group maintenance
roles include:
Encourager: Expresses warmth and friendliness toward group
members, encouraging and acknowledging contributions
Harmoniser: Mediates disagreements between members and
attempts to reconcile differences
Gatekeeper: Tries to keep lines of communication open and
promotes participation of all members
Standard setter: Suggests standards for how the group will
operate and checks member satisfaction with group functioning
Group observer: Watches the groups internal operations, gives
feedback on performance and on how to function better
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227
Group Size
Research on small groups shows how size affects interactions and performance.
227
Group performance
high
low
small
Group size
large
227
Work-group Processes
Why are some groups high performers and achieve a great deal, whilst others
with similar resources achieve far less? The answer lies in group processes, the
dynamic, inner workings of the group. As group members go about achieving
tasks, some energy goes into group development and operations. This is
diverting from the task, and is known as process loss, as it is lost energy that
could have been devoted to the task. Process loss is inevitable, given group
members normal interdependence.
Tremendous gains can be achieved from combined group-member force, or
synergy. Positive synergy is when combined gains from group interactions (as
opposed to individuals alone) are greater than group process losses. When
synergy is positive, the whole (the groups total effect) is greater than the sum of
its parts (what tasks members could achieve alone). Negative synergy is when
group-process losses are greater than gains from combining members forces. If
you have been in a group so ineffective you could have done the job faster alone,
then you have seen negative synergy at work. Next we discuss three major
group-process factors affecting group synergy and effectiveness; norms,
cohesiveness and group development.
Group norms
Norms are behaviours that are expected by a group from group members. For
behaviour to be a norm, members must see it as expected for group
membership.
Work groups do not use norms to regulate all behaviour. Rather, they develop
and enforce norms related to central matters. For example, group norms develop
about production processes such as how the job is done and quality and quality
standards. Social arrangements are another area where norms are established.
For example, groups often set norms about where & when to have lunch and
what type of social function, if any, to have when someone leaves. Working to
assignment deadlines, swotting for exams and hanging out together at libraries
or pubs are norms for many university students. Finally, work groups norms also
involve resource allocation, such as materials, equipment, assigned work space
(e.g. window desk) and pay.
Norms typically develop by one of four mechanisms: explicit statements, critical
events, primacy and carryover behaviours.
1. Explicit statements from supervisors and co-workers can inform about
group members expectations. Supervisory statements are very
important as a new group is formed or a new person joins.
2. Critical events in a groups history set precedents for the future
3. Primacy as a source of norms is the tendency for the first behaviour
pattern a group displays to set group expectations
4. Carryover behaviours from other groups and organisations (such as
being on similar company committees) can help norms be set quickly,
otherwise, they may evolve more slowly.
227
227
high
moderate
performance
high
performance
low
performance
low
low
Group
cohesiveness
high
227
Group development
New groups, such as work units, committees and task forces, are constantly
forming to meet organisational needs. Even established groups change as
members leave and new ones join. These changes affect groups processes.
It is believed that groups pass through fairly predictable development stages.
Understanding these stages helps managers effectively participate and assist
those they are responsible for. One approach to group development identifies five
major stages: forming, storming, norming, performing and adjourning (see Fig.
7.7) (Tuckman 1965; Tuckman & Jensen 1977).
New groups may progress through these phases, but if membership changes
they may briefly regress to earlier stages.
Stage 1: Forming
In the groups forming stage, members try to assess task and group interaction
ground rules. Members seek information about the task, evaluate how and if the
group will be able to achieve it, and begin to test how valued their input will be.
Members may test behavioural standards, such as making small talk, joking,
sarcasm or leaving to make phone calls. Because of the high level of uncertainty
at this stage, members may depend on a powerful person, if present, or on the
existing norms, if commonly known. Owing to the need to understand ground
rules, groups at this stage often need time to get to know the task and each other
before going on.
Stage 2: Storming
During the storming stage there is a high level of conflict as group members try
to resolve opinion difference on key issues. Issues might involve possible
resistance to task needs. Another common conflict area relates to interpersonal
relations; how members relate (do they get along). At this stage, members may
struggle for leadership if one has not been appointed. Listening and trying to
resolve major issues is important, otherwise the group will be ineffective or
perhaps even disband.
Stage 3: Norming
In the norming stage, group members start to build group cohesion, reaching
consensus about task performance and relationship norms. Member differences
are accepted, and people start to identify with the group. Member roles are
clearer and the group is willing to engage in mutual problem solving. If no leader
is appointed or the leader is weak, an informal leader may emerge. At this stage,
norm and role clarification, cohesiveness building and group problem solving are
important.
227
Stage 4: Performing
The performing stage is when energy is channelled towards a task and norms
support teamwork. Solutions come from the previous stages problem solving.
Roles are clarified and become more effective as the group works to positive
synergy and group goals. Not all groups reach this stage. Those that do will be
effective as long as they work at the task, while maintaining good group
relationships.
Stage 5: Adjourning
During the adjourning stage, group members prepare for the disbanding of the
group as goals near completion. Members may be pleased about finishing their
tasks, but regret impending group dispersal. This stage applies more often to
temporary task groups such as committees, task forces or limited-duration teams,
as adjournment in formal groups is less common. However, reorganisations,
take-overs and mergers can bring about adjournments.
Do all groups have these stages? The five group-development stages apply
mainly to new, unstructured groups. They are less likely where members work
together often or where operating methods or ground rules are well established.
So far we have identified some of the challenges group members encounter
when interacting with each other. An important mode of interaction is through
communication. Effective communication makes a vital contribution to all four
management functions (planning, organising, leading, and control).
Communication is the channel for interaction within and across groups and teams
and is also critical in the discharge of effective leadership. Prior to discussing the
role of communication in groups, we present a brief overview of what
communication is and how it occurs.
227
Forming
orientation to task
testing interpersonal behaviours
dependency on power person
discovering ground rules
Storming
resistance to task demands
interpersonal conflicts
exploring areas of disagreement
struggle for group leadership
Norming
building cohesiveness
developing consensus about norms
clarifying roles
informal leader may emerge
Performing
channelling energy to task
roles clear and functional
norms support teamwork
emerging problem solutions
Adjourning
goals accomplished
preparing for disengagement
dependency on power person
some regret at disbanding
termination of group
Communication
Communication is the exchange of messages between people to reach common
meanings and can be verbal or non-verbal. Verbal communication uses words
to form oral or written communications, as in face-to-face conversation, meetings
and telephone conversations, or if written, letters, memoranda, reports, resumes
and written messages.
Non-verbal communication uses elements and behaviours not coded into
words. Studies estimate 65 to 93 per cent of what is communicated is non-verbal
(Birdwhistell 1972). Of course, verbal communication must be accompanied by
some non-verbal communication. Non-verbal communication has the following
major categories; kinesic behaviour, proxemics, paralanguage and object
language.
227
227
Organisational context
NOISE
Sender
Person A
Receiver
encoding
medium
message
decoding
feedback
decoding
encoding
medium
Receiver(s
)
Person(s)
Sender(s)
Organisational context
227
Perceptual processes
Perception is how we acquire and make sense of information in our environment.
For example, we select information, organise it into a pattern we recognise, and
then interpret or give meaning to that information. This perceptual process is
influenced by our personal experiences, needs, personality, culture and
education. Therefore, our perceptions can distort communication and
interactions. Gordon (1996) and Luthans (1995) have identified perceptual biases
arising from:
stereotyping; attributing characteristics based on which group they
belong to
halo effect; using one or a few characteristics to judge other
characteristics
projection; assuming that others share our characteristics,
thoughts and feelings
perceptual defence: blocking or distorting information that
challenges our beliefs
Attribution processes
Attribution theory suggests that people make judgements or attributions about
the causes of behaviour. These judgements form the basis for action later on.
The theory predicts we make either dispositional judgements (attributed to
internal causes such as personality traits or effort) or situational judgements
(attributed to external causes such as luck or equipment). For example, if a
student hands in an assignment late, do we attribute that to internal factors like
lack of effort or ability, or is there another issue to blame?
The fundamental attribution error is the tendency to underestimate situational
(internal) influences and to overestimate dispositional (external) influences. For
instance, it often thought that success comes from hard work and ability, whilst
failure comes from bad luck or work environment factors.
227
Semantics
Semantics is the study of the meaning or the interpretation of a word or sentence.
Words are symbols and their meanings can differ. A semantic net is the network
of words and what those words mean, and every person has their own net which
will vary from others. Semantic blocks are communication difficulties arising
from word choices. Receivers decode words and sentences based on their own
semantic network, which may be different to that of the senders. See Table 7.1
Organisations or different functional units might use specific language that only
has meaning for them. Professional jargon can form a semantic block that
confuses newcomers, customers or visitors.
227
Communication Skills
Interpersonal communication skills
Effective communication relies on strong listening and feedback skills. Listening
skills help us decode and interpret the senders message. The best way of
assigning the intended meaning to a message is by actively listening. Active
listening is where the receiver participates actively in listening for content and
facts and takes into consideration the speakers feelings in order to grasp total
meaning.
Giving and receiving effective feedback is another important interpersonal
communication skill. Effective feedback focuses on the relevant facts and specific
behaviours, not on generalities or the individual. When feedback includes
strategies of how the person can improve, the chances of success improve.
Giving positive feedback is easier than negative feedback, but both are
equally important. When receiving negative feedback, it helps to paraphrase what
is being said so there is no ambiguity.
Organisations have found that it pays to listen to customers and get their
feedback. Coca-Cola has shown that one in fifty customers complain the rest
switch brands. However, if the complaint is addressed, the individual is likely to
remain a customer.
227
Centralised networks
Y
Chain
Wheel
X
X
X
Decentralised networks
Circle
All-channel
Communication Skills
Groups are increasingly being used by organisations to improve creativity and
innovation, and also to benefit from different ideas that individuals bring.
In this section we look more closely at special uses of teams.
227
Teams
A team can be either a temporary or ongoing task group. There are two
characteristics that distinguish a team from a task force. Firstly, teams generally
identify problems in an area but do not take any action to deal with those
problems. Secondly, they reach consensus about what is required to be done.
Temporary teams deal with a specific project, whereas permanent teams have
ongoing responsibilities.
There are three types of teams; entrepreneurial, self-managing and virtual.
Entrepreneurial teams
An entrepreneurial team is a group formed by an organisation to exploit the
varied expertise, knowledge and background of individuals in order to develop
new products, services or to improve existing ones.
Self-managing teams
A self-managing team (also known as an autonomous work group) is
responsible for a specific task area, with the absence of supervision. The team
dictates group membership, behaviour and can even set pay and bonus levels.
High performing teams can display greater job satisfaction, better attitudes and
greater commitment to the organisation.
For self-managed teams to be successful they require training and support, and it
might take up to 18 months before productivity rises. To increase the chances of
forming a successful team there are four steps required:
1. before the team is formed, assess the value of the team and decide
on the tasks and degree of autonomy
2. decide who will be in the group and what resources will be allocated
3. provide training in effective teamwork and guidance in setting norms
4. managers need to remove obstacles to performance and assist the
group to learn
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Chapter 8
Motivation
2011
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CHAPTER 8 MOTIVATION
CHAPTER 8 MOTIVATION
What is Motivation?
Motivation can be defined as the internal energising force that gives direction to
behaviour. Motivation cannot be measured; instead we observe behaviour and
infer a level of motivation. For example, you might decide that a fellow student
who turns up for every class, completes all their assignments on time and spends
hours in the library has high motivation. Alternatively, you might conclude that a
student who rarely turns up to classes and spends little time reading is not
motivated to excel. Certainly individuals differ in motivational drive, but overall
motivation varies from situation to situation and even within individuals at different
times.
How well people do at their jobs will depend both on their motivation, and on their
abilities to handle the task. Working conditions can impact on performance i.e.
interruptions, excessive workload, cramped offices will have a negative impact.
Therefore, actual performance is a function of ability, motivation and working
conditions, as shown in Figure 8.1.
ability
motivation
Environmental
conditions
performance
Figure 8.1 The relationship between performance and ability, motivation and working
conditions
The challenge for managers is that they must hire suitable people that are
capable of doing what is required, and provide good working conditions to nurture
and support individual motivation towards company goals.
The main motivation process elements are shown in Figure 8.2. As the diagram
depicts, our needs and cognitions leads us to behave in certain ways. Assuming
these behaviours are suitable, they might lead to rewards. In turn, the rewards
reinforce the behaviours.
As motivation is a complex subject, major motivational theories attempt to
address various process elements (see Fig. 8.2).
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CHAPTER 8 MOTIVATION
Needs
hierarchy-of-needs theory
ERG theory
two-factor theory
acquired-needs theory
Cognitive activities
expectancy theory
equity theory
goal setting theory
behaviours
Rewards/reinforcement
reinforcement theory
social learning theory
Need Theories
Need theories assume that our behaviours are influenced by our attempt to fulfil
our internal needs. There are four needs theories: hierarchy-of-needs, ERG
theory, two-factor theory and acquired-needs theory.
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CHAPTER 8 MOTIVATION
Self-actualisation
needs
esteem needs
belongingness needs
safety needs
physiological needs
Maslow saw that as each need is largely satisfied (it does not have to be totally
fulfilled), the next need becomes dominant and the individual moves up the
hierarchy. A substantially fulfilled need no longer motivates and tension starts to
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CHAPTER 8 MOTIVATION
build to fulfil the next level of needs.
Maslow provided no empirical substantiation for his theory and subsequent
studies have failed to validate the theory. Consequently there are some flaws with
Maslows theory. Research shows that needs may cluster into two or three
categories, not five. Also, the hierarchy of needs may not be the same for all
people e.g. entrepreneurs chasing dreams for years despite their lower needs
being unmet.
In a global economy, managers will be dealing with staff from many countries
who may seek different needs to satisfy through work. For example, people from
Greece & Japan are motivated more by safety needs, whilst people from Sweden
& Norway are motivated more by belongingness needs.
Furthermore, people from third world countries would be motivated by
physiological & safety needs, whilst people from wealthy nations would seek
esteem and self-actualisation.
Two-factor theory
Building on the work done by Maslow, the psychologist Frederick Herzberg
proposed the two-factor theory. Herzberg investigated the question, What do
people want from their jobs. Interviewing accountants and engineers, he realised
that factors making people satisfied with their jobs were associated with job
content. These are called motivators and related to the individuals growth,
achievement, recognition and responsibility. Factors that made individuals
dissatisfied with their jobs were associated with job context; working conditions,
supervision, company policy. These were called hygiene factors (see Fig. 8.4).
Herzberg concluded that the provision of hygiene factors reduces worker
dissatisfaction, but motivators are required to increase motivation and lead to job
satisfaction.
Hygiene factors
Motivators
pay
working conditions
supervision
company policies
fringe benefits
personal life
relationship with
supervisor/subordinates
achievement
responsibility
work itself
recognition
growth
achievement
Hygiene factors
Help to prevent
dissatisfaction
High
dissatisfaction
Motivators help to
promote satisfaction
High
satisfaction
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CHAPTER 8 MOTIVATION
Figure 8.4 Herzbergs two-factor theory
ERG theory
Clayton Alderfer developed ERG theory as an alternative to Maslows hierarchyof-needs theory. The name arises by combining the five need levels into three:
existence, relatedness and growth. Existence needs include the physiological
needs such as water, food and shelter and work-related needs such as pay,
benefits and working conditions. Relatedness needs centre around relationships
with significant others, such as family, friends, work and professional groups.
Growth needs are focused on creativity and the desire to have a productive
impact on our environment.
ERG theory differs from Maslows hierarchy in a number of ways. Firstly it
collapses Maslows five needs into three. Secondly, Alderfer argues that lower
level needs dont have to be completely satisfied before we look at satisfying the
higher level needs. People can be motivated by more than one need at a time.
Thirdly, ERG theory is more flexible in that it allows for needs to occur in a
different order to that of the ERG framework. Fourthly, ERG theory differs in that
it has a frustration-regression principle, which states that if we are frustrated in
fulfilling a higher level need, we may abandon that pursuit. We may instead focus
on achieving more attainable lower level needs. For example, if we cannot get
more interesting work, we may focus on building stronger inter-personal
relationships with co-workers.
Acquired-needs-theory
David McClellands acquired-needs theory (also called learned needs theory)
argues that needs are gained or learned by experience.
McClelland studied three needs: achievement, affiliation and power. According to
the theory, people are motivated by a blend of all three, not one need being
absent and the others pronounced.
The need for achievement (nAch) is the desire to accomplish challenging goals
and achieve excellence in ones work. High achievers seek competitive
situations, set moderate goals (hard goals are too risky) and take calculated
risks. High nAch people generate creativity and innovative ideas.
High nAch individuals account for about 10% of the general population. For
managers seeking to motivate high achievers, they must set challenging yet
reachable goals and give immediate feedback on progress.
The need for affiliation (nAff) is the desire for close, accepting relationships
with others. People with high affiliation needs are more than likely to choose
professions where interaction with others is required i.e. nursing, teaching, sales
and counselling. Managers can motivate high nAff individuals by providing a
cooperative, supporting work environment where staff can meet performance
expectations and high affiliation needs by working with others.
The need for power (nPow) is the desire to influence others and control ones
environment. There are two forms of power, personal and institutional. Individuals
seeking personal power try to dominate others and expect followers to be loyal
to them before the organisation; hence corporate goals might not be achieved.
Those that seek institutional power will work with others to solve problems and
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attain organisational goals. They want things done in an organised manner and
will sacrifice some of their personal goals for the good of the organisation.
McClelland studied the various needs in relation to what makes an effective
manager. The initial thought was that individuals with high achievement need
would make the best managers. However, his research showed that high nAch
individuals tend to focus on their own work and fail to notice the performance or
the development of others. Consequently, high nAch individuals make the best
entrepreneurs. Individuals with a high affiliation need seek strong interpersonal
relationships, not the attainment of goals; hence, they make weak managers.
According to McClelland, the best managers are those individuals with a high
need for institutional power, where their need is expressed in their coordination of
others efforts in the attainment of organisational goals.
The needs profile for an effective and successful manager in a competitive
environment includes:
1. moderate to high institutional power need
2. moderate achievement need
3. minimum affiliation need
Herzberg: two-factor
theory
McLelland: acquired
needs theory
physiological
existence
hygiene
relatedness
self-esteem
growth
self-actualisation
motivators
Figure 8.5 Comparison of needs in four theories (adapted from Gordon, 1987)
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Cognitive Theories
The need theories identify the internal desires that guide behaviour but fail to
explain the thought processes involved. This void is filled by the cognitive
theories (also known as process theories), that attempt to explain the thinking
processes used in deciding to act in a particular way. Cognitive theories
compliment need theories in that they look at motivation from a different
perspective. There are three major cognitive theories: expectancy, equity and
goal-setting.
Expectancy theory
Expectancy theory was proposed by Victor H. Vroom, and says that people will
be motivated to the extent to which they believe that their efforts will lead to good
performance, that performance will be rewarded and the rewards will be
attractive. The theory argues that before we commit to perform at a certain level,
there are three main considerations. These are shown in Figure 8.6, which
depicts the main components of expectancy theory.
Effort-performance expectancy
When assessing the effort-performance (E P) expectancy, we determine the
probability that our efforts will lead to the required performance. If the expectancy
is high, then individuals believe that their hard work and efforts will result in good
performance, consequently they will work harder. Alternatively, if they perceive
the expectancy to be low, individuals believe that no matter how hard they work
they wont be able to successfully perform their jobs, hence they dont work as
hard.
Performance-outcome expectancy
When assessing the performance-outcome (P O) expectancy, we determine
the probability that successful performance will lead to specific rewards. When P
O expectancy is high, individuals believe that improved performance will lead
to better and more rewards; hence they will chose to work harder. Alternatively, if
they view the P O expectancy to be low, individuals dont believe that better
performance will result in more or better rewards, so they will chose to work less.
Many rewards can be linked to performance. Rewards that are given to us by
others are deemed to be extrinsic rewards and includes bonuses, promotions
and awards. Managers can also chose to use non-monetary rewards to improve
motivation. Rewards that are related to internal experiences of successful
performance, such as feelings of achievement, challenge and growth, are called
intrinsic rewards.
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CHAPTER 8 MOTIVATION
effort
E P expectancy
POexpectancy
performance
valence
What value do I place
on the potential
outcomes?
Outcomes
e.g. bonus, praise, feelings of
accomplishment
Valence
The valence component of the theory assesses the attractiveness or desirability
of various rewards and outcomes. One of the hardest things about motivating
people is that rewards that are attractive to some may be unattractive to others.
For example, a promotion may seem highly attractive to some, highly disliked by
others, and for some, may not make a difference one way or the other.
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CHAPTER 8 MOTIVATION
Implications for managers
Managers can use expectancy theory to motivate workers by linking rewards to
individual performance in a way that is clear and understandable to all
employees. Take for example the following three scenarios with Phillip, Lisa &
Chris. In the first case, Phillip works hard, does well at his job and gets a bonus;
therefore Phillip concludes that high performance leads to valued rewards (high P
O expectancy). In the second case, Lisa does well also, but the boss does not
even say good job, let alone a bonus. So Lisa determines that for this
organisation high performance does not pay (low P O expectancy). In the third
scenario, Chris does little but receives a major annual bonus; therefore Chris will
view high performance as being unconnected with valued rewards (low P O
expectancy).
Managers must also foster high subordinate E P expectancy by: setting clear
performance criteria, establishing challenging yet attainable goals, ensuring
employees are adequately trained and have the required resources and being
encouraging.
Equity theory
J. Stacy Adams developed equity theory to explain how we identify and react to
events that we perceive as inequitable.
Equity theory states that people will be motivated at work if they perceive that
they are being treated equally. They compare the ratio of inputs to outcomes
between themselves and others and adjust effort accordingly. Equity is an
individuals perception of the situation and is relative (compared to another), not
absolute (compared to a standard). Inputs are the contributions employees make
to the organisation and can include education, skills, experience, training, hours
worked and results. Outcomes are the rewards employees receive in exchange
for their contributions to the organisation. Outcomes include pay, bonuses, job
titles, office size, parking space, furniture and work assignments.
The theory argues that two types of inequity produce tension: over-reward and
under-reward. Over-reward is when we perceive that the inputs:outcomes ratio is
higher than a comparison other. In this situation although the individual may feel
a level of guilt, they quickly adjust by deciding that their inputs are worth more
than they first thought. Under reward is when we perceive that the
inputs:outcomes ratio is lower than a comparison other. This situation generally
leads to frustration and anger and is more difficult to resolve.
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Goal-setting theory
Goal-setting theory states that people will be motivated to the extent to which
they accept specific, challenging goals and receive feedback about their progress
towards the goal. The theorys success in motivating performance depends on
how well the goals have been set. The goals must be specific, measurable,
attainable, time bound and relevant to the organisation (realistic).
Goal acceptance and commitment is a vital element in goal setting, as accepted
goals are more motivating than unaccepted goals.
Expectancy theorys three components fit in well with goal-setting theory. In
determ9iningh acceptance or commitment to a goal the individual will consider:
effort-performance expectancy (is this goal achievable?), performance-outcome
expectancy (will I be rewarded for achieving this goal) and valence (do I value the
reward?).
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Reinforcement Theory
Reinforcement theory states that behaviour is a function of consequences and
not through some cognitive thought processes. The theory uses the law of
effect, which states that behaviours followed by pleasant or positive
consequences will occur more frequently, whilst behaviours followed by
unpleasant or negative consequences will occur less frequently.
Types of reinforcement
There are four types of reinforcements that influences behaviour modification:
positive and negative reinforcement, extinction and punishment. Behaviour will
occur more frequently by utilising positive and negative reinforcements and less
frequently by employing extinction and punishment (see Fig. 8.7).
Positive reinforcement
Positive reinforcement strengthens behaviours that are deemed to be
organisationally desirable by following behaviours with pleasant, rewarding
consequences. Rewarding consequences can include pay rise, time off, praise
and fringe benefits. As an individuals perceptions of what is rewarding and
pleasant differ, managers must check the effect of the consequence to see if the
desired behaviour increases.
Negative reinforcement
Similar to positive reinforcement, negative reinforcement strengthens
behaviours but in a different manner. Negative reinforcement (also called
avoidance learning) involves presenting unpleasant consequences when
employees perform a specific behaviour. For example, an organisation wants to
improve employee attendance, therefore institutes a policy in which good
attendance is a required for employees to receive their annual bonus.
Negative reinforcement can lead to negative feelings towards the provider of the
negative reinforcement (generally the manager). They may react by only doing
what is required and not put in any discretionary effort when required; they may
even leave the organisation. Consequently, whenever possible, positive
reinforcement should be used.
Extinction
Extinction reinforcement occurs when a positive consequence is no longer
allowed to follow a previously reinforced behaviour. By removing the positive
consequence, extinction weakens the behaviour, making it less likely to occur.
For example, some organisations use positive reinforcement (bonuses) when the
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CHAPTER 8 MOTIVATION
company does well, but based on the idea of extinction, the bonuses should be
removed when the company doesnt do well.
increases
behaviour
positive
reinforcement
negative
reinforcement
extinction
punishment
Effect on behaviour
decreases
behaviour
encourages
maturity
encourages
immaturity
Effect on maturity
Punishment
Punishment makes behaviour less likely to happen by following behaviours with
negative or undesirable consequences. Examples of punishment can include oral
and written warnings, suspension without pay and withholding training. There are
two major differences between punishment and negative reinforcement. Firstly,
punishment aims at decreasing or discouraging undesired behaviour, whereas
negative reinforcement aims to increase or encourage desired behaviour.
Secondly, punishment is dished out after the undesired behaviour has occurred,
whereas negative reinforcement occurs before the desired behaviour is shown.
Whilst punishment can weaken behaviour, managers have to be careful to avoid
the backlash that sometimes occurs when employees are punished at work. If
punishment is required, it will be most effective if it is controlled by formal
company policies, if it occurs soon after the undesired behaviour is exhibited, if it
is not too severe and it is consistent.
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Schedules of reinforcement
Positive reinforcements produce desired behaviour, but different reward patterns
affect the time it takes to learn a new behaviour and for how long that behaviour
will persist. These reward patterns, or schedules of reinforcement, specify
positive reinforcements basis and timing. There are two main rewards schedules:
continuous and partial. With continuous reinforcement, the desired behaviour is
rewarded as soon as it occurs i.e. when a manager praises a subordinate for
good work. With a partial schedule, the desired behaviour is rewarded on
occasions i.e. during initial learning behaviour is rewarded often to encourage
repetition, but less so later. There are four main partial reinforcement schedules:
fixed interval, fixed ratio, variable interval and variable ratio (see Fig. 8.8).
Fixed Interval
fixed
Reinforcement
administered every
x minutes
Fixed Ratio
Reinforcement
administered every
xth occurrence of
behaviour
Variable Interval
Variable Ratio
of occurrences
Interval
Number
variable
Timing of reinforcers
varies randomly
around some average
time period
passage of time
of the behaviour
required to receive
reinforcer varies
randomly around
some average number
Number of times
behaviour occurs
Figure 8.8 Types of partial reinforcement schedules (adapted from Arnold &
Feldman 1986)
Fixed interval
With fixed-interval reinforcement schedules, consequences or rewards are
given using a fixed time schedule. For example, most people receive their pay on
a fixed interval (once or twice per month). As long as they work (behaviour)
during a specified time period (interval), they get their pay (consequence). Fixedinterval schedules yield uneven responses, with the desired behaviour peaking
just before the reward is due and then falling until the next schedule is due.
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Fixed ratio
In a fixed-ratio reinforcement schedule, rewards are given after a specific
number of desired behaviours. For example, a car salesperson might receive a
bonus after every 10 sales. Fixed-ratio schedules yield high response rates, but
extinguish quickly if rewards stop.
Variable interval
With Variable-interval reinforcement schedules, rewards are given on a
random time schedule that varies around a specified average time. For example,
a manager might visit a plant to praise the employees on average five times a
week, but at varying times. Variable-interval schedules produce a high, steady
response rate, which slowly extinguishes.
Variable ratio
With Variable-ratio reinforcement schedules, rewards are given after a
different number of behaviours, sometimes more and sometimes less, that vary
around a specified number of behaviours. For example, a car salesperson might
receive a bonus after 7 car sales or even after 8, 9, 11 or 12 sales, but the
average number of cars needed to be sold before receiving the bonus would be
10 cars. Variable-ratio schedules give a high response rates and is the slowest of
the partial schedules to extinguish.
Major components
There are three cognitive related processes that help explain peoples behaviour:
symbolic processes, vicarious learning and self-control.
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CHAPTER 8 MOTIVATION
Symbolic processes
Social learning theory argues that we depend on symbolic processes (use of
verbal and imagined symbols), to process and ultimately store experiences
(words and images), which in turn guide future behaviour. We use imagined
symbols when we daydream, visualising a South Pacific holiday without ever
being there. These desirable future images allow us to set goals and take actions
in order to achieve them. Our symbolic processes have a cognitive component,
self-efficacy, which is a belief in ones abilities to achieve a particular goal. Selfefficacy is similar to expectancy theorys effort-performance expectancy element,
except that it is more focused on beliefs about our own capacity.
Vicarious learning
Vicarious learning is the process by which we learn by observing other people
doing a particular task or behaviour. In contrast to reinforcement theory, we do
not have to perform a behaviour to learn of its consequences. Observing and
copying other peoples behaviour is called modelling (see Fig. 8.9). In modelling,
you can learn to play tennis or football by watching and imitating another persons
behaviour, generally the coach or skilled friend. Modelling has four stages. In the
attention stage, we chose to observe an individual whom we believe is skilful
and/or successful. In the retention stage, we retain information about the
behaviour in words and images. During the reproductive stage, we attempt to
reproduce the observed behaviour, seeking feedback as to how well we are
reproducing it. For us to be motivated to adopt a new behaviour there must be
reinforcement. Reinforcement can occur through consequences, vicarious
learning or by self-control.
Self-control
With self-control, or self-regulation, we control our own behaviour by setting
standards and providing consequences (rewards and punishments) for our
actions. Self-control can assist in improving performance, only if we make the self
-rewards dependent on attaining a high level of performance. An example is
rewarding ourselves (buying an iPad) if we get a HD for a particular subject.
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attention
retention
reproduction
motivation
new behaviour
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The next step in the process is recruitment, which aims to attract and find suitably
qualified job applicants to fill the job vacancies. The objectives of recruitment are
to develop a pool of qualified job applicants at minimal cost; ensure compliance
with any legislative requirements (e.g. EEO); and improve the selection process
by only attracting suitably qualified and skilled individuals.
The selection process consists of gathering information about the job applicants
and making a decision as to who will be offered the job. It is an attempt to predict
which of the applicants would be the most successful in the job, and as with all
predictions it is on occasions incorrect. In an attempt to minimise the risk of
getting it wrong, organisations seek reliability in measures and process so as to
consistently pick the same choice. Similarly, validity is important to ensure that
the process actually measures what it sets out to measure. In order to make the
right choice, multiple measures are generally used and these include: application
forms, reference checks, aptitude tests, personality tests, work sample tests, and
selection interviews.
Maintaining humanresources
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Payment for work is usually associated with regulatory frameworks, in which
rates of pay are often determined after lengthy negotiations between employer
and employee representatives, either collectively or individually. For example
specific enterprise agreements and awards specify the minimum rates of pay and
working conditions. Individual contracts also contain similar employment
conditions and are legally binding. Organisations choose to pay at different rates,
some less and some more than the market rates. Those that offer less than the
average market rate, generally offer unique benefits that compensate i.e. better
training and development opportunities.
Organisations attempt to select employees who already possess the necessary
skills and competencies, or those with the ability to quickly acquire the necessary
skills and competencies, or a mixture of both. Training is routinely used by
organisations to improve the skills and competencies of employees, whilst
development is seen as the process of developing employees for any future
opportunities by acquiring new knowledge, skills and attitudes. Both assist
organisations in meeting long and short-term goals, whilst improving motivation,
commitment and retention through the provision of career paths, improving job
security and increasing job satisfaction.
Performance management can be described as a set of policies and procedures
which aim to improve the achievement of organisational goals through a focus on
individual performance. The performance management system has a broader
scope than the performance appraisal system, which is focused on whether the
business objectives are valid and aligned both internally and externally with
business units and markets.
As a component of performance management, performance appraisal is the
process of assessing how well employees are doing at their jobs. There are five
reasons for appraising performance:
1. To mould employees behaviour in order to comply with company
norms
2. To improve consistency between employee actions and corporate
goals
3. To improve the quality of human resource planning, especially training
and succession
4. To improve quality of salary reviews
5. To provide records in cases of dismissal, demotion, grievance or
appeal
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The future of work
In recent history there has been a trend by organisations to reduce the number of
core, permanent employees and increase the number of part-time, casual or
temporary employees, as well as move towards more flexible working
arrangements. For example, teleworkers can work from home through the use of
telecommunications. The work can range from relatively unskilled data entry to
skilled tasks done by professionals with the freedom to choose when and where
work is completed.
Temporary, short-term, regular part-time, on-call, and contract workers have been
used to dealing with workload fluctuations and absences, these factors are likely
to increase in the future. This trend towards flexibility will affect all types of
workers, from highly skilled groups such as engineers and architects to lower
skilled jobs in administration support and the service industries.
In todays rapidly changing environment, traditional jobs are often too rigid and
consequently job classifications and descriptions, pay structures and promotion
charts are disappearing from new-style organisations. As a result, new work
relationships will be established, ones based on flexibility around project
demands. These changes will have ramifications for both employees and
employers, in terms of motivating a transient workforce.
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Corporate responsibility
Attaining the highest rating in workplace practices means that the organisation
needs to demonstrate a very high commitment to creating a workplace that offers
excellent value for employees and the organisation, through ongoing
development of its workforce, management systems, policies and strategies.
Organisations are rated on issues such as employee involvement, OHS, fair
wages, diversity, work/life balance, training and development and industrial
relations. There is a growing awareness that demonstrating corporate
responsibility can lead to greater shareholder returns.
The aim of human resource management has shifted from maximising the profit
from increased productivity from employees to achieving a balance of profit in
conjunction with socially responsible practices. Socially responsible organisations
can use this fact in their marketing when attempting to attract and retain skilled
employees.
Human resource management helps shape corporate behaviour and if combined
with the use of motivation theory, can improve motivation.
Chapter 9
Leadership
2011
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CHAPTER 9 LEADERSHIP
CHAPTER 9 LEADERSHIP
How Leaders Influence Others
Why do people accept a leaders influence? More often than not, they do so
because a leader has power and power has been defined as the capacity to
affect others (Mintzberg 1983).
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CHAPTER 9 LEADERSHIP
Power source
Resistance
Compliance
Commitment
Coercion
Legitimate
Referent
Information
Expert
Reward
Table 9.1 Major Sources of Leader Power and Likely Subordinate
Empowerment
In todays environment, many managers utilise an important aspect of power use
in their leadership styles, that of empowering their subordinates. Empowering
occurs when the manager abrogates some leadership responsibility and authority
to the subordinates. They can then make decisions previously made by
management and have the authority to enforce quality standards, check their
own work and schedule their activities.
Empowerment supports leadership in several ways:
Managers ability to get things done with the co-operation and
support from the subordinates.
Employee involvement, motivation, commitment and inclination to
work towards organisational goals is increased.
Opportunities for managers to concentrate on significant issues
and problems are increased and less time is spent on daily
supervision
Managers that do not use empowerment as part of their leadership style, try to
control the decision making process and force subordinates to comply and
consequently they are relatively ineffective in their jobs. The leadership style of
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CHAPTER 9 LEADERSHIP
empowering managers allows subordinates to develop sound decision making
skills, as well as providing coaching, inspiration and guidance.
While power helps to explain how a leader influences, we must look at trait and
behaviour theories to fully understand leaders organisational influence.
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CHAPTER 9 LEADERSHIP
To determine the most effective leadership style, the researchers trained
individuals in the three different leadership styles, and then put them in charge of
groups of teenage boys clubs. The results indicated that the groups with laissezfaire leaders performed poorly when compared with both autocratic and
democratic leader groups. Work quantity was equal for both autocratic and
democratic leaders, while the quality of work and group satisfaction was higher in
the democratic groups. Thus it appeared that democratic leadership could result
in increases in both work quantity and work quality.
Unfortunately, further research was not able to replicate the results. There were
times when democratic leadership was shown to result in better performance
than autocratic leadership, but at other times it was the reverse. Results on
follower satisfaction were on other hand consistent, with satisfaction levels higher
in democratic leadership groups than autocratic ones.
These results created a managerial dilemma. Whilst democratic leadership
resulted in subordinates being more satisfied, performance was not always better
or even equal to performance under an autocratic leader. To help solve this
dilemma, Robert Tannenbaum and Warren Schmidt (1973) developed the leader
behaviour continuum as shown in Figure 9.1. The continuum has leadership style
ranging from autocratic (boss-centred), through to democratic (subordinatecentred).
According to Tannenbaum and Schmidt, when deciding on a leader behaviour
style, managers must consider forces within themselves (e.g. comfort level with
the various options), within subordinates (e.g. readiness to take responsibility),
and the situation (e.g. time pressures). In the short term, managers should be
flexible in adopting specific leader behaviour, depending on the circumstances. In
the long term, managers should adopt subordinate-centred leadership behaviour,
because this increases employee motivation, decision quality, teamwork, morale
and employee development. Other work by the researchers at the University of
Michigan confirmed the benefits of employee-centred leadership compared with a
more job-centred approach. With an employee centred approach, leaders build
effective teams dedicated to achieving high performance goals. With a jobcentred approach, leaders divide work into routine tasks, closely supervise
workers, ensure that specified work methods are adhered to and productivity
standards are met. However, results on output varied: at times an employeecentred approach gave low output and a job-centred approach gave high output.
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CHAPTER 9 LEADERSHIP
area of freedom
for subordinates
Manager
makes
decisions
and
announces
it
Manager
sells
decision
Manager
presents
ideas and
invites
discussion
Manager
presents
tentative
decision
subject to
change
Manager
presents
problem,
gets
suggestions,
makes
decision
Manager
defines
limits; asks
group to
make
decision
Manager
permits
subordinates
to function
within limits
defined by
superior
Initiating structure is the extent to which a leader defines and structures their
own role and those of subordinates, to attain organisational goals. It includes the
basic managerial functions of planning, organising and controlling and focuses on
task-related issues. For example, a leader who is characterised as high in
initiating structure assigns tasks to group members, expects group members to
maintain clearly defined standards of performance, and emphasises achievement
of deadlines. Initiating structure is similar to the job-centred behaviour, identified
in the Michigan studies, but with a wider range of managerial functions.
Consideration is the extent to which a leader has work relationships built around
mutual trust, respect for subordinates ideas and regard for their feelings. Leaders
who are high in consideration will be friendly and approachable, help
subordinates with personal problems, treat all subordinates equal and encourage
participative decision making. Consideration is similar to the employee-centred
leader behaviour identified in the Michigan studies.
The Iowa and Michigan studies saw leadership dimensions as falling at opposite
ends of a continuum, whilst Ohio State researchers saw initiating structure and
consideration as independent. This meant that the two behaviours occupied
separate continuum. A leader can be high-high on both, low-low on both and any
combination in between. The Ohio State two-dimensional model is shown in
Figure 9.2.
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CHAPTER 9 LEADERSHIP
high
Consideration
low
low initiating
structure
high initiating
structure
high consideration
high consideration
low initiating
structure
high initiating
structure
low consideration
low consideration
low
high
Initiating structure
Initial studies on the two-dimensional approach supported the idea that a highhigh leader (high in initiating structure and high in consideration) achieved higher
subordinate performance and satisfaction. However, in later studies enough
exceptions were found to indicate that situational factors, such as subordinate
expectations and nature of the task, needed to be integrated into the theory to
explain successful leadership behaviours.
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CHAPTER 9 LEADERSHIP
high
9
8
9,9
Team management
Work accomplishment is from
committed people; interdependence
through a common stake in
organisation purpose leads to
relationships of trust and respect
1,9
Country club management
Thoughtful attention to needs of people
for satisfying relationships leads to a
comfortable, friendly organisation
atmosphere and work tempo
5,5
Middle-of-the-road management
Adequate organisation performance is
possible through balancing the
necessity to get out the work with
maintaining morale of people at a
satisfactory level
6
Concern for people
5
4
3
2
1,1
Impoverished management
Exertion of minimum effort to get
required work done is appropriate to
sustain organisation membership
9,1
Authority-compliance
Efficiency in operations results from
arranging conditions of work in such a
way that human elements interfere to a
minimum degree
1
low
low
9
high
Figure 9.3 The Leadership Grid (reprinted from Blake & McCanse 1991)
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CHAPTER 9 LEADERSHIP
LPC orientation
Fiedler developed the least-preferred co-worker (LPC) questionnaire which is
designed to measure an individuals basic leadership style. The LPC contains
eighteen pairs of contrasting adjectives. The leader is asked to describe the one
person they least enjoyed working with by rating them on a scale of 1 to 8 for
each of the eighteen sets of adjectives. Examples of sets are:
Pleasant :
8
:
7
:
6
:
5
:
4
:
3
:
2
: Unpleasant
1
:
7
:
6
:
5
:
4
:
3
:
2
: Inefficient
1
:
7
:
6
:
5
:
4
:
3
:
2
: Relaxed
1
Efficient :
Tense
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CHAPTER 9 LEADERSHIP
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CHAPTER 9 LEADERSHIP
Elements of
situation
good
poor
high
low
high
low
position power
Octant
Characteristics
of leadership
relationshiporiented (high
LPC)
task-oriented
(low LPC)
strong
weak
strong
weak
strong
mismatch
mismatch
mismatch
match
match
match
match
mismatch
weak
strong
weak
match
match
match
mismatch
mismatch
mismatch
mismatch
match
Figure 9.4 Fiedlers contingency model of leadership (adapted from Jago 1982)
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CHAPTER 9 LEADERSHIP
Normative leadership model
Initially developed by Vroom & Yetton (1973) and later revised by Vroom & Jago
(1988), the normative leadership model provided a sequential set of rules that
should be followed in determining the form and amount of participation in
decision making as determined by the different types of situations. The model
has five behaviours that that may be used in a given situation: Autocratic I (AI),
Autocratic II (AII), Consultative I (CI), Consultative II (CII), and Group II (GII).
These are described in Table 9.2.
Symbol
Definition
AI
You solve the problem or make a decision yourself using the information
available to you at that time.
AII
You obtain the necessary information from subordinates and then decide on
the solution to the problem yourself. You may or may not tell subordinates what
the problem is in getting the information from them. The role played by your
subordinates in making the decision is clearly one of providing the necessary
information to you rather than generating or evaluating alternative solutions.
You share the problem with relevant subordinates individually, getting their
ideas and suggestions without bringing them together as a group. Then you
make the decision which may or may not reflect your subordinates influence.
You share the problem with your subordinates as a group, collectively
obtaining their ideas and suggestions. Then you make the decision which may
or may not reflect your subordinates influence.
You share the problem with your subordinates as a group. Together you
generate and evaluate alternatives and attempt to reach agreement
(consensus) on a solution. Your role is that of chairperson, coordinating the
discussion, keeping it focused on the problem and ensuring critical issues are
discussed. You can provide the group with information or ideas that you have,
but do not try to press them to adopt your solution, and are willing to accept
and implement any solution supported by the entire group.
CI
CII
GI
To assist the manager in choosing the best method, the model requires input into
eight different questions relating to the decision problem (see top of Fig. 9.5).
Question QR means how much the solution facilitates achieving better quality,
lower costs, longer life etc. Question ST relates to the structure issue in Fiedlers
contingency theory. With structured problems, tasks, methods and performance
standards are clearly defined. In unstructured problems, things are less clear,
goals and how to achieve them are not well understood.
The normative model confirms that leadership research should be directed at the
situation rather than at the person. The model assumes that the leader can adapt
their style to suit the different situations.
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CHAPTER 9 LEADERSHIP
QR
CP
CR
GC
LI
CO
ST
SI
yes
no
CO
no
no
yes
GC
CII
SI
yes
yes
yes
GI
CO
yes
no
yes
CP
no
yes
LI
yes
ST
no
no
SI
GC
yes
high
CII
no
no
CP
no
no
no
yes
GC
SI
yes
GI
yes
SI
CR
no
yes
high
no
no
low
ST
STATE THE
PROBLEM
no
yes
yes
QR
yes
SI
GC
LI
low
no
CO
no
yes
yes
CR
low
CP
yes
yes
SI
no
GI
CI
no
GC
high
CII
no
GC
no
CII
yes
GI
yes
AI
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CHAPTER 9 LEADERSHIP
Figure 9.5 Decision trees for normative leadership model (reprinted from Vroom & Jago
1988)
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CHAPTER 9 LEADERSHIP
(high)
3
Share ideas
and facilitate
in decision
making
2
Explain
decisions
and
high rel.
provide
low task
Relationship Behaviour
(Supportive behaviour)
high task
high rel.
low rel.
low task
4
Turn over
responsibility
for decisions
and
implementation
opportunity
for
clarification
high task
low rel.
1
Provide
specific
instructions
and closely
supervise
performance
(low)
(high)
Task Behaviour
(Guidance)
Follower Readiness
MODERATE
HIGH
R4
Able and
willing
or
confident
LOW
R3
R2
R1
Able but
unwilling
or
insecure
Unable but
willing
or
confident
Unable and
unwilling
or
insecure
Figure 9.6 Situational leadership theory (adapted from Hersey & Blanchard 1993)
Path-goal theory
Developed by House and Mitchell (1974), path-goal theory is a situational model
of leadership that explains how leader behaviour can influence subordinates
motivation and job satisfaction. The term path-goal is derived from the belief that
effective leaders clarify the path to help their followers achieve work goals and
make the journey along the path easier by removing roadblocks.
Path-goal theory extracts key elements from the expectancy theory of motivation:
effort-performance (probability that effort will lead to required performance level),
performance-outcome expectancy (probability that successful performance will
lead to certain outcomes or rewards), and valence (anticipated value of outcomes
or rewards). Path-goal theory seeks to find ways on how a leader can make work
goal achievement easier or more attractive.
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CHAPTER 9 LEADERSHIP
Leader behaviours
Path-goal theory identifies four major leader behaviours:
Directive leader behaviour means letting subordinates know what is expected
of them, scheduling work to be done, providing guidance on how to accomplish
tasks, identifying work evaluation standards and showing the basis for outcomes
or rewards. This type of leadership behaviour is similar to task orientation.
Supportive leader behaviour means being friendly and approachable, showing
concern for the needs of subordinates, and doing things to make work more
pleasant. This type of leadership behaviour is similar to relationship-oriented or
consideration.
Participative leader behaviour means consulting with subordinates and using
their ideas and suggestions before making a decision.
Achievement-oriented leader behaviour means that the leader sets
challenging goals and expects subordinates to perform at their highest level.
In contrast to Fiedlers view of a leaders behaviour, House assumes that leaders
are flexible and can display any or all of these leadership styles to suit the
situation.
Situational factors
In assessing how the four leadership behaviours enhance the subordinates pathgoal motivation and satisfaction, leaders need to consider two situational factor
types: subordinate and context characteristics.
Subordinate characteristics include personality traits, skills, abilities and needs.
For example, directive leadership will motivate subordinates when tasks are
ambiguous or stressful, while a supportive leader will improve performance and
satisfaction when subordinates are performing structured tasks.
Context characteristics fall into three categories: task, group and the
organisations formal authority system (levels of hierarchy, degree of decision
centralisation and nature of formal reward system). For example, supportive
leadership will motivate subordinates performing a boring task, while
achievement-oriented leadership is better for interesting tasks.
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CHAPTER 9 LEADERSHIP
Leader
behaviour
directive
supportive
participative
achievementoriented
Diagnosed
situational
factor
specify link
between
performance
and rewards
reduce
boredom
reduce
ambiguity
about job and
role
Encourage setting
challenging but
reachable goals
to boost
confidence
Expectancy
theory element
Expectancy
end result
increase
performancereward
expectancy
increase the
intrinsic value
of work
increase
effortperformance
expectancy
increase
effortperformance
expectancy
subordinates
increased
effort
goal
achievement
(performance)
satisfaction
(intrinsic and
extrinsic
rewards)
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CHAPTER 9 LEADERSHIP
transformational
leadership
transactional
leadership
current state of
expected
subordinate
effort
heightened
motivation to
attain
designated
outcome (extra
effort)
normal
expected
subordinate
performance
subordinate
performance
beyond normal
expectations
Figure 9.8 Add-on effect of transformational leadership (adapted from Bass 1985)
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CHAPTER 9 LEADERSHIP
According to Bass (1985), there are three factors that are important to
transformational leadership: charisma, individualised consideration and
intellectual stimulation.
1. Charisma is seen as crucial, and is a measure of the leaders ability
to inspire, articulate a clear vision of the future, communicate high
performance expectations, and display confidence in followers
abilities to achieve the vision. Examples of charismatic leaders include
Mahatma Gandhi, Martin Luther King, and John F. Kennedy.
2. Individualised consideration means that transformational leaders
pay special attention to their followers needs, treat them with respect,
encourage two-way communication and be a good listener.
3. Intellectual stimulation means to encourage followers to be creative
and innovative, to question long held assumptions, and to look at
problems and situations in new ways.
Not everyone agrees that transformational leaders need to have charisma. It is
accepted though that such leaders must communicate a clear vision of a desired
future state, mobilise commitment and elicit changes to assist followers to attain
the vision.
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CHAPTER 9 LEADERSHIP
task-oriented behaviour, the substitutes include skilled and experienced
subordinates, and routine work with specified procedures. The presence of
substitutes allows the leader to focus their attention on other areas.
In determining the leader behaviours required, managers must also take into
consideration the organisational life-cycle.
Entrepreneurial
Transformational
Collectivity
Transactional
Transactional
Elaboration of structure
Transformational
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CHAPTER 9 LEADERSHIP
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CHAPTER 9 LEADERSHIP
Figure 9.9 Proportion of time top managers spent on various activities (based on
Kurke & Aldrich 1983)
271
CHAPTER 9 LEADERSHIP
Chapter 10
Controlling
the
Organisation
2011
295
CHAPTER 10 CONTROLLING
THE ORGANISATION
Along with planning, leading and organising, controlling is the fourth major
management function. Planning gives direction, leading enables action,
organising allocates resources and controlling ensures that an organisation
meets performance standards and achieves set goals. The controlling function is
the regulatory element, whereby managers use various methods to monitor
performance and take corrective action. Controls must be flexible, as too much
control stifles innovation.
In this chapter we discuss the various aspects of control and its significance as a
management process. We will examine the control process itself and how
managers decide what to control and how to implement controls. Also reviewed
will be the major control types and when they are appropriate, and how
managers can assess the effectiveness of the control systems implemented.
During the control process, managers use systems to increase the probability of
achieving organisational objectives. The major control systems are associated
with quality, finance, budget, inventory, operations and information systems.
295
295
Role of controls
What would happen to an organisation that has inadequate control systems in
place? Consider what happened to Diawa Bank, Japans tenth-largest bank,
when it was forced to close its branches in the United States. One of the banks
bond traders in New York (Toshihide Iguchi), managed to lose $1.1 billion over an
11-year period without the bank knowing. The trader subsequently highlighted
that the New York office could not detect a $100 million discrteptancy and that
this indicated how dysfunctional controls were at Daiwa. A similar incident
occurred at Barings Bank, where another trader Tim Leeson accumulated similar
losses.
Adequate control systems can help managers avoid or minimise the risk of these
problems occurring. Specifically, controls assist managers with five challenges:
coping with uncertainty, detecting irregularities, identifying opportunities, handling
complex situations and decentralising authority.
CONTROLS
planning
products/services
goals
organising
leading
processes
CONTROLS
295
Detecting irregularities
Controls aid in the detection of irregularities such as poor quality, cost blow-outs,
or excessive staff turnover. Early detection saves time and money, by preventing
relatively minor problems from becoming major ones later on. For example, early
detection at Daiwa Bank, through better operational controls, might have avoided
the international embarrassment and business losses. Among the many
contributing factors, Daiwa did not follow standard financial practice of crosschecking daily trades against monthly summaries and balance statements.
Identifying opportunities
Controls can also assist in identifying situations where results are actually better
than predicted, thereby alerting management to potential opportunities. For
example, at May Department Stores, managers write monthly reports highlighting
best-selling items and money generated. These are then used in developing
merchandising strategies for all stores, including what to buy, from whom and
how to display the merchandise.
Decentralising authority
Another control function is giving managers more freedom by being able to
delegate decision making further down the organisational hierarchy, but still be in
a position to monitor results. Of course, control issues vary depending on the
managerial level.
295
Levels of control
Each level of the managerial hierarchy has different control responsibilities (see
Fig.10.2). The three control levels: strategic, tactical and operational, increase the
chances of achieving the different level plans.
Strategic control means monitoring and assessing critical environmental factors
to ensure that strategic plans are implemented, assessing the effects of strategic
action, and adjusting plans as required. Top-level managers have an
organisation-wide perspective, and therefore are responsible for strategic-level
control. The main aim for strategic control managers is to ensure that
organisational core competencies are developed and maintained, and
consequently deployed in achieving strategic goals. Strategic control managers
focus on long time frames, such as quarterly, semi-annual and annual reporting
cycles, and at times even longer. The time cycles may be shortened if the
organisation is faced with aggressive competition, or a turbulent external
environment.
While top-level managers are usually concerned with strategies issues, they may
at times use tactical and operational control to ensure that tactical and
operational plans are implemented as desired, by middle to lower management.
Tactical control is concerned with assessing department-level tactical plans,
monitoring results and taking corrective action as required. Middle managers
have tactical control responsibility, with the focus being on department-level
objectives, programs and budgets. The time frame is generally mid-term, using
weekly and monthly reporting cycles. Although concerned with tactical control,
middle managers get involved in strategic control by disseminating information to
top-level managers regarding strategic issues. They also take part in operational
control by checking critical aspects of the operating plan implementation.
Operational control is concerned with assessing operating-plan implementation,
monitoring daily results and making adjustments as required. Lower-level
managers are responsible for operational plans and their focus is on schedules,
budgets, rules and individuals specific outputs. Operating control gives speedy
feedback on what is being done toward achieving short and long-term
organisational goals.
295
Strategic
Planning
Strategic
Control
Top Management
Organisation-wide perspective
Long timeframe
Tactical
Planning
Tactical
Control
Middle Management
Department perspective
Periodic timeframe
Operational
Planning
Operational
Control
First-Line Management
Inut/Individual perspective
Short timeframe
295
295
determine
areas to
control
establish
standards
measure
performance
Compare
Performance
against
standards
Standards
met or
exceeded
Standards not
met
take corrective
action as
required
recognise
performance
3. Measure performance
Once managers have decided which standards they will use to
evaluate performance, the next step is to measure actual
performance. One method of setting standards and measuring
performance is management by objectives (MBO).
How one measures performance is dependent on the standards
selected. Performance measures can include units produced, dollar
value of units, raw materials used, defect rate, scrap rate, return on
investment, or profit margin.
Once measurement methods are chosen, managers will then have to
decide on the frequency of measurement. There will be instances
where data is required on a daily, hourly or more frequent basis, whilst
in other cases weekly, monthly quarterly or yearly data might suffice.
The frequency of measurement is dependent on how critical the goal
is, any situational variations, and what are the consequences and
expense in correcting any problems. For example, given the
consequences of an accident, nuclear power plants have
sophisticated control systems that continuously give operational data.
295
295
295
Dependence
sufficiently
high?
Expected
resource flows
unacceptable?
yes
no
Control
process
feasible?
yes
no
Control
process costs
acceptable?
yes
no
yes
Initiate
control
process
no
Do nothing
Develop
alternatives
to control
295
295
Alternatives to control
What happens when the first two conditions are met (questions on the left in Fig.
10.4), therefore indicating that controls are necessary, but the process is too
costly or not feasible? Then managers need to develop alternatives to controls.
One way is to change the dependence relationship and hence avoid the need for
control. As previously mentioned, if there are a number of differ rent suppliers
then controls are less needed. For example, because there are limited local
Saudi Arabian suppliers, the Saudi Big Mac consists of Mexican sesame seeds
and onions, Spanish beef patties and lettuce, American pickles and New Zealand
cheese. Managers can also work with a source of dependence to build increased
reliability, therefore reducing the reliance on control measures. McDonalds
achieved this when they assisted Thai farmers in growing Idaho russet potatoes,
the key ingredient in French fries.
Another way to limit the need for control is to change the nature of the
dependence, making it more feasible and/or cost-effective to control. For
example, by redesigning complex jobs to have narrower, simpler tasks, reduces
the dependence on well trained, experienced workers.
Another technique is to eliminate dependence altogether. This can arise from
vertical integration, whereby the organisation manufactures its own resources,
rather than outsourcing them. For example, McDonalds built its own plant in
Britain for the manufacture of hamburger-buns. Changing goals and objectives to
no longer depend on a particular source is another approach.
Types of Controls
Aside from deciding which areas to control, managers must consider which
control types to use. In this section, we discuss the major control types based on
timing, consider multiple control use and compare cybernetic and non-cybernetic
control types.
295
Concurrent control
As the name implies, concurrent control takes place while an activity is in
progress. The emphasis is on identifying problems in production that could result
in defective output. With this type of control, decisions are made to either
continue progress, take corrective action or stop work altogether.
295
Feedback control
Feedback control is the most popular type and relies on feedback after the
activity has taken place. Also known as post-action to output control, this type of
control has a major drawback in that by the time the manager has the
information, the damage is already done. There are however a number of
advantages, including providing managers with meaningful information on how
effective the planning process has been. For example, if feedback on the number
of units sold matches or exceeds the standard, this is evidence that the planning
was on target. Feedback control is often used when other controls (feed forward
and concurrent) are not feasible or too costly to implement. Finally, feedback
control can enhance employees motivation by providing information on how well
they have performed.
controls
controls
INPUTS
TRANSFORMATION
PROCESS
controls
controls
OUTPUTS
controls
controls
Feedforward
control regulates
inputs to ensure
that they meet
standards
necessary for
transformation
process
Concurrent control
regulates ongoing
activities to ensure that
they conform to
organisational standards
Feedback control
regulates product or
service after
completion to ensure
final output meets
organisational
standards and goals
Multiple controls
More often than not, organisations use multiple control systems, combining feed
forward, concurrent and feedback control processes with several strategic control
points. Strategic control points, as previously discussed, are performance areas
chosen for control as they are critical in achieving organisational goals.
Many controls have a degree of human discretion, and the level of needed
discretion is another way of classifying control system types.
295
295
Bureaucratic control
Bureaucratic control is control by means of a comprehensive system of rules,
policies, standard operating procedures, supervision, budgets, schedules and
other mechanisms to regulate the behaviour of employees. Results of heavy
bureaucratic control use are shown in Table 10.1. The emphasis is on having a
well-defined, narrow task set, top-down hierarchical control and control sources
being external to the individual.
With bureaucratic control, rules and policies develop in time to handle any
recurring conditions. When unexpected events do occur, managers must decide
on the corrective action required. Managers also monitor to see if employees are
following rules and standard operating procedures.
Bureaucratic control has a number of associated problems. Over reliance on
bureaucratic control can stifle innovation, inhibit change required in times of
rapidly changing environment, and result in employee compliance rather than
commitment. For these reasons, organisations are increasingly using clan
control.
Clan control
Clan control is the control exerted on individuals and groups in an organisation
by shared values, norms, beliefs, standards of behaviour, and expectations.
Results of heavy clan control use are listed in Table 10.1. Compare with
bureaucratic control, clan control places more importance on internal motivation,
flexible and broad tasks, and influence based on relevant information and
expertise rather than hierarchical position.
With clan control, the emphasis is on teams, with responsibility and accountability
residing with that team. Clan control also builds commitment to organisational
objectives, with employees basing their decisions and actions on how to assist
the organisation perform well. For example, an R&D scientist working 80 hours a
week to help speed up a project.
295
Market control
Market control makes use of market mechanisms to set prices for organisational
resources (goods and services), thereby reducing management need for setting
up elaborate cost control systems. In order to use market control, there must be
competition in the relevant goods and services and organisational needs are
clearly defined. For example, purchasing departments often set specifications for
required goods, then initiate a competitive bidding process. Without specifications
and the tendering process, purchasing officers would have to decide if the offered
prices were reasonable. Controlling costs this way is expensive.
The use of market control is increasing due to outsourcing. Outsourcing is the
process of contracting out a business function that was normally performed inhouse. Areas in which outsourcing is common includes information technology
services, maintenance, and financial services.
Market control often regulates internal operations by setting up profit centres for
service units, such as quality assurance, HR, or IT, then charging other company
functional areas for the services. Generally, market control is ineffective when
precisely specified requirements cannot be set due to uncertain or fluid
circumstances (e.g. Customer needs) or when little or no competition exists on
which to base pricing (e.g. R&D projects).
Control
Characteristics
Bureaucratic control
Clan control
Means of control
Source of control
Mainly external
mechanisms
Job design
Definition of duties
Fixed
Flexible; contingent on
changing conditions
Accountability
Usually individual
Often team
Structure
Power usage
Emphasis on legitimate
authority
Emphasis on relevant
information and expertise
Responsibility
Upgrading performance of
work unit and organisation
Reward emphasis
Extrinsic
Intrinsic
Innovation
Less likely
More likely
Compliance
Commitment
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295
LEVERS FOR
STRATEGIC CONTROL
Belief systems
Boundary systems
Mission
Core values
Risk avoidance
Policies, rules,
procedures
3
Performance
monitoring systems
Critical goals and
standards
Evaluation and
feedback
4
Interactive
monitoring systems
Opportunity focus
Networking
Continuous search
and learning
Incrementalist approach
Generally applicable to innovative project work, using the incrementalist
approach gives control over a process without stifling it. The approach relies on
using clan control but also involves a phased set of plans and accompanying
bureaucratic controls, beginning at a general level and becoming more specific
as the project progresses.
In the early stages of projects, managers set general goals, select key project
people, set critical limits (such as spending) and establish decision points to
check progress towards goals.
At middle stages of projects, technical aspects are generally better understood
and/or market needs are clearer, therefore managers set more critical
performance goals, limits and checkpoints. It is still up to project team members
to decide how to achieve goals, within the prescribed limits and checkpoints.
During the later more innovative stages, managers may set more concrete
controls to accompany more specific planning.
The incrementalist approach means managers must attempt to strike a balance
between control approaches to encourage innovation, otherwise innovation is
stifled, thereby inhibiting long-term organisational effectiveness.
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Behavioural displacement
Behavioural displacement occurs when employees engage in behaviours that are
encouraged by control and reward systems, but these behaviours are not aligned
with organisational goals. Displacement has three basic causes: poor analysis of
relationship between controls and desired outcomes, overemphasis of control
measure quantification when qualitative aspects are important , and emphasising
activities rather than end results.
Game playing
Game playing occurs when managers improve their performance by manipulating
data and/or resource use, but do not actually achieve any performance
improvement. Manipulating data means falsifying performance data or influencing
performance results during data reporting. Manipulating resource usage means
obtaining more than required resources so that objectives are easily reached or
exceeded.
Operating delays
Operating delays may result from actions needed for feed forward and concurrent
controls. If these are excessive, goal attainment is stifled. For example, in a
diversified corporation, 74% of general managers reported getting expenditure
approvals after money had been spent.
295
Future oriented
Well-designed control systems must focus on controlling future events, not fix
blame for past ones. Effective control systems give managers information
regarding progress toward objectives, highlighting where future corrective action
is required, and unearthing unexpected development opportunities.
Multidimensional
Effective control systems must be multidimensional in order to capture major
performance issues. For example, most manufacturing companies would be in
trouble if the focus was only on quantity, and not taking into consideration quality,
scrap rate and overheads.
Cost-effective
The costs of any effective control system are important, where the benefits must
outweigh the costs. For example, McDonalds company manual specifies the
cleaning frequency of the rest-rooms, and both the manager and company
inspection teams are responsible for checking this. McDonalds could control
cleanliness more if there was one dedicated person in each outlet, cleaning the
rest-room. However, in this case the costs of more control may be greater than
the benefits, as McDonalds reputation for cleanliness is already very good.
295
Accurate
Accuracy is crucial for a control system, as the information is used for deciding
on future actions. In fact, inaccurate control data is worse than no data, as poor
management decisions may be the result from such data.
Realistic
Effective control systems must be seen to have realistic expectations of what is
achievable, otherwise employees will be demotivated and can ignore it or even
sabotage it.
Timely
Control systems give information regarding production cycle or process data at a
specified time. For example, data may be in a monthly sales report, a daily
production report, or from a production lines daily quality inspections. In order
that managers and employees respond to and rectify problems promptly, control
systems must yield data in time for corrective action.
Monitorable
Control systems must be easy to monitor to ensure that performance is to
standard. One technique to check a control system is to introduce an
imperfection, such as a defective part, and see how long the control system takes
to detect and report to the correct person. Other techniques for monitoring control
systems includes various kinds of audits.
Flexible
As organisations need to be flexible and adapt to an ever changing environment,
control systems must also be able to meet new or revised needs. Consequently,
effective control systems must be able to adapt quickly to measure and report
new information and track new activities.
Chapter 11
Managing
through
Change &
Conflict
2011
323
CHAPTER 11 MANAGING
ORGANISATIONS THROUGH
CHANGE AND CONFLICT
The Nature of Change in Innovation
This chapter examines the concepts of innovation and change and the major
forces pushing change and innovation in organisations.
What is Change?
Change can be defined as the alteration in people, structure or technology.
Change usually involves minor changes to the production process, to improve
efficiency, or changes to the accounting system to save time and money.
Change can also involve big changes in the organisation including changing the
organisations structure, reducing costs and staff, reducing production time,
retraining the remaining workforce, and getting greater input from suppliers and
customers.
What is Innovation?
Innovation involves radical breakthroughs (mobile phones) and small
improvements (bluetooth).
Innovation includes:
323
Internal Forces
technology automation,
computerisation, efficiency
323
323
Gain recognition
Of the problem
or opportunity
Monitor and
institutionalise
changes
Line up
Powerful
Sponsor(s)
Develop and
communicate a
vision
Consolidate
improvements
and facilitate
further
change
Give power
to employees
to act out the
vision
Prepare to
overcome
resistance
Organisational Development
Organisational development (OD) is an internal change effort directed at
improving organisational:
Interpersonal working relationships and organisational
effectiveness through strategies using a change agent who is well
versed in behavioural sciences (Beckhard 1969; Beer 1980; Kinicki &
Williams 2003).
The change agent, or consultant, and acts as a catalyst to help
people and groups approach old problems in new or innovative ways.
The agent may be an external consultant, a company OD
specialist, a new manager, or one able to look beyond the traditional.
OD is aimed at improving work relationships and, as such, OD efforts are
strategies used to manage people through change. OD has three major steps:
diagnosis, intervention and evaluation (see Fig. 11.2) (French & Bell 1978; Huse
& Cummings 1985; Mohrman, interventions Mohrman, Ledford, Cummings,
Lawler & Associates 1989).
323
Diagnosis
-assessing values,
beliefs and norms
and data collection
Intervention
-changing
structure,
technology,
physical setting
and people
Evaluation
-analysis and
effectiveness
Diagnosis
The first step, involves diagnosing, the beliefs, values and norms (rules)
members share that may affect the introduction of change. Change agents, and
the human resources department collect data using interviews, questionnaires,
employee-behaviour observation and internal documents and reports (Reibstein
1986)
323
Intervention
What Can Change Agents Change?
Change agents can make changes in four areas:
1. Changing Structure
Changing structure involves making an alteration to one or more
structural components or even a major change to the structural design
of the organisation. An organisations structure is defined in terms of its
degree of complexity, formalisation, and centralisation. Change agents
can combine departmental responsibilities, spans of control can be
widened and new rules and procedures can be implemented. In
addition the structure can be changed from a simple design to a
matrix design, and jobs and job schedules can be redesigned.
2. Changing Technology
Changing technology encompasses modifications in the way work is
processed and the methods and equipment used. New equipment,
tools and operating methods, computerisation, and automation, could
be introduced to increase efficiency.
3. Changing the Physical Setting
The physical setting encompasses a redesign of the workplaces
physical environment in order to increase productivity. By eliminating
walls, and partitions and opening up an office design, making it easier
for employees to communicate with each other. As well interior design
changes to furniture, decorations and colour schemes can be made.
4. Changing People
People change refers to changes in employee attitudes, skills,
expectations, perceptions, and/or behaviour. These will have to be
done through communication, decision making and problem solving.
The consultant gives employees insight into what is happening around
or within and between them and other people. The consultant helps
employees to identify processes that need improvement, and then
provides guidance and assistance to help them solve their own
problems
Evaluation
The ability to evaluate OD intervention effects depends on how well the diagnosis
identified areas for change -structure, technology, physical setting, people - and
specified results desired after the changes were implemented.
323
Managing Change
Having looked at the reasons why change and innovation are needed, and how
organisational development can facilitate change, this section will look at the real
challenge in effectively implementing change within the organisation and how to
manage the process of change.
323
External change
factors
politics
internal change
factors
economy
employees
organisation
structure
imports
culture
jobs
regulations
technology
competition
Technical
developments
Figure 11.3 - Internal and external factors influencing need for change in organisations
323
1
Performance
gap
8
Evaluation
Against
Desired
outcome
7
implementation
2
Identify a
desired future
3
Recognise
Need for
change
6
Selection of
appropriate
alternative
4
Problem
diagnosis
5
Development
Of
alternatives
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323
Force-field analysis
To overcome resistance to change and help unfreeze, managers can use forcefield analysis. As part of the change approach developed by Kurt Lewin, this
involves analysing two types of forces, driving and restraining forces, that
influence proposed change, and assessing how to overcome resistance.
Driving forces are factors pressuring for a change, where
restraining forces are factors pressuring against a change.
The two forces push in opposite directions, so balancing each
other and providing a picture of current conditions, in the company.
To change these conditions, driving forces can be increased,
restraining forces decreased, or both.
Managers generally try to increase driving forces but Lewin feels
this will produce a balancing increase in resisting forces ,
A successful change is more likely if they work to reduce
restraining forces (Lewin 1951; to overcoming conflict between the
two forces.
Xerox faced serious overseas competition and worked to halve manufacturing
costs at its operations near Rochester, New York. Subcontracting wiring
harnesses was planned to lower costs and cut about 150 jobs. Union leaders
wanted to save jobs and as company-union relations had been good historically,
union leaders met managers to assess ways to keep the harness work in plant.
Figure 11.5 shows a force-field analysis of major driving and restraining forces
maintaining a status quo characterised by costs too high for Xerox to effectively
compete. The wider the arrow, the stronger the force. Union leaders suggested
relaxing rules so workers could make minor machine repairs rather than wait for
maintenance staff to fix them. Union leaders and management studied how to
save money, finally eliminating six paid days off, making medical insurance cuts
and developing ways to control absenteeism. In return, no layoffs for three years
was promised. By working on restraining forces, firm and union could agree on
changes leading to lower plant cost levels without contracting wiring harness
work out (Kirkpatrick 1986).
323
Historically good
Company-union
Relations
Poor company
Union relations
foreign competition
strict work rules
recent company
losses
current employee
benefits costs
cheaper sources
available outside
current pay costs
union desire to
save jobs
employee absentee
costs
company unwilling
to eliminate jobs
company desire for
flexibility in job cuts
Current
high
cost
level
Figure 11.5 Force-field analysis of the forces maintaining high cost level at Xerox plant
I n addition to the force field analysis managers can adopt other methods to
overcome resistance to unfreezing. Table 11.2 summarises these options and
situations in which an approach is commonly used and the advantages and
disadvantages of each
Desired
Low
Cost
level
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Approach
Commonly used in
situations
Advantages
Drawbacks
Education and
communication
Once persuaded
people will often help
with implementation of
the change
Participation and
involvement
Facilitation and
support
No other approach
works as well with
adjustment problems
Can be time-consuming
and expensive and still
fail
Negotiation and
agreement
Where someone or
some group will clearly
lose out in a change
and where that group
had considerable
power to resist
Sometimes it is a
relatively quick and
inexpensive solution to
resistance problems
Manipulation and
cooption
It can be a relatively
quick and inexpensive
solution to resistance
problems
Where speed is
essential and change
initiators possess
considerable power
323
Managing Conflict
Organisational conflicts within and between groups are common. By conflict we
mean a perceived difference between two or more parties resulting in mutual
opposition. Conflict can involve three levels:
323
Conflict is useful, but too much can hurt organisational performance as energy is
wasted on negative behaviour (Fig. 11.6). Very low conflict levels may mean
problems are hidden and new ideas stifled. Therefore, managers must
understand the causes of conflict, how to reduce or resolve it and, as needed,
how to stimulate it positively.
Group performance
low
low
Conflict
high
323
Causes of conflict
Many factors contribute to conflict (Walton & Dutton 1969; Robbins 1983).
Several are discussed below.
Poor communication - barriers such as prejudice, selective
hearing, and preconceived opinions as well as lack of empathy, an
inability to listen actively, poor summarising skills and lack of
assertiveness
Fear of what we might lose including (face) can cause us to take
an aggressive position and increase conflict
Differences in values for example coming to work, attending
meetings completing work on time can conflict with employees who
are often late for everything.
Disagreements over matters of content for example who said
what, over policies, plans and priorities.
Disagreements over perceptions for example who knows best,
who has authority, whos responsibility its is to complete a job.
Differences in goals, wants, needs expectations and clashes of
personality lead to conflict
Competition for limited resources or the allocation of greater
resources to a particular department can cause conflict.
Clarify misunderstandings
323
COMMUNICATION
COMMUNICATION
Open
Open and
and ongoing
ongoing
brings
brings out
out true
true thoughts
thoughts and
and
feelings
feelings
PRODUCTIVITY
PRODUCTIVITY
RELATIONSHIPS
RELATIONSHIPS
Increased
Increased efficiency
efficiency and
and
effectiveness
effectiveness
Problems
Problems handled
handled creatively
creatively and
and
cooperatively
cooperatively
Respect
Respect for
for each
each others
others interests
interests
High
High level
level of
of trust
trust
CONFLICT
CONFLICT
Conflict
Conflict identified
identified
Win-win
Win-win focus
focus
323
Breeds mistrust
Stops communication
Decreases productivity
COMMUNICATION
COMMUNICATION
Only
Only when
when necessary
necessary
Hidden
Hidden agendas
agendas
PRODUCTIVITY
PRODUCTIVITY
RELATIONSHIPS
RELATIONSHIPS
Decreased
Decreased efficiency
efficiency and
and
effectiveness
effectiveness
Priorities
Priorities on
on urgent
urgent rather
rather than
than
important
important issues
issues
One-sided
One-sided
Based
Based on
on fear
fear and/or
and/or power
power
Defensive
Defensive
CONFLICT
CONFLICT
Emphasis
Emphasis is
is on
on self,
self, not
not on
on the
the
organisation
organisation
Can
Can lead
lead to
to acute
acute physical
physical and
and
psychological
psychological illness
illness
323
Type
Skills
1.
Intellectual
Emotional
Interpersonal
Managerial
ability to:
323
Process
1. Avoidance
2. Accommodation
3. Competition
4. Compromise
5. Collaboration
323
Appropriate Situation
Competing/Forcing
1.
2.
3.
4.
Collaborating
1.
2.
3.
4.
5.
Compromising
1.
5.
When goals are important but not worth the effort or potential
disruption of more assertive modes
When opponents with equal power are committed to mutually
exclusive goals (
To achieve temporary settlements to complex issues
To arrive at expedient solutions under time pressure
As a backup when collaboration or competition is unsuccessful
Avoiding
1.
2.
3.
4.
5.
6.
5.
7.
8.
6.
Accommodating
1.
2.
3.
4.
2.
3.
4.
5.
6.
323
323
Resolution process
Problem solving
Expansion of
resources
Smoothing
Bureaucratic
authority
Limited
communication
Confrontation and
negotiation
323
Intergroup training
Another conflict-reduction strategy is intergroup training. For this, members
attend a workshop away from their normal work place. The technique is
expensive, but can bring attitude change.
Intergroup training involves the following steps:
1. Groups in conflict are invited to a big room with the stated goal of
exploring perceptions and relationships.
2. The groups then go into separate rooms and each discusses and lists
its perceptions of the other group.
3. Groups come together again and group representatives describe
perceptions while members listen. The objective is to report accurately
to the other group each groups private images.
4. Groups return to their separate rooms to consider the information;
they note a gap between self-image and the other group's report.
The next session seeks to analyse causes for these differences in the
groups' reports. Each group talks about its behaviour to the other
group and the possible consequences of that behaviour regardless of
intentions.
5. Representatives of each group publicly share differences identified
and possible reasons for them, focusing on actual, observable
behaviour.
6. The two groups then try to identify reasons why they created wrong
impressions of each others behaviour
7. The groups then look at ways to manage future relations to minimise
conflict. After this process, understanding is improved and improved
working relationships result.
323
anxiety
defensiveness
joyexcitementfun pride in
fear
resentment
the change
Figure 11.9 Personal responses to change
Dysfunctional conflict
High conflict
Reduces stagnation
Reduced trust
Low conflict
-
Stagnation
-
Business as usual
323
323
Chapter 12
International
Management
2011
338
CHAPTER 12
INTERNATIONAL
MANAGEMENT
The Nature of International Management
International business is profit related activities between different countries. This
includes supplies from other countries, products or services sold to customers
abroad and money transfers from one country to another.
International management is the process of planning, organising, leading and
controlling in organisations which are involved in international business.
338
Environmental areas
Understanding the external environment helps us understand the nature of
international management.
338
Political/Legal Factors:
Businesses are very vulnerable to changes in the political
situation.
Governments are involved in setting the guidelines within which
business will operate and will pass laws and regulations that business
must adhere to. Government for regulation and control may target
certain industries. eg alcohol, and tobacco.
Currently, the desire to avoid aiding the enemy may result in laws
that make it more difficult for firms to export goods to other countries.
Governments may impose restrictions on trade for political
reasons. eg USA and Cuba have no official trade for political reasons.
Firms are vulnerable to changing laws and changing
interpretations by the courts.
Firms are significantly limited in what they can do by various laws
some laws, for example, require that disclosures be made to
consumers on the effective interest rates they pay on products bought
on instalment.
A particularly interesting group of laws relate to antitrust. These
laws basically exist to promote fair competition among firms.
Collusion: Firms may not conspire to fix prices (agree that they
will not sell below an agreed upon price) or reduce services.
Market share: Firms which have an unacceptably large market
share may be broken up by court order so that many smaller firms
will be around to compete. (This is what happened to AT&T, and at
times, Microsoft has been worried about this prospect).
Laws and regulatory bodies in Australia such as the Trade
Practices Act and the Australian Competition and Consumer
Commission (ACCC) are used to regulate business and protect
consumers so the business needs to be aware of relevant laws in their
own country as well as internationally.
338
Social/Cultural/Demographic Factors:
338
Technological factors:
Changes in technology may significantly influence the demand for
a product.
For example, the arrival of the fax machine was bad news for
Federal Express (mail delivery/courier company). The Internet is a
major threat to travel agents.
338
338
338
3. International division
338
4. Geographical regions
The world is split into regional divisions, with subsidiaries reporting to
an appropriate one by location. This helps regional information flow
within regions but hinders information exchange across them. As a
result it caters to regional and national differences.
5. Global matrix
In this structure, equal authority and responsibility are assigned at the
regional level and at the product or function. Middle level executives
338
6. Networked structure
This structure is where functions are contracted to independent firms,
coordinated through IT networks to operate as if in one company. This
structure is possible for those wanting to engage in international
business who need great flexibility and to be able to contract out all
functions but still maintain control.
338
Assignment policies
Managerial staff can be sourced from:
1. Local nationals
2. Parent company personnel
3. International personnel
4. Mixed sources
Recruitment
Competent people can be recruited for key overseas positions. Expatriates are
individuals who are not citizens of countries in which they are assigned to work.
Repatriation
This is the return to ones home country after a host country assignment. The
main reasons for return are:
1. The end of the agreed upon assignment period
2. Desire for children to be schooled in the home country
3. Unhappiness with the foreign assignment
4. Ineffectiveness in the foreign assignment
Adjustment problems during repatriation can be common. Authority and status
may be different and/or the original position may have changed or their technical
expertise is now obsolete.
338
338
Questionable payments
The most common ethical issue concerns questionable payments which can
include:
1. Political payments- supporting a party or a candidate
2. Bribes- money or gifts given to influence decision-making in your
favour
3. Extortion-payments made to protect a business from threatened
action
4. Sales commissions-questionable if paid to a government official or
political figure
5. Expediting payments-money given to a lower official to ensure
cooperation and speedy transactions.
Many payments may be considered legal and acceptable in many parts of the
world, but in general are viewed as unethical and/or illegal. Managers need to be
acutely aware of these issues when developing their strategies, goals and plans.
338
NOTES:
338