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Organisational Behaviour

Robert Dailey is Professor of Management at Drake University, Des Moines, Iowa. Before taking up his present position, Professor Dailey was Associate Professor of Organisational Behaviour on the Faculty of the Freeman School of Business, Tulane University. In both positions he has prepared and taught courses in management, organisational behaviour, organisational development, organisational theory, interpersonal behaviour, human resource management, business strategy and behavioural science research. These courses have been taught to undergraduate, MBA, PhD, executive MBA and Master of Science students. He has received the Howard Wissner Award three times for excellence in teaching at Tulane University. While at Drake, he has been on the teacher honour roll on several occasions. His publications have appeared in numerous journals. In addition, he is the author of Understanding People in Organizations, West Publishing Company, 1988. He has completed over 50 consulting projects in American corporations and hospitals. Recently he was named an honorary professor at Edinburgh Business School.

Release OB-A1.2

ISBN 0 273 60928 9

HERIOT-WATT UNIVERSITY

Organisational Behaviour
Professor Robert Dailey

Edinburgh Gate, Harlow, Essex CM20 2JE, United Kingdom Tel: +44 (0) 1279 623112 Fax: +44 (0) 1279 623223 Pearson Education website: A Pearson company www.pearsoned-ema.com

Release OB-A1.2 First published in Great Britain in 2003 c 1990, 1998, 2000, 2001, 2003 Robert Dailey The right of Professor Robert Dailey to be identied as Author of this Work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 0 273 60928 9 British Library Cataloguing in Publication Data A CIP catalogue record for this book can be obtained from the British Library. All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publishers. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publishers. Typesetting and SGML/XML source management by CAPDM Ltd. Printed and bound in Great Britain. (www.capdm.com)

The publishers policy is to use paper manufactured from sustainable forests.

Contents
Acknowledgements Introduction 7 9 1/1 1/2 1/10 1/12 1/20 1/28 2/1 2/2 2/3 2/4 2/11 2/13 2/16 2/19 3/1 3/2 3/4 3/11 3/20 4/1 4/2 4/10 4/14 4/19 4/25 4/29 5/1 5/2 5/9 5/13 6/1 6/2 6/6

Module 1

The Basics of Organisational Behaviour and its Relation to Management


1.1 1.2 1.3 1.4 1.5 Why Managers Need to Understand Organisational Behaviour and its Theories Values: The Building Blocks of Individual Differences The Study of Personality and Employees Personal Traits The Crucial Role of Job Satisfaction Developments in the Study of Employee Work Attitudes

Module 2

Stress and Well-Being at Work


2.1 2.2 2.3 2.4 2.5 2.6 2.7 Introduction to Stress and Well-Being at Work Understanding Job Stress and its Components A Model of Causes and Consequences of Stress Individual Approaches to Managing Stress Organisational Programmes of Wellness and Job Stress Management Downsizing: A New Form of Permanent Job Insecurity? A Semi-Last Word on Downsizing

Module 3

Contemporary Theories of Motivation


3.1 3.2 3.3 3.4 Introduction Content Theories of Motivation Process Theories of Motivation Cultural Differences in Motivation

Module 4

Organisational Control and Reward Systems


4.1 4.2 4.3 4.4 4.5 4.6 Why Organisations Need to Assess Employees Performance Goal-Setting and Management by Objectives (MBO) Rewards and Reward Systems Components of Executive Compensation A Comparison of Company Pay Practices Individual and Group-Based Reward Systems

Module 5

Job Design and Employee Reactions to Work


5.1 5.2 5.3 Understanding Job Design Making Use of Job Design for Individual Employees The Team Approach to Job Design

Module 6

Understanding Work Group Dynamics and Group-Based ProblemSolving


6.1 6.2 Describing Work Groups and their Characteristics Work Group Composition, Cohesiveness and Norms

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Contents

6.3 6.4 6.5 6.6 6.7

Signicant Aspects of Work Group Structure From Statics to Dynamics: Work Group Development and DecisionMaking Practical Guidelines for Managing Groups Decision-Making in Teams: Deciding on the Extent of Participation Work Groups in Competition and Conict

6/12 6/15 6/21 6/26 6/28 7/1 7/2 7/10 7/14 7/26 8/1 8/3 8/13 8/27 8/35 8/36 8/40 8/44 9/1 9/2 9/11 9/13 9/23 A1/1 A2/1 I/1

Module 7

The Inuence Processes in Organisations: Power, Politics, Leadership and Entrepreneurship


7.1 7.2 7.3 7.4 An Example of Power Uses and Abuses of Power: Playing Politics Leadership: A Conundrum of Theory The New Age of Entrepreneurs

Module 8

Organisational Design and New Forms of Service-Driven Organisations


8.1 8.2 8.3 8.4 8.5 8.6 8.7 Making Sense of Organisational Anatomy Organisational Structure: Understanding the Basics Understanding the Responsive Organisation Drivers of Growth in Customer Service How Good Service Retains Customers Organising Principles of Service Quality Creating a Service-Driven Organisation

Module 9

Managing Transitions: Organisational Culture and Change


9.1 9.2 9.3 9.4 Organisational Culture: Its Meaning and Relationship to Successful Strategy Organisational Life-Cycle Theory Organisational Change Methods of Change in Organisation Development

Appendix 1 Appendix 2 Index

Answers to Review Questions and Worked Solutions to Case Studies Practice Final Examinations and Worked Solutions

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Acknowledgements
I wish to thank Professor Keith Lumsden, the Director of the Edinburgh Business School (EBS), for creating the opportunity for me to be a part of the MBA course writing team. I have found the process to be challenging and rewarding and never-ending. Professor Alex Scott of EBS has also been a source of improvements in my writing. He has offered many suggestions to improve the text and the new CD-Rom. His suggestions are always valuable because he makes most of them with the student reader in mind. Finally, I wish to thank Professor Kenneth Boudreaux, Professor of Finance at the A. B. Freeman School of Business, Tulane University for encouraging me to send a proposal for the Organisational Behaviour (OB) distance learning course to Professor Lumsden. Since that time in 1987, only challenging and rewarding outcomes have come from my association with the ne academic and professional staffs at EBS, the Esm e Fairbairn Research Centre (TEFRC) and e Heriot-Watt. A special thanks must go to Sylvie Pelvilain-Smith, Media Administrator at EBS. She has been a thoroughly reliable and able manager of the complex process of creating a new edition of the OB text. Also, Charles Ritchie, programme editor, has been closely involved in the editing process of the second edition. Much of the success of the course can be attributed to his sharp-eyed editing job on the rst edition.

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Introduction
The competitive pressures on organisations continue to mount and skilful managements seek to strengthen their rms competitive advantages. The effectiveness of organisations technological resources and their strategic initiatives always depends on the quality and motivation of their work-forces. The consistent theme through all of the modules in this revised text is the creation and strengthening of organisational competitive advantage by strengthening the managers grasp of human forces that are constantly in play in organisations. As you read these modules, you will nd an excellent balance between theory and practice. The text introduces you to the theories that have created solid advances in the eld of organisational behaviour. The examples and cases throughout the course show the practical side of these theories in terms of how you can exploit them to enhance competitive advantage in your rms. In many places in the text, the examples and cases that are presented have been taken from the experience of companies that compete in the global marketplace. As you apply yourself to these materials, you will become quite accustomed to their smooth shifts from explanation to application. Our MBA students have told us repeatedly, we want an up-to-date, timely and absorbing text that actively involves us in the learning process. I believe this has been accomplished in the new organisational behaviour course. I know that your time is very valuable and that your self-guided study of this course is very important to you. Further, you probably believe that this course and the HeriotWatt MBA Programme can greatly enhance your own competitive advantage in your career, your job and your organisation. Why else would you allocate your scarce time resources to such a demanding educational endeavour? These considerations cause you to make serious judgements about how you allocate your intellectual, nancial and temporal resources. You have made an excellent decision to pursue the Heriot-Watt Distance Learning MBA. As you begin your study of organisational behaviour, Ill try to make your journey interesting and challenging.

New Topics and Themes


The text has a consistent global competitiveness theme that is carried through the modules. This theme is introduced in Module 1 by showing you the effects of cultural differences on organisational operations and decisions. A second theme is how ethics and personal values in concert with competitive forces shape managements decisions that inuence employees, the work-force and the organisation. Examples of this dynamic are seen in the world-wide trends of downsizing, re-engineering, employee empowerment and use of self-managed teams in organisations. The third theme in the course is the competitive necessity of applying the principle of continuous improvement throughout the organisation. For about 10 of the last 15 years, this principle has meant total quality management to most managers. In the second edition of the organisational behaviour course, this theme is carried through to its most recent permutations:
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Introduction

shortened work cycle times, improved total customer service and new organisational designs that are not based just on the pursuit of manufacturing efciency and low unit costs. The cases and their study questions are revised to reect the new themes described above. Likewise, the practice exams at the end of each module now have multiple choice questions which match the new material in each module. The summary points at the end of each module are also completely revised and updated to capture new organisational behaviour knowledge and management practices.

Timely New Topics


Module 1 presents new material on the managers job in the twenty-rst century, work-force diversity, and the nature of values, beliefs and ethics. The concept of whistle-blowing is presented in a case and you are challenged by questions about organisational ethics in the case. A new Module 2 has been written on job stress and how employees and organisations can attempt to handle it. In Module 3 equity theory and social comparison are covered in greater depth; distributive and procedural justice and employees perceptions of the fairness of managements decisions are explored. Module 4 adds new material on company pay plans and the processes behind executive compensation in the 1990s with global comparisons. Self-managed teams and employee empowerment are extremely important subjects in organisational behaviour and they are thoroughly addressed throughout the course and in Module 5. Here you will learn about re-engineering and lean production methods from the standpoint of employment management practices. Cross-cultural work teams are also discussed in Module 5. New materials in Module 6 include the nature of social loang, and the design of reward systems to increase work team productivity. In Module 6 the VroomYettonJago Normative Model of decision-making is presented along with its relationships to group decision-making and employee participation. Module 7 probes the differences between entrepreneurial and administrative behaviour. It suggests to you how you should try to manage your boss (upward management). It also develops fully the signicance of leaders rewarding and punishing behaviours and the effects that each has on work groups and organisations. This new edition places organisational design and strategic issues connected to organisational structure in Module 8. It gives new treatment to interorganisational designs and some of their global forms. The nature of strategic alliances is discussed and the module concludes with an analysis of new, boundaryless organisations. Module 9 now covers organisational culture and the nature of planned change; it stresses high-performance organisational culture and the life-cycle theory of organisations.

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Module 1

The Basics of Organisational Behaviour and its Relation to Management


Contents
1.1 1.1.1 1.1.2 1.1.3 1.1.4 1.2 1.2.1 1.3 1.3.1 1.3.2 1.3.3 1.3.4 1.3.5 1.3.6 1.3.7 1.4 1.4.1 1.4.2 1.4.3 1.4.4 1.5 1.5.1 1.5.2 Why Managers Need to Understand Organisational Behaviour and its Theories Distinguishing between Organisational Behaviour and Management New Perspectives on the Managers Job Making Sense of Human Behaviour in Organisations Dening Employee Needs and Organisational Productivity Values: The Building Blocks of Individual Differences Implications of Values in Global Organisations The Study of Personality and Employees Personal Traits What Is the Difference between Kendrick and Deiter? How Is Locus of Control Related to Work Behaviour? Extroversion and Introversion How Can Organisations Use Information about Introversion and Extroversion? The Machiavellian Personality Can High Machs Have a Negative Inuence on the Organisation? Socially Acquired Needs The Crucial Role of Job Satisfaction The Meaning of Job Satisfaction Determinants and Consequences of Job Satisfaction Job Satisfaction and Performance How Organisations Can Measure Job Satisfaction Developments in the Study of Employee Work Attitudes Organisational Commitment and its Consequences for Employees and the Organisation Job Involvement and its Consequences 1/2 1/3 1/5 1/8 1/9 1/10 1/11 1/12 1/13 1/13 1/15 1/16 1/16 1/16 1/17 1/20 1/20 1/21 1/25 1/26 1/28 1/28 1/30 1/31 1/32 1/36 1/38

Summary Points Review Questions Case Study 1.1: Measuring Job Involvement in the Work Setting Case Study 1.2: General Electric Has a Whistle-blower

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Learning Objectives
By the end of this module, you will be able to: Distinguish organisational behaviour and management as different yet related disciplines. Dene organisational behaviour. Develop the characteristics of the managers job in the twenty-rst century. Describe issues related to organisational productivity and employee needs. Characterise the meaning of values and their relationship to personality. Describe the differences between terminal values and instrumental values. Explain the signicance of various psychological traits of employees that systematically inuence their behaviour on the job. Explain the meaning of introversion and extroversion. Explain the nature of job satisfaction. Recognise the determinants and consequences of job satisfaction. Explain the role of intervening factors which inuence the relationship between job satisfaction and performance. Choose an appropriate method for measuring job satisfaction in the work setting. Describe the importance of organisational commitment and job involvement. Note the effects of economic insecurity on organisational commitment and job involvement. Relate the concept of personal values to whistle-blowing behaviour at work.

1.1

Why Managers Need to Understand Organisational Behaviour and its Theories


As you begin your study of organisational behaviour (OB), you will be struck by the fact that you can apply immediately what you are learning to the problems you confront at work. Not only will you be gaining a broad view of this highly applied discipline, but you will also nd ways to alter your management philosophy to accommodate your new-found OB knowledge and to apply it to your work. As your knowledge of, and comfort with this subject grow, you will become increasingly skilful in understanding the behavioural implications of organisational problems. In this course you will become acquainted with the latest developments in the eld and you will have an opportunity to see how well-known, global companies deal with the challenges of managing their diverse work-forces in highly competitive markets around the world. Our aim throughout this course is to help you see how the eld of organisational behaviour contributes knowledge of how organisations behave. In turn, this knowledge can be turned into competitive advantages that can help rms realise higher returns through the best use of their human capital. Let us begin by developing a denition of the eld of organisational behaviour. Organisational behaviour is the study of the behaviour and attitudes of people in organisations. Its focus is on human behaviour and attitudes which contribute

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to the effectiveness of any organisation. The eld has three units of analysis: the individual, the group and the organisation. A micro approach to the eld emphasises the rst two units of analysis and it stresses topics such as personality and individual differences, employee attitudes and behaviour motivation, group formation and group decision-making. The macro or big-picture approach addresses the organisation as the primary unit of analysis. Here the topics of organisational structure, design, culture, climate and change are addressed. Both the micro and macro perspectives have their roots in the behavioural and social sciences of psychology, sociology, economics, political science, anthropology and social psychology. The eld of OB makes extensive use of theories to explain the behaviour of organisational participants. Throughout this module and all the others in the organisational behaviour course there will be extensive explanation of behavioural theories that will be grounded in managerial examples and organisational cases. 1.1.1

Distinguishing between Organisational Behaviour and Management

What is the Relationship of Management to Organisational Behaviour?


The traditional eld of management is dened as the process of planning, organising, leading, and controlling the human, material and nancial resources of an organisation. Management is best viewed as a process which is employed by individuals(managers) who are responsible for achieving organisational objectives through people. Managers are individuals who achieve results by supervising and motivating people in work organisations. Newer denitions of management have de-emphasised the activities approach suggested above. These more recent views of management focus more on the roles of coaching, integrating, advocating, tracking forms of unit performance and allocating resources among more autonomous employees or among their self-directed teams. They will be discussed in the next section. A signicant relationship exists between management and organisational behaviour. Organisational behaviour is an applied discipline which attempts to explain behaviour in organisations in terms of valid theories. Many of these theories address problems which managers face on a regular basis, for example motivation of subordinates, managing effective performance, delivering superior customer service, coaching and integrating the work of self-managed teams and creating reward systems that recognise individual achievement in an environment of employee empowerment which uses self-directed teams. Managers are held accountable for achieving goals in these areas. As a consequence, they often look for theories which help them interpret organisational events and processes in behavioural terms. The eld of organisational behaviour contributes knowledge in critical areas important to any manager. So, part of the answer to the question above is that organisational behaviour is concerned with describing organisational phenomena while management is a professional discipline which stresses applied skills. One of the most basic skills needed by managers is problem-solving.
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What Role Does Management Play in Organisational Problem-Solving?


Supervisors and managers are responsible for the work of the organisation. They do not directly produce specic goods and services. Instead, they supervise the work of subordinates who do produce products and services. A managers job has three basic components. They are: 1 A technical component concerned with the efcient use of resources to achieve output goals, and the application of technology to achieve productivity goals. A conceptual component concerned with the development of new systems and methods of operation. An example would be improving a pricing system to provide salesmen with more up-to-date pricing information. A human component concerned with employee welfare. Examples in this area include setting a programme to assist troubled employees, and designing an employee health programme to reduce insurance costs.

The amount of time managers spend in these activities is a function of their level in the organisational hierarchy. Generally speaking, technical work occupies most of the time of rst-line supervisors. They spend far less time at conceptual and human work. In the middle management level, conceptual work-load and human work-load increase while technical work-loads diminish. Top managers spend the bulk of their time engaged in conceptual and human work.

Management and Technical Problem-Solving


Virtually all organisations want managers and employees to be technical problemsolvers in the areas of product and service quality improvement. Managers are promoted almost always on their ability to resolve complex technical issues, e.g., new process and product development, the creation of better distribution systems, more accurate pricing systems and enhanced service delivery systems. Organisations often promote on the basis of technical work expertise alone. Managers emphasise the acquisition of technical skills in their careers because they know that organisations will reward them for these abilities. This can create a temptation to focus on those situations which demand technical work skills. Success in entry-level managerial positions is almost exclusively dened in technical terms. If managers demonstrate conceptual skills as well, their promotion prospects are greatly enhanced. The missing ingredient in the skill mix for many managers is skill in the human component of managerial work. The problems caused by poor people skills are becoming increasingly evident to managers. It is no longer sufcient to be skilful only in conceptual and technical work. Increasingly, organisations expect their managers to demonstrate well-developed skills in the management of human resources. This practical need creates a wide bridge between the elds of organisational behaviour and management.

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1.1.2

New Perspectives on the Managers Job


As we have noted, the key concept in the managers job is getting things done through people. In organisations of the twenty-rst century, the managers job will evolve from an authority-derived issuer and interpreter of rules and orders to creating an entrepreneurial work climate that facilitates teamwork and employee empowerment. When studying what managers do, Professor Henry Mintzberg found that the managers day is broken up into a fragmented collection of brief episodes.1 , 2 These episodes hardly allow for long periods of uninterrupted contemplation of the tasks of planning, organising, leading and controlling the human, material and nancial resources of the company. In his research, he found that only ve per cent of a managers time was spent on tasks lasting more than one hour. Just what are the fragmented tasks and activities performed by managers on a daily basis? In large surveys of thousands of managers and executives, respondents were asked to rank the relative importance of 57 different managerial and executive duties. Analysis of the results suggests seven basic features to the managers job: 1 2 3 4 5 6 7 Managing individual performance (supervising). Instructing subordinates (teaching and training). Representing ones staff (representation and advocacy). Managing group performance (facilitation). Planning and allocating resources (decision-making). Co-ordinating interdependent groups (collaboration). Monitoring the business environment (scanning).3

These seven managerial tasks are common to all management levels in companies. The perceived importance of each task and the amount of time spent by managers on the tasks at different organisational levels vary substantially. Researchers found that tasks 1 and 2 are more relevant to lower-level supervisors, tasks 3, 4 and 5 capture the time of middle managers and tasks 6 and 7 monopolise the time of senior executives. Said another way, managers and executives perform the same tasks but with different emphasis as the level of organisational hierarchy shifts. The workplace of tomorrow will be transformed to achieve greater speed, efciency, responsiveness and exibility. Organisational control structures emphasising command and control are giving way to those which stress participative decision systems and employee empowerment.4 Managers who are only comfortable with exercising authority and command are being retrained or replaced by those who emphasise collaboration with subordinates and team-based work systems. Table 1.1 shows the differences between managers of the past and their replacements of the future. The shifts shown in the table are on-going and evident in large and small companies engaged in domestic and global competition.

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Table 1.1
Principle duties

Managers challenges in the twenty-rst century


Past challenges Give orders to subordinates and control their behaviour Reduce these costs by hiring workers with requisite skills Future challenges Encourage the development of subordinates and their work teams Training and employee development are continuous to achieve the goal of a exible and cross-trained work force Merit-based individual and team contributions to competitive advantage Technical, interpersonal and organisational expertise Diffusion-based so that information goes rapidly to where the decision has to be made Team-based and participative Embrace change and nd ways to improve strategic, competitive processes

Training and development

Reward bases

Seniority, rank and effort

Inuence base Communication patterns and styles

Hierarchical position From top to the bottom in highly formal terms Superior/boss centred and authoritarian Resist change and cling to the status quo

Decision-taking style Approach to organisational change

The speed of change in the managers job (as shown in Table 1.1) will increase because: 1 The work-force is changing. Companies must deal increasingly with matters of work-force diversity, work-force skills and training and work-force values and beliefs. Less restrictive labour regulations and immigration policies will create work-forces with employees of different ethnic and racial backgrounds. These diverse work-forces will have employees who differ by age, gender, life-style preference and personal and religious values. Their formal educations may not have adequately prepared them for the demands of new technologies and jobs with rapidly changing skill requirements. The successful managers in the twenty-rst century understand diversity and know how to optimise the t between employees with diverse needs and expectations and their jobs and work groups. Customer expectations are changing. Now and in the future customers will only support companies which deliver high-quality goods and services at the best price. The age of total quality management is here and companies that do not adhere to its principles will disappear. The successful twentyrst century manager understands the new discipline created by continuous improvement (TQM) and he develops in his subordinates the commitment to seek continuous improvement in products and customer services. The competent TQM-focused manager realises that the fundamental principle of TQM is a relentless search for ways to increase the organisations ability to add value to products and services from the customers point of view. Organisations are changing. Eroding trade barriers and instantaneous capital ows greatly increase competition and these forces prod companies to
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search for new sources of competitive advantage. Thus, they downsize, reengineer, form strategic alliances, alter their organisational structures, try to compete globally, vertically integrate backward and forward and embrace new technologies and information systems. They press their work-forces for performance and productivity gains and they expect all employees to be empowered and to nd creative solutions to vexing organisational problems. These complex forces tear away the traditional denition of the managers job and they create new demands on managers to be creative, resourceful, inspiring, facilitative and collaborative.

Why Do Managers Care about Organisational Behaviour?


When managers are interviewed about the problems they face, they invariably turn to annoying issues in human work. The quotes which follow are fairly typical.
A manager of special events: My employees wont give that extra ve per cent when a crisis occurs on the convention oor. A sales manager: My sales staff is constantly making errors in quoting prices and delivering service. How can I get them to be more customer focused? A union ofcial: We no longer have a membership who are committed to union values. They carry their cards, and thats all. A marketing manager: My employees refuse to work with the fellows from production. They believe production managers are only interested in production quotas and inventory. Their lack of a customer orientation is causing us severe problems in our product warranties.

The problems noted above are aptly referred to as people problems. They represent opportunities for managers to apply knowledge of organisational behaviour in their jobs. The solution to such problems is management responsibility and it is the focus of on-going research in organisational behaviour. Managers make important decisions which inuence organisations and their employees on a regular basis. Making high-quality decisions depends on a working knowledge of organisational behaviour theories for the following reasons: 1 Behavioural theories help solve problems in the work setting. As a manager, you should use objective methods to attack problems related to the needs of employees and the interests of the organisation; these often conict. Knowledge of behavioural theories helps you understand new developments in the eld of organisational behaviour. You must be an educated consumer of new developments which might improve or rene your managerial abilities. An understanding of behavioural theories helps you to evaluate effectively the proposed solutions to behavioural problems in organisations. Just as you need knowledge of production and control systems, you need also a knowledge of behavioural theories to evaluate information related to how employees and organisations act.

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1.1.3

Making Sense of Human Behaviour in Organisations


Kurt Lewin has postulated that human behaviour is a function of the person and the environment: B = f (P, E). The SOBC model amplies this simple idea and provides us with a mechanism for systematically considering human behaviour in organisations. SOBC is an acronym where S represents the stimulus situation which includes such things as light, sounds, job demands, supervisors, coworkers characteristics and equipment. O (organism) refers to the characteristics of the person including personality, needs, attitudes, values and intentions. B refers to the persons behavioural responses or actions in the situation under consideration. Finally, C represents the consequences or outcomes associated with the behavioural responses. The action sequence is illustrated in Figure 1.1.
S Stimulus situation O Organism B Behaviour and actions C Consequences or outcomes

S: All sensations from the environment which trigger human perception. In organisational behaviour these include all features of the work environment which activate employee behaviour. . O: The finite capacities of the individual which are governed by heredity, maturity and biological needs. These capacities also include knowledge, skills, attitudes, intentions, sentiments and values. B: Overt behaviours and actions such as performance or emotional responses and conceptual activities which are apparent only to the individual. C: The outcomes of behaviour and performance such as recognition and need satisfaction. The outcomes represent the activity triggered in the environment by the behaviours under study

Figure 1.1

The SOBC sequence

The SOBC model is a micro model in that it species a sequence for understanding the behaviour of individuals. It does suggest that differences in performance are a function of numerous factors. Managers are concerned with an employees performance (behaviour). They try to inuence performance through direction and guidance. Frequently managers ask an employee to attempt a trial run before the actual task is attempted. Additionally, after a task is completed, the manager will review the employees performance to provide constructive feedback. The act of reviewing performance is the C in the SOBC model. For every employee action there are reactions at the managerial and environmental levels. To understand the interplay between managers and their organisations and employees, it is necessary to characterise the difference between employee needs and organisational productivity.

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1.1.4

Dening Employee Needs and Organisational Productivity


As the organisations we live and work in become more complex, we need new knowledge about how they evolve and change. This knowledge can help us understand the conditions which create organisational survival, growth and decline. The two most pressing issues governing organisational success or failure are the needs of organisational members and organisational productivity. Some examples of employee needs of organisational participants are job satisfaction, adequate pay and fringe benets and safe working conditions. Organisational productivity refers to the production or output of goods and services with the least expenditure of resources. To become a well-rounded manager, you must develop an objective understanding of how the organisations work-force can be a source of sustainable competitive advantage. Your management philosophy would be incomplete without values which reect how work can be made more meaningful and challenging. To achieve this understanding, you must understand the pivotal role of work in your life and the lives of your colleagues and subordinates Achieving and sustaining a competitive advantage based on the quality of a companys work-force requires managers to appreciate and respect employees. In our study of organisational behaviour, we shall examine many themes that bear on the nature of competitive advantage obtained through employment practices and organisational processes. At the centre of all of these practices and processes is the undiminishing importance of respect for employees. The eld of organisational behaviour focuses heavily on the connection between employee behaviour, attitudes and the productivity of the organisation. Consider the following example:
Ren is a recently naturalised French citizen. He emigrated to France nine years e ago. For four years, he has worked for a distribution rm while he has attended the technical institute at night. He will graduate in May with a degree in technical studies. His superior has only praise for Ren s work. Indeed, Ren s business e e abilities are often singled out because he has found ways to save his employer money through more efcient work methods. His most recent innovation is a dispatching system which uses the drivers knowledge of routes to save delivery time. The drivers are excited about the new plan because it allows them to be home on weekends on a more regular basis. The centres manager is particularly pleased because the plan saves money due to lower overtime pay, fuel and maintenance costs. The manager hopes to keep Ren after he graduates, and there is a good e chance that he will be offered a promotion.

The example demonstrates the rms joint concern for employee needs (more satised drivers who may be motivated to do a better job of deliveries) and organisational productivity (improved dispatching system). Organisational behaviour stresses productivity gains from the standpoint of employment practices and organisational processes. Within an organisation, productivity can be increased in two ways. First a rm can acquire new technology and equipment to produce goods and services more efciently (this, of course, is the reasoning behind the world-wide trend towards the roboticising of manufacturing). This approach increases the capital intensity of the rm and the trade-off may be fewer jobs and short-term downsizing. The more capital-intensive production
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methods may diminish attention to employee needs, since the productivity gains are attributed to the new equipment and technology. The alternative route to productivity enhancement emphasises the connection between satisfaction of employees needs and productivity. Here, the organisation makes investments in future earnings by emphasising sustainable competitive advantage by investments in training and development, leaner production systems that favour the use of self-directed teams and organisational designs that improve sales opportunities by enhanced service offerings that are delivered by a highly motivated work-force. It is important to note that competitive advantage that is derived from an energised and well-trained work-force is much harder to duplicate than simply investing in capital improvements. Nonetheless, forward-thinking managements typically do both. You will learn about organisational behaviour tools throughout this course. You will also learn how to create and analyse programmes like the one conceived by Ren . Your analyses will show how knowledge of organisational behaviour e can be used to address employee needs and organisational productivity at the same time.

1.2

Values: The Building Blocks of Individual Differences


Values are found in people at a deeper psychological level than work attitudes such as job satisfaction, job involvement and organisational commitment because they are more general and basic in nature. In our lives and work we use values as cognitive measuring devices to evaluate and judge our own behaviour and the behaviour of others. According to Rokeach, values are enduring beliefs that a specic mode of conduct or end state of existence is personally or socially preferable to an opposite or converse mode of conduct or end state of existence.5 In sum, values give us a sense of good or bad, right or wrong. As we grow up and experience the inuence of family, social institutions and culture, we nd that our values develop into a coherent sense of self known as our self-concept. Through adolescence we nd ourselves in new situations which shape and form our values and, with time they stabilize into a dependable and resilient value system. Because it is not easily changed and it is the only one that we have, we use our self-concept to judge the appropriateness of our behaviour and the behaviour of others. And we use it to judge the meaningfulness of our goals in life and the goals of the people around us. Because values and value systems relate to concepts of right and wrong, businesses have taken an interest in this subject because it ties directly to the growing emphasis on ethics in business practices. In other words, values form the basis for ethical business behaviour. It is not uncommon now to nd companies which carefully screen potential employees for the compatibility of their values and company business practices. Further, some companies offer their employees two-month sabbaticals to pursue personal growth in areas which are connected to company practices and work-force values. Rokeach distinguishes between instrumental and terminal values. Instrumental values are the means to achieve goals by using acceptable behaviours to achieve an end state. Terminal values are the goals to be achieved or the appropriateness of desired end states. Examples of instrumental and terminal values

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are shown in Table 1.2. Clearly the two values work in harmony to determine the goals to strive for using the means that are most acceptable to the individual and to society. More diverse work-forces challenge organisations because such diversity is always based on cultural differences in values. For instance, the instrumental value of loyalty is more important to Japanese workers than either family loyalty or political loyalty. In the USA, family and loyalty to friends far outweigh in importance either loyalty to employers or loyalty to supervisors.6
Table 1.2 Terminal and instrumental values
Terminal values Achievement Social status Wisdom Beauty in art and nature Ambition Family safety Equality Friendship Equity Instrumental values Competence Cleanliness Courage Cheerfulness Independence Forgiving nature Imagination Intelligence Self-control Obedience Politeness Responsibility Freedom Pleasure Happiness Inner calm National security World peace Prosperity

Values often shape the individuals views of authority and its rights and obligations. French managers view authority as a right of ofce or rank. Thus, they often use power based on their position in the organisation. In contrast, managers in The Netherlands and Scandinavia value group discussion of decisions and they expect their decisions to be challenged by their subordinates. American managers view organisational rank or authority as being less valuable and important than the ability to solve problems through the application of expertise.7 1.2.1

Implications of Values in Global Organisations


Conducting business in global markets often creates situations which directly challenge the values of managers. In the USA the solicitation of gifts in exchange for favourable business decisions is highly discouraged. In Asia and Mexico business traditions encourage the exchange of gifts in business transactions. What many American managers may consider to be payoffs and kickbacks may simply be rened and accepted ways of doing business in other countries. In companies with global business aspirations it is not unusual to nd managers who are going overseas for assignments to be trained in culture-based value differences. These managerial seminars frequently emphasise the following principles: 1 2 Be open minded and view other peoples values as moral, traditional and practical. Do not prejudge the business customs of others as immoral or corrupt. Assume that they are legitimate until proven otherwise.
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3 4

5 6

Search for legitimate ways to operate within others ethical points of view; do not demand that they t into your value system. Avoid rationalising questionable actions with excuses such as: This isnt really illegal or immoral. This is in the companys best interests. No one can nd out about this. My company will back me up on this. Refuse to do business when stakeholder actions violate the law or basic organisational values. Conduct business as openly and honestly as possible.8

1.3

The Study of Personality and Employees Personal Traits


Personality, which makes individuals unique, is a complex, multidimensional concept. It is dened as a relatively permanent set of psychological characteristics that inuence the individuals behaviour. Our discussion will now turn to several individual differences which demonstrate dependable relationships with features of employee needs and organisational productivity. Individual differences are dened as basic aspects of personality from which we can predict (or explain) what people do at work. For instance, a shy and retiring employee is likely to have a certain effect on his co-workers and superiors. The employees behaviour will create certain attitudes in his superiors and colleagues. In turn, these attitudes may initiate behaviours which inuence and ultimately diminish organisational productivity. We shall focus on locus of control, extroversion and introversion, Machiavellianism and socially acquired needs in our discussion of individual differences. Locus of control is a well-researched concept. Let us consider an example before we dene the concept.
Kendrick has worked hard to improve his job skills through personal study. He hopes to use his knowledge of computer programming to solve several data management problems in his department which processes cargo manifests for a major European shipping rm. The company generally encourages personal development in job-related areas and it has a history of promoting employees who demonstrate this form of personal enterprise. Kendrick believes he can obtain a promotion if his performance improves through the solution of the programming problem. Deiter works in Kendricks ofce and is extremely skilled in the tasks associated with processing ship manifests. He has not pursued outside personal development opportunities. He can often be overheard saying that it doesnt matter how hard you work, management promotes those who happen to be in the right place at the right time. As a result of this personal philosophy, Deiter sees his job in narrow terms and takes a dim view of doing all that extra work for a promotion that will never come.

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1.3.1

What Is the Difference between Kendrick and Deiter?


Psychologists would say that Kendrick has an internal locus of control while Deiter has an external locus of control. Locus of control is dened as an individuals belief that ones actions inuence the outcomes one experiences in life.9 Notice that positive or negative outcomes are not specied in the denition. Locus of control has to do with perceptions of cause and effect relationships. It is neutral relative to type of outcome. It simply refers to the strength of ones belief that personal action will or will not result in certain outcomes, be they positive or negative. Try the exercise in Table 1.3 to see how psychologists measure the locus of control concept.
Table 1.3
Instructions: Please circle the statement for each item that is closer to your opinion. 1 2 a b a b 3 a b 4 5 6 a b a b a b No matter how hard someone tries in school, they can still get poor grades. Doing well in school is a matter of studying hard. Receiving a pay rise is a matter of hard work; being in the right place has nothing to do with it. Pay rises are a matter of getting noticed by your superior. There are some things that people should not attempt to change because they will fail in the attempt. If a person is committed enough, he can create political change single-handedly. Getting ahead in todays business world is a matter of persistence and hard work. Whoever gets ahead in todays business world must have connections. When I believe Im right about something, I feel as if I can convince anyone. It is extremely difcult to change peoples attitudes by talking to them. Managers often play favourites and give some subordinates larger rises. Employees generally earn the rises they get.

Scoring: Give yourself one point if you answered the six questions in the following manner: 1 a, 2 b, 3 a, 4 b, 5 b, 6 a. The closer your score is to six the more external your locus of control. Scores less than three indicate an internal locus of control. Scores of three or four indicate that you are not always consistent about your beliefs about the relationship between your behaviour and the outcomes you experience.

Table 1.4 shows some of the typical beliefs held by internalisers and externalisers (sometimes referred to as internals and externals). The locus of control concept is such an important component of personality that if an individual begins to doubt his beliefs about cause and effect relations in life, he can experience a variety of consequences associated with lowered self-esteem, e.g., depression, anxiety, guilt, helplessness. 1.3.2

How Is Locus of Control Related to Work Behaviour?


Generally internalisers are more attracted to work situations which have opportunities for personal achievement. They are more motivated and better performers than externalisers if they believe that performance is skill-based instead of luck-based.10 Internalisers search more for relevant information before deciding on a course of action. Like Kendrick in the example, they will search for new

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Table 1.4

Characteristics of internalisers and externalisers


Externals tend to believe that Pay rises are based on having the right job in the right place in the company. Teachers have favourites and give them higher marks. Anyone, given the right circumstances, can become addicted to drugs. Peoples attitudes cannot be changed easily by appealing to their logic.

Internals tend to believe that Pay rises are based on hard work, achievement and initiative. An excellent performance record is the function of hard work and effective project completion. A person addicted to drugs is willing to give up control of his life. Good decisions are the result of tenaciously searching for information.

knowledge which they believe will lead to outcomes they value. They also take quicker action to correct job confusion than externalisers do. Locus of control affects how anxious and emotional employees become following traumatic events.11 Externalisers are more likely to experience adverse emotional reactions to co-workers, especially supervisors, who put a lot of performance-oriented pressure on them. Internalisers are more trusting and they dismiss job failure more readily. In addition, they prefer leaders who let them participate, and they are sensitive to organisational attempts to inuence their thinking and behaviour.

Managerial Implications of the Research


The results noted above indicate that internalisers will work harder when they are told that rewards are based on superior skill and high performance. This managerial message encourages the development of an internal locus of control in all employees, including externally orientated employees who, when they observe their co-workers being rewarded for acquiring new skills and achieving higher performance, may become similarly motivated. All programmes aimed at these effects should be widely communicated throughout the rm. In addition, the value of skill-based compensation can be quite important for developing employees with an internal locus in their work. Skill-based compensation (payfor-knowledge) means that a portion of an employees pay rise is allocated for the documented acquisition of new job-related skills. Such programmes can build a more internalising work-force consisting of employees who perceive a coherent relationship between performance on the job and the rewards they receive. The research results also underscore the importance of participation for sustaining employee development, e.g., creating a larger pool of potential managers inside the organisation. Managers should be careful to use participation, especially when the development of employee skills is a key feature of a managerial decision. Since we know that internalisers prefer to play a part in decisions which affect them, it makes sense for managers to use participation in decision-making when the decision needs employee support for implementation and affects employees in a personal manner. Additionally, participation sweeps away employee confusion about work responsibilities. Since internalisers expect strong cause and effect relationships regarding their behaviour and its outcomes, managers can use participation to strengthen those expectations.
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Locus of control appears to be related to entrepreneurial behaviour and the taking of business risks.12 , 13 Researchers have produced evidence to suggest that internalisers are more comfortable with change than externalisers and are therefore more likely to launch a new business venture if they are dissatised with their current situation. Behaviourally, internalisers are more likely to act quickly when they judge their current work to be limiting their options or suppressing their creativity, especially in the acquisition of new skills which may lead to better performance and more personally valued rewards. Managerially speaking, if internals are prevented from acquiring new skills, or if they are not rewarded for acquiring new skills, they become frustrated. If the conditions persist, they may leave the organisation. This, of course, leaves fewer competent people to do more work. In turn, other competent employees are affected by these deteriorating circumstances and they too may leave. The argument developed above demonstrates the signicance that internals attach to rewards which are based on performance. If they believe that good performance is rewarded fairly, they will believe that their efforts are more likely to result in job success. A rms pay system should be designed to reinforce this employee belief. If the pay system is so structured, employees will become more internal in their work orientation. This is a highly desirable outcome in the rm, because managers are then relieved of some of the burden of direct employee control. 1.3.3

Extroversion and Introversion


We often notice that some people are more sociable than others. Those individuals who are outgoing and gregarious are called extroverts. Introverts, on the other hand, are shyer and less willing to get involved in social activities.14 Extroversion is dened as the need to obtain as much social stimulation as possible from the environment. Those who crave social stimulation would probably have active social lives, enjoy crowds and be more attracted to adventurous and exciting holidays.14 Extroversion also implies a sustained, high level of social stimulation. Thus, the manager who is involved actively in community work and social organisations, ts our denition of extrovert. Introversion is dened as avoidance of external stimulation in favour of internally oriented, contemplative activity. Introverts are individuals who attempt to reduce the amount of social interaction in their environments. Thus, they avoid many of the social activities which extroverts nd so compelling. In summary, introverts tend to be more sensitive to their personal feelings and what is going on inside. All individuals exist on an introversionextroversion continuum. People experience both types of needs at different times, with varying intensity, depending on the situations they confront. In general, we all, whether introvert or extrovert, try to regulate the amount of social stimulation we receive.14 Table 1.5 shows some sample items which psychologists use to measure introversion and extroversion. Note the emphasis on external stimulation and social interaction.

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1.3.4

How Can Organisations Use Information about Introversion and Extroversion?


Some companies attempt to identify a job applicants extroversion level before hiring. Companies hiring salespeople often use tests with items similar to those in Table 1.5 to assess extroversion. Many sales managers believe it is related to success in sales. The implications of an employees extroversion or introversion are not as clear as are the consequences of internal versus external locus of control. There are, however, some interesting research results. Introverts generally have longer tenure and fewer unexcused absences than do extroverts.15 They also perform better in situations with few external distractions. Too much external stimulation often causes the introverts performance to drop off quickly. When extroverts are confronted with dull or meaningless work, they are more likely to engage in irrelevant behaviour which undermines the productivity of co-workers. Managers should consider these effects as they match individuals with job characteristics.
Table 1.5
1 2 3 4 5 6

Items for measuring introversion and extroversion

Id rather curl up with a good book than go to a party. T or F? I prefer to be around people who are funny and clever. T or F? If I had a choice, I would take a cross-country bicycle trip for my vacation rather than a Mediterranean cruise. T or F? When I have to deal with a new situation involving other people, I usually jump right in. T or F? I greatly admire individuals who take bold public stands on socially controversial issues. T or F? When Im in unfamiliar social situations, I generally feel self-condent and interested in meeting new people. T or F?

1.3.5

The Machiavellian Personality


The end justies the means is an old expression which translates to, Ill do anything at work to achieve my objectives. Employees with this tendency will manipulate others and try to induce them to think in their terms. An employee who believes he is better at giving orders than his superior probably has a Machiavellian personality. High Machs are described as being cool interpersonally, amoral, pleased by manipulating others, and highly rational.16 The Mach-V Scale is a paper and pencil test which identies Machiavellian tendencies. If you are interested in assessing yourself try the questions in Table 1.6.

1.3.6

Can High Machs Have a Negative Inuence on the Organisation?


When individuals get high scores on the full version of the questionnaire in Table 1.6, some interesting conclusions can be drawn. People with high MachV scores generally 1) attempt more interpersonal manipulations, 2) are more inventive in manipulating others, 3) conceive of more manipulations to choose from and 4) experience more satisfaction from successful manipulations than

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Table 1.6

How Machiavellian are you?

Instructions: Circle the answer closest to your opinion for each question then calculate you score as shown below. Strongly disagree 1 I enjoy getting around people by telling them what they want to hear I prefer to take action only when I have sorted out the ethically right decision There are no situations that I encounter in which lying is the best course of action I believe that most people have a deceitful streak that comes out from time to time. 1 Disagree 2 Agree 3 Strongly agree 4

Calculate yourMachiavellian score as follows: Item 1

+ (5 Item 2) + (5 Item 3) + Item 4

do people with low Mach-V scores.16 Further, if they judge the situation to be ambiguous with few rules to govern their behaviour, then they will be very aggressive in asserting their high Mach tendencies. However, if the situation is highly structured with many checks and balances on behaviour, then the high Mach will generally avoid manipulating others. Generally speaking, more Machiavellian manipulations are attempted at the top than at the bottom of organisations. Some psychologists argue that the Watergate break-in and ensuing cover-up by Nixon administration ofcials is a good example of the theory described above. Nixon and his administrators felt few rules governed their behaviour, especially when it came to their interests in concealing their guilt behind the guise of executive privilege and protecting the presidency as a source of executive power. They contemplated and enacted activities which were clearly illegal. 1.3.7

Socially Acquired Needs


Experts in organisational behaviour have long recognised that environment plays a substantial role in the development of personality. This idea is very prominent in the concept of socially acquired needs. They are dened as needs that are learned through personal contact with the social environment.17 The three most important needs from the organisational perspective are 1) need for achievement, 2) need for afliation and 3) need for power. McClelland states that the need for achievement is dened by the following qualities: 1 2 3 Taking moderate risks by pursuing goals that are difcult but not impossible. Needing immediate feedback on performance and goal progress. Finding task activities and accomplishments to be intrinsically rewarding, regardless of the nancial or economic rewards.
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4 5

Dening work in terms of approaching success instead of avoiding failure. Being totally task absorbed until the job is done.

The Organisational Importance of Need for Achievement


Studies have shown that students at all academic levels who have high need for achievement perform better than students with similar ability but lower levels of achievement need. These effects are also observed in studies of employee work behaviour. If employees with a high need for achievement judge their work to be dull and boring, they will lower their performance accordingly. Similarly, if they do not receive performance feedback, they will lower their effort on the job. High need for achievement matters most when work settings emphasise 1) the employees ability, 2) high quality performance feedback and 3) stimulating and novel work activities.18 Need for achievement is related to the desire to become an entrepreneur. Individuals with a high need for achievement are likely to start their own businesses, especially when work settings do not emphasise the qualities noted above. The achievement-oriented employee who is not challenged by his work often feels as if his employer does not value his efforts and ideas. When such employees become idea champions for innovations, and upper management places low priority on their innovations, they can become disgruntled and leave. If the disgruntled employee is a competent engineer and a good salesman, watch out! You may soon see him as a competitor with your former customers beating a path to his door!

How Can Managers Use Information about Need for Achievement?


Managers who are interested in applying the motivational concepts which derive from knowledge of need for achievement would: 1 2 3 4 5 Use need for achievement as one basis for screening job applicants. Use it as a factor in promotion decisions. Design jobs with goals that are at least moderately challenging. Design rewards and feedback that are closely tied to performance behaviours to create an achievement climate in the rm. Reward employee creativity and institutionalise the role of idea champions in the rm.

Need for Afliation


The desire to have and maintain a strong social support system, and to give and receive affection, is dened as the need for afliation.17 Need for afliation is dened by the following qualities: 1 2 3
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Reacting positively to work experiences which enhance belongingness, social involvement and group morale. Emphasising that all members of a work group be included in events which may affect the morale and cohesion of the group. Solving or confronting interpersonal conicts which threaten esprit de corps.
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4 5

Emphasising the importance of social rewards such as recognition, praise and public acclaim. Reacting positively to social rewards which are made contingent on excellent performance.

How Can Managers Capitalise on Need for Afliation in Employees?


Managers must be prepared to motivate employees with a high need for afliation. Ways to help ensure high performance from these individuals include allowing them to: 1 2 3 4 5 Be arbitrators of work-group disputes because they will take a personal interest in returning harmony to the group. Evaluate the social demands of a job and match employees with a high need for afliation to such jobs. Be involved in community affairs which parallel work interests. Develop and use as many forms of social rewards as possible in the rm. Be sure the rewards are dependent on high performance. Realise that a superior with a high need for afliation may incorrectly emphasise social harmony over productivity.

Need for Power


This socially acquired need denes behaviours oriented towards inuencing others and searching for opportunities to gain inuence and control.17 In reality, the need for power has two sides.17 Individuals possessing a personalised need for power are those who try to dominate or rule simply because they feel more self-condent when they intimidate others. Negative encounters with such an individual (especially if he is your superior) can make your job or career very short. Firms frequently view such individuals as unproductive because they: 1 2 3 4 Reject job responsibilities in favour of personal concerns. Create tense work relations among subordinates who become over-anxious at work. Are poorly adjusted to work and frequently look to palliatives such as drugs or alcohol to cope with accumulating work stress. Project their own inadequacies on fellow workers and subordinates, thus eroding the work climate further.

Happily, there is a positive side to need for power and it is called socialised need for power. The individual with this power need tends to achieve his personal goals at work through the process of raising the self-esteem of subordinates and colleagues. This kind of manager gains higher levels of performance from subordinates by demonstrating his condence in them. The manager nds many opportunities to send this message to employees: I have condence in you because I know you have condence in yourselves. This is a powerful motivational message which expresses the belief that each employee is an expert in his job. The manager with a socialised need for power implies by his actions that the best kind of organisational control is self-control in each employee.
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The Techniques for Managing Employees with Needs for Power


Organisations and their managers can become more systematic in making decisions about employees with either type of power orientation. Let us consider some of them. 1 2 3 4 Employees who exhibit a socialised need for power should be selected and promoted over employees oriented to personalised power. Positions requiring socialised power should be made visible (given a high prole) in the organisational hierarchy. Managers with socialised power should take charge of groups where performance and morale are low. Because they are more likely to work through people than through the task, social power managers should be allowed to delegate freely to subordinates whose own managerial skills and self-condence will develop more quickly. Career paths for managers with socialised power needs should not be blocked. If they are unable to obtain the personal rewards they desire from their work, they may resort to satisfying power needs through less desirable personalised methods!17

The socialised need for power is the most important socially acquired need for predicting managerial success. Individuals with this need are most willing to tackle the political aspects of organisational life. The absence of this ability in the individual with a high need for achievement may prove to be a managerial weakness. The manager with a high need for achievement often errs and completes a task himself rather than delegating it to a subordinate. The task focus of the manager with a strong achievement orientation prevents him from being a good manager of people. Interestingly, this weakness always resurfaces in the business started by an entrepreneur who reaches the point where he can no longer control all details and decisions. Rather than delegate or hire another layer of managers, he tries to centralise decision-making in himself. The complexity of the decisions (and his lack of expertise in many areas) triggers more meddling behaviour and he nds his time is more fragmented and less productive. Paradoxically, he ends up losing employees who share his strong achievement orientation. Remember, the employee with a high need for achievement would rather do the job himself! Table 1.7 summarises our discussion of socially acquired needs.

1.4

The Crucial Role of Job Satisfaction


Job satisfaction is a key work attitude: it is a function of employee perceptions of events at work. This section presents its meaning, origins, consequences, relationship to performance and how organisations can measure it.

1.4.1

The Meaning of Job Satisfaction


Job satisfaction is easily the most studied job attitude in all types of organisations. Experts generally agree that job satisfaction is not a global or all-encompassing

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Table 1.7
Need

Work preference of persons high in need for achievement, afliation and power
Work preferences Individual responsibility Challenging goals Quick performance feedback Example Engineer who is encouraged to nd internal sponsors for his new product idea Member of a group which is rewarded through group-based compensation Manager who aspires to head special task force that must manage the rms move to a new location

High need for achievement

High need for afliation

Good interpersonal relationships Opportunities to improve communication Control of others Frequent attention by others Recognition through promotions

High need for power

concept. Instead, the construct is composed of facets which are extremely sensitive to employees perceptions of the work setting, rewards, supervision, job demands and so on. In a general sense, each facet is really an attitude. An attitude is a predisposition acquired through experience, to respond to people, objects or institutions in a positive or negative way. More specically, the facets of job satisfaction are attitudes which focus on: 1) satisfaction with the work itself, 2) satisfaction with pay, 3) satisfaction with fellow workers, 4) satisfaction with supervision and 5) satisfaction with promotions. Employees nd that the importance of any particular facet changes as work events unfold. Also, it is possible for an employee to be very satised with one facet while being unfullled in another. For instance, an employee may be very satised with promotions yet nd co-workers and supervision to be unsatisfactory. 1.4.2

Determinants and Consequences of Job Satisfaction


Determinants of job satisfaction can be discussed at an individual, as well as at an organisational level. Individual differences inuence experienced levels of satisfaction for employees. Two of the prominent individual determinants of job satisfaction are years in career and job expectations.

Years in Career
As employees grow older, they experience more satisfaction at work. This continues until people approach retirement, where a sharp decrease usually occurs. Also, a sharp decline in job satisfaction often occurs for employees who have been working for between six months and two years. This early-career dip usually occurs because the employee learns that the job will not meet all personal needs as quickly as expected. The long-term relationship between years in a career and job satisfaction is shown in Figure 1.2. As retirement age lengthens and work-forces age, employees relationships with their jobs change. People are generally healthier and live longer. Innovative company programmes such as job-sharing, home employment, part-time work and serial careers may help individuals prolong their productive work years.
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Job satisfaction
1 2 4 6 8 10

12

14

16

18

20

22

24

26

28

30

32

34 36+

Years in career

Figure 1.2

The years in careerjob satisfaction relationship

Expectations
Everyone develops expectations about future jobs. As individuals search for jobs, their expectations about work are inuenced heavily by information from their colleagues, from recruiters and from knowledge acquired about labour market conditions. The expectations that are formed during these early encounters remain intact until individuals begin participating in organisations. If pre-work expectations are met, satisfaction on the job occurs. If they are not met, the individual experiences declining job satisfaction. The initial fall in job satisfaction (see Figure 1.2) is a subject of management concern.19 If large numbers of employees leave an organisation at the same time, it can be costly in terms of recruiting, hiring and training. Many rms attempt to lessen the decline in job satisfaction during the early career stage by using realistic job previews. These devices characterise the positive and negative aspects of a job before an individual is hired. If potential employees expectations do not align with job requirements, they can drop out of the recruiting process before great costs are incurred. Insurance companies have found realistic job previews to be effective tools for reducing turnover among newly hired insurance agents. Similarly, rms which need to hire employees for routine jobs have experienced less turnover among new workers who were exposed to realistic job previews.20 Also growing in popularity among organisations are internships, which are used by university students as a way to test out jobs and careers without having to commit to indenite employment. Likewise, organisations see the value in internships because they reduce recruiting costs because they provide an inexpensive opportunity to take a signicant look at a potentially high-calibre, future employee.

The Organisational Determinants of Job Satisfaction


The nature of control in organisations, the extent of personal responsibility and control and employment policies all greatly inuence employees levels of experienced job satisfaction. In turn, the quality of the organisational determinants of job satisfaction noted below contribute signicantly to sustainable competitive advantage based on sound employment practices.
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Supervision
Considerate supervision supports employees self-esteem and self-worth and leads to greater job satisfaction. If supervisors consult with subordinates on job decisions, policies and work rules, employees will generally be better informed, and they will experience greater job satisfaction because they will be more condent in their understanding of their work. Thus, participative supervision increases subordinates job satisfaction. Not all decisions need to be participative, however. Those decisions which require subordinate support or which affect employee welfare should be made participatively. Participation has the effect of clarifying employees expectations about their work. Employees with clear work expectations are more likely to be self-condent than their confused counterparts who do not participate in job-related decisions. Supervisors can readily inuence their subordinates optimism about participation and their desire to be involved in workplace decisions.

Job Challenge
When jobs require creativity, application of personal skills and risk-taking, employees report higher job satisfaction. Employees with a high need for achievement are more satised when their jobs require intellectual or physical effort. When employees are challenged, they become more physically and intellectually involved in their work. Job challenge can initiate these two conditions.

Job Clarity
The extent to which employees understand what they are to do contributes to job satisfaction. When employees receive feedback on their performance, job clarity improves. Giving employees a chance to participate in substantive job issues enhances job clarity. In turn, these processes build the self-condence of employees; they believe they can do the job and perform at acceptable levels. Their levels of expended effort increase and job satisfaction results. Managers can sustain this condition if they recognise the importance of job challenge as a determinant of job satisfaction.

Incentives
Extrinsic and intrinsic rewards are related to job satisfaction. Extrinsic rewards are those that the organisation provides based on employee performance and effort. Examples of extrinsic rewards are pay rises, promotions, supervisor praise and recognition, job status symbols and job security. Intrinsic rewards are those that the employee experiences internally. For example, feelings of competence, pride and craftsmanship are intrinsic rewards for a job well done. They occur as the employees work unfolds. Since these rewards affect how the employees feel about themselves, they can be very powerful for maintaining motivation and performance. Both types of rewards are related strongly to job satisfaction. The theory which links them is called equity theory. This theory posits that employees make comparisons about the rewards they receive relative to their effort and performance levels. Further, they make these comparisons relative to the rewards, efforts and performance exhibited by other employees. These
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comparisons are referred to as social comparisons which result in perceived equity or inequity. A typical employee social comparison is illustrated below. My rise My efforts and performance compared to Co-worker rise Co-worker efforts and performance

To make such comparisons, an employee usually selects a comparison other. The comparison other can be another employee, all of the employees in a particular profession or selected employees in a similar organisation. If the results of these social judgements seem fair, the employee is satised with his levels of extrinsic and intrinsic rewards. If, on the other hand, the employee judges the comparison others reward to be greater than his own, a perceived inequity occurs. Perceived inequity represents a state of psychological imbalance. The only ways for the individual to restore balance are to: 1) reduce effort and performance, 2) change the comparison other to a more suitable co-worker, 3) increase the levels of effort and performance and hope that rewards obtained increase, or 4) eliminate the problem by leaving the job or seeking a transfer. Equity comparisons are made for all facets of job satisfaction and for both types of rewards. Employees constantly make equity comparisons. Therefore, it is necessary that managers attend to supervision, job challenge, job clarity and incentives so that employees expectations about job demands are clear. Through the process of participation, it is then possible to create more reasonable equity comparisons which result in improved levels of job satisfaction.

The Key Consequences of Job Satisfaction


Both mental and physical health increase with job satisfaction. When employees are satised with their jobs, they report fewer ailments, e.g., heart disease, headache, sleep disturbances, sleep disorders. Less anxiety, tension and stress occur among satised workers. Job satisfaction improves employee resistance to job stress and its physical symptoms (see Module 2). In fact, some reports suggest that satised employees live longer; happier workers do indeed seem to be healthier workers. Lower employee turnover and unexcused absences are another consequence of job satisfaction. Countless research studies have found dependable relationships between turnover and unexcused absences. However, the relationship between job satisfaction and absenteeism is less dependable. For instance, there are many reasons why a satised employee may be absent from work. Equally relevant are the reasons why a dissatised employee may choose to go to work. For instance, the dissatised employee may fear being red, he may have no options that are more pleasant than attending work and he might simply choose work rather than staying home. Job previews were described as one technique to reduce absenteeism and employee attrition because of high job dissatisfaction. When rates of turnover and absenteeism are high in an organisation, indirect labour costs rise rapidly. High turnover increases recruiting, hiring and training costs (all indirect costs), because the organisation is constantly processing new members. A high absenteeism rate also drives up indirect costs because the organisation must have more
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employees in reserve to cover for those who do not come to work. Without a reserve, more work must be distributed among fewer workers; this, in turn, creates more job dissatisfaction through perceived inequity. These effects all undermine an effective employment relationship and threaten competitive advantage. 1.4.3

Job Satisfaction and Performance


We now have all of the pieces in place to look at one of the most important relationships in organisational behaviour. This is the job satisfactionperformance relationship. Current thinking on this relationship is illustrated in Figure 1.3.

Intrinsic rewards

Performance

Perceived equity for various rewards (mediates the relationship) Extrinsic rewards

Job satisfaction

Figure 1.3

The performancejob satisfaction relationship

Applying the Reasoning of the Model


Figure 1.3 indicates that satisfactory performance triggers the release of various intrinsic and extrinsic rewards. Extrinsic rewards are available through the organisation compensation system, while intrinsic rewards are linked to the way the task is designed, e.g., level of challenge, clarity, variety of skills used and opportunity to learn new skills. If the compensation system malfunctions and provides poor performers with the same rewards as high performers, the excellent employees will experience perceived inequity and their pay satisfaction will plummet. Likewise, if jobs are poorly designed, unchallenging and boring, intrinsic rewards will be scarce and employees satisfaction with the work itself will drop, again due to perceived inequity. Remember, both the compensation system and the job design system must function properly to ensure perceived equity. The model indicates that a direct relationship between performance and job satisfaction does not exist. Perceptions of equity tie the two together. Also, individual differences inuence job satisfaction. For example, employees with a strong internal locus of control would experience job dissatisfaction through perceived inequity, if they believed the job offered little challenge and if their performance were not fairly compensated due to an ineffective compensation system. An example of this would be disgruntled employees who complain that seniority is rewarded more than performance. Similar arguments can be made for individuals with various combinations of socially acquired needs. The important point is that it is not only performance and perceived equity which inuence the level of satisfaction of employees. Employee characteristics also interact with the work situation to inuence job satisfaction levels.
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1.4.4

How Organisations Can Measure Job Satisfaction


Managers monitor job satisfaction because it is an important indicator of the organisations ability to meet the needs of its employees. Many methods have been developed to measure job satisfaction. All of them are indirect because job satisfaction can only be inferred: it is both intangible and personal. The methods include: 1) observation of employee behaviour, 2) interviewing employees and 3) paper and pencil questionnaires on job satisfaction. The least expensive and most dependable method is the paper and pencil questionnaire. Table 1.8 shows sample items from the Job Descriptive Index (JDI), which is the most widely used measure of job satisfaction.21 The JDI measures the ve facets of job satisfaction which were mentioned earlier. Each facet has a specic meaning for an employee and each can be a powerful inducement to work. The JDIs use of positive and negative descriptors provides balance and allows the manager to avoid problems associated with other measures. The adjectives selected for the JDI enable it to be used in any work situation and with any employee group. Another tool which measures job satisfaction is the Minnesota Satisfaction Questionnaire.22 This questionnaire uses a different method to generate answers. Table 1.9 shows some sample questions from this instrument. Its format facilitates assessment of partial agreement with the facets of job satisfaction. Although this method takes longer than the JDI, it yields very dependable results.
Table 1.9 Excerpt from the Minnesota satisfaction questionnaire
Not satised My job security The amount of pay for the work I do The working conditions (heating, lighting, ventilation, etc.) on this job The opportunities for advancement on this job The technical know-how of my supervisor 1 1 1 Slightly satised 2 2 2 Satised 3 3 3 Very satised 4 4 4 Extremely satised 5 5 5

1 1

2 2

3 3

4 4

5 5

Source: D. J. Weiss, R. V. Davis, G. W. England and L. H. Lofquist, 1967. Manual for the Minnesota Satisfaction Questionnaire (Minnesota Studies in Vocational Rehabilitation, No. 22). Minneapolis, MN: University of Minnesota Industrial Relations Center. Work Adjustment Project. Reproduced by permission. Copyright 1977 by Vocational Psychology Research, University of Minnesota.

Problems with Using Questionnaires


The use of questionnaires assumes that employees are both willing to describe their feelings about work accurately without any distortion, and capable of doing so. It is known that employees often distort information for a variety of reasons, not the least of which is fear of losing their jobs. Additionally, the items in a questionnaire do not have the same meaning to each employee. What is fascinating to you may appear dull and monotonous to your colleagues. Since
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Table 1.8

Sample items from the Job Descriptive Index (JDI)

Think of your present work. What is it like most of the time? In the blank beside each word or phrase given below, put: Y N ? If it describes your work If it does NOT describe it If you cannot decide Work on present job Routine Satisfying Good On your feet Think of the pay you get now. How well does each of the following words describe your present pay? In the blank beside each word or phrase given below, put: Y N ? If it describes your pay If it does NOT describe it If you cannot decide Present pay Adequate for normal expenses Insecure Less than I deserve Highly paid Think of the kind of supervision that you get on your job. How well does each of the following words describe this supervision? In the blank beside each word or phrase given below, put: Y N ? If it describes the job supervision you get If it does NOT describe it If you cannot decide Supervision on present job Impolite Praise for good work Inuential Doesnt supervise enough Think of the opportunities for promotion that you have now. How well does each of the following words describe these? In the blank beside each word or phrase given below, put: Y N ? If it describes your promotion opportunities If it does NOT describe them If you cannot decide Promotion opportunities Promotion on ability Dead-end job Unfair promotion policy Regular promotions Think of the majority of people that you work with now or the people you meet in connection with your work. How well does each of the following words describe these people? In the blank beside each word or phrase given below, put: Y N ? If it describes the people you work with If it does NOT describe them If you cannot decide People on your present job Boring Responsible Intelligent Talk too much
The JDI is copyright Bowling Green State University. The complete forms, scoring key, instructions and norms can be obtained from Dr. Patricia Smith, Department of Psychology, Bowling Green State University, Bowling Green, Ohio 43404.

the items in any questionnaire have different meanings, the survey results can be biased in systematic ways. This is more of a problem for researchers using these instruments than it is for managers who wish to determine levels of satisfaction among employees.

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1.5

Developments in the Study of Employee Work Attitudes


Job satisfaction is a pivotal employee work attitude that is related systematically to organisational productivity and employee needs. It relates to turnover, absenteeism, physical and emotional health, performance, and perceptions of fairness of rewards from compensation systems. During the past 10 years, two other employee attitudes have been systematically studied. These are organisational commitment and job involvement. Let us consider each one.

1.5.1

Organisational Commitment and its Consequences for Employees and the Organisation
Organisational commitment is dened as the strength of an employees identication with the organisation. It has three components: 1) belief in and acceptance of the organisation goals and values, 2) willingness to exert considerable effort on behalf of the organisation and 3) desire to maintain membership in the organisation. Organisational commitment goes well beyond company loyalty.23 It means that employees actively promote the organisation to interested parties or to those who are affected by the organisations actions. In other words, the committed employee would defend the organisations reputation in the face of criticism. It is also indicated by an employees willingness to give something of himself to the organisation (such as developing a prot g by being a mentor). e e When employees defend their employer and promote the organisations goals, they are strengthening their organisational commitment. Frederick Ashley is described in the narrative below. He demonstrates organisational commitment. See if you can nd examples of the components of organisational commitment in Fredericks story.
Frederick is unusual in the age of job-hopping and multiple employers. Frederick is 78 years old; he admits proudly that hes a company man and always will be one. When he left his job as a salesman for Gerhart, Ltd. in 1987, he retired from the only employer he had ever known. He left behind a group of employees that he called his family. Im sad to leave, I really am, said Frederick as he rummaged through the packing crates in his ofce. Its time for me to move over and give some of the new guys a chance. The former salesman, who had spent the better part of his life selling the companys machinery, recalled his life and work with fondness and nostalgia. Now his voice has a tinge of sadness as he comments that he entered the ranks of the retired voluntarily. Ive grown very fond of my work, the company, and the people Ive worked with over the last 60 years. Ive had many of the same customers for over 30 years. They understand how our business operates. Many of them were buying tools from us even before I came along. Thats how I got started, you know. I worked in the shop and then in the ofce for thirty years before I moved to sales. I just need to take time off. Many times Id show up at the ofce with a cold or upset stomach. He doesnt say it in so many words, but he clearly relishes projecting the image of the company man. This company man would get out of bed at 4 a.m. to go to work and analyse customer accounts. Sometimes just for the fun of it Id get up extra early to be the rst one there. I guess that after a while I got the reputation around the ofce of being an early bird.

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Frederick lives about ve kilometres from the ofce. He has no plans for his future other than taking life as it comes, working in his garden and visiting his sons. I retired because I believed I didnt have many more years left; I was getting to that age. I want to spend more time with my wife. We enjoy dining out and travelling. Frederick admits he is having trouble adjusting to a life of leisure. Hes not too keen on sleeping late, and he misses the trip to work. I guess I just became too used to the sounds of the ofce. He confesses that he misses the weekday work schedule and that hes just a little lonely after six decades in the same company. I thoroughly enjoyed my work and loved the people I worked with. My job was never burdensome. I loved what I did, and always felt good about it. Frederick notes that his boss has said if retirement isnt for him, he can return to work any time. They said I could pick up where I left off with no problems. It makes me feel needed.

Commitment to an organisation is different from job satisfaction because it requires a wider perspective (towards the entire organisation), while job satisfaction results from employees reactions to their jobs. Job satisfaction also uctuates over the short term depending on the immediate conditions associated with the job (e.g., getting new co-workers or learning of a proposed job transfer). In contrast, organisational commitment develops slowly and consistently over time; thus an employee may be satised with his job but may not be committed to the organisation. This partially explains why employees change employers even when they may have been satised with their previous work. People who progress in a career with a particular organisation usually acquire more organisational commitment. Chronic job hoppers are not around long enough for this to occur. Migrant managers never experience much of this work attitude. Our current period of economic insecurity has eroded the employees view of the employment relationship from the standpoint of organisational commitment. People who used to take their jobs and permanent rises in their standard of living for granted have been jolted by the realities of stubbornly high unemployment and corporate downsizing.24 These causes of employee uncertainty have made those employees who remain on the job doubtful of their jobs and their abilities to ensure a comfortable economic future. Waves of downsizings and mergers cause employees to doubt the value of their expressions of organisational commitment. Continued deregulation of various industries exposes companies to competition from more efcient rivals. In turn, pressure builds on those companies to downsize and to adopt more productive, capital-intensive production technologies. Shareholders demanding higher earnings and rising stock values contribute to managements willingness to pare labour costs through downsizing. It is unlikely that these causes of employee Angst will subside soon. To be sure, they will encourage workers and managers to withhold their organisational commitment.

How Does Organisational Commitment Benet the Organisation?


Committed employees are much less likely to leave their jobs. Organisational commitment correlates inversely with employee turnover. Once employees identify with the goals and values of the organisation, they are less likely to leave,
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even when they experience periods of job dissatisfaction. Employees with organisational commitment may perform better. Committed employees expend more job effort and they can be more productive than less committed employees. They set more ambitious goals when they participate in goal setting. Finally, committed employees adopt the goals and values of the organisation in personal terms. This means that committed employees are strong advocates for the products, services and policies of their employers. Clearly, many of these valuable outcomes are at risk in organisations that attempt to improve their competitiveness by downsizing rather than by improving the exibility and skills of their work-forces by making investments in training and development. 1.5.2

Job Involvement and its Consequences


Job involvement is an important work attitude, and is dened as the degree to which employees identify with their job, participate actively in it and consider it to be a key determinant of their self-worth.25 Job involvement is determined by characteristics of the job and it creates different employee reactions from those caused by organisational commitment. Job involvement activates beliefs that the job is a central component of ones life. Job-involved employees are likely to view work as a major source of life satisfaction.26 Active job involvement refers to an employees desire to be physically and psychologically involved in work. Job involvement contributes to perceptions of self-worth. If an employee experiences increased self-worth through his work, numerous consequences can occur. For instance, if this were true for you, and if you were approached by someone who asked you what you are like, you might respond in work-related terms. Indeed, many of us who experience job involvement describe ourselves in terms of what we do for a living. Job involvement may be less at risk in downsizing than the employees organisational commitment. It is possible for an employee to stay highly involved with his job even though he may be apprehensive about his future employment prospects. Indeed, because of the demands of an absorbing job, the employee may nd a kind of refuge that helps him temporarily to ignore his fears about job loss.

How Can Managers Raise Organisational Commitment and Job Involvement?


Remember, these two work attitudes have different origins (i.e., organisations versus jobs). There are ways for managers to encourage development of both. Let us examine them. Managers should: 1 Demonstrate that they honestly care about their employees welfare. Often, managers are too busy to demonstrate much concern for employee welfare beyond creating safe working conditions. Both commitment and involvement depend on a strong, positive personal connection between the employee and organisational events. If these events address employee welfare in conjunction with challenging tasks and participation, both of these employee work attitudes are more likely to form. Create opportunities for employees to achieve their personal goals. If an employee desires to take on more responsibility, perhaps to increase his chances for promotion, the able manager will avoid feeling threatened. The
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manager thus focuses on the design of the employees job in order to nd ways to make it more meaningful and challenging. Modify jobs so employees have more opportunities to achieve intrinsic rewards. Many employees feel the need to have more personal control over their work. An effective manager provides opportunities for employees to participate in decision-making to full these needs. Find ways to reward employees regularly. If managers are unavailable when employees encounter task problems, then the two work attitudes are less likely to form. Further, if managers only appear when problems surface, employees come to associate them with punishment and criticism. Set goals with employees and be sure that some of them are personal development goals which are meaningful to the employees in question. Not only should managers explain the importance of goals, but they should actively participate in the development of managerial competence in their subordinates.

Summary Points
The eld of organisational behaviour is a social science that develops knowledge about the behaviour of people at work. Organisational behaviour studies organisational productivity and employee needs. All aspects of organisation performance relate to the former; work attitudes such as job satisfaction, organisational commitment and job involvement relate to the latter. The eld of organisational behaviour concentrates on the acquisition of knowledge about organisational productivity and employee needs. Management differs from organisational behaviour in that it deals with accomplishment of organisational goals and involves the technical, conceptual and human components of organisational functioning. The managers job in the twenty-rst century will focus on his coaching, integration and conict-resolution skills. Old job requirements such as giving orders, determining promotions and making autocratic decisions will fade in importance. The rate of change in content of the managers job is being increased by work-force diversity, demands for better products and services, global capital ows and new organisational philosophies like employee empowerment. Values are enduring beliefs and they can be instrumental or terminal in nature. Instrumental values reect the means for achieving ones goals in life and terminal values are the life goals themselves. As organisations expand their global activities, managers will be challenged by culture-based value differences. Increasingly, organisations are providing culture-based values training to smooth the transitions for their managers who receive global assignments. Locus of control refers to ones beliefs about what cause outcomes in life. Internals believe in the causality of personal behaviour, while externals believe in the causality of environmental forces. Internals thus see themselves as the cause of outcomes, while externals believe outcomes are created by forces and events outside themselves.
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Extroversion and introversion refer to the strength of ones need for external sensory stimulation. Introverts prefer less external social noise than extroverts. These qualities can inuence performance if a job is designed to be either high or low in social stimulation. Machiavellism is the need to inuence others to achieve ones personal ends. It predisposes the individual to manipulate others to achieve personal gains in unstructured organisational circumstances. The socially acquired needs of achievement, afliation and power are important factors in understanding employee behaviour. Achievement motivation is a primary cause of entrepreneurial behaviour. Afliation needs energise supportive and collaborative behaviour in work groups. Need for power has two forms of expression: personalised and socialised power. The socialised need for power is an important managerial quality that is associated with organisational effectiveness. Job satisfaction is composed of the facets of pay, promotion, co-workers, supervisors and the work itself. The level of experienced job satisfaction is determined by job challenge, job clarity, supervision and incentives, which are all organisational factors. Years in career and personal work expectations are important individual determinants of job satisfaction. Job satisfaction is not directly related to performance. The connection is determined by the availability of both intrinsic and extrinsic rewards, and by employees perception of the fairness of their distribution. Organisational commitment represents employee agreement with organisational goals, willingness to exert effort on behalf of the organisation and a strong desire to maintain membership. It takes longer to form than job satisfaction, but once formed, is more resistant to change. Economic insecurity threatens employees job security and economic wellbeing. As a result, those employees who remain on the job after downsizing and corporate restructuring often experience sharp drops in organisational commitment. Job involvement develops through ones job and affects the employees selfworth and desire to participate in work-related decisions. Employees can have job involvement without being committed to the organisation. Thus, downsizing, job re-engineering and corporate restructurings may have less direct, negative effects on employees levels of job involvement.

Review Questions
True/False Questions
1.1 The eld of organisational behaviour has developed because managers need to understand employee motivation and job satisfaction. T or F? 1.2 The eld of organisational behaviour is best described as an applied discipline that focuses on the issues of employee needs and organisational productivity. T or F?

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1.3 Organisational behaviour would not deal with factors that cause students to be satised or dissatised with the courses they take at the university. T or F? 1.4 Managers have less need for organisational behaviour theories because their work is action oriented. T or F? 1.5 An engineer with an internal locus of control is much more likely to search for information outside his work setting than an engineer with an external locus of control. T or F? 1.6 Extrovert employees seek more stimulation from their social environment than do introverts. T or F? 1.7 A Machiavellian employee will go along with company goals, especially if the work setting is very unstructured and feedback is sporadic. T or F? 1.8 A good rule to follow when supervising employees is: treat all employees the same way. T or F? 1.9 High achieving managers are good delegators of authority to subordinates. T or F? 1.10 Individuals with a high need for afliation would be highly motivated to improve harmony. T or F? 1.11 An individuals need for power is more organisationally valuable if it is expressed as personalised power need. T or F? 1.12 Job satisfaction is less sensitive to extrinsic rewards than to intrinsic rewards. T or F? 1.13 Job satisfaction is important to organisational productivity because it is related to absenteeism, grievance rates and turnover. T or F? 1.14 Equity comparisons of rewards received in relation to efforts expended are important components of the job satisfactionjob performance relationship. T or F? 1.15 Organisational commitment consists of three highly volatile facets. T or F? 1.16 Job satisfaction and organisational commitment are related to the same properties of organisations. T or F? 1.17 Job involvement is always present when an employee is satised with his job. T or F? 1.18 The least important dimension of job involvement is the belief that the job contributes to ones self-worth. T or F? 1.19 Values training in global organisations can safely emphasise instrumental values only for expatriate managers. T or F? 1.20 Economic uncertainty is more of a threat to organisational commitment than to job involvement. T or F?

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Multiple Choice Questions


1.21 The internal perspective of human behaviour explains an employees actions in terms of: A B C D E job design. personal beliefs and value systems. organisational structure. organisational authority systems. peer relations and group dynamics.

1.22 Organisational behaviour is a eld of study which places equal emphasis on: A B C D E micro and macro issues such as employee motivation and organisational design. productivity and quality improvement efforts. understanding the needs of employees and managerial requirements for technical problem-solving. external environmental issues and managerial ethics. A and C.

1.23 Individual differences are best dened as: A B C D E the fundamental components of the organisational behaviour modication paradigm. primary constructs in the psychodynamic theory of personality development. basic aspects of personality which predict employee behaviour in the work setting. A and B only. None of the above.

1.24 Individuals with an internal locus of control: A B C D E display high anxiety and tension. tend to be restless and agitated on the job. prefer participative management systems. avoid authority gures. believe that performance is based on luck rather than effort.

1.25 According to research on socially acquired needs, successful top managers tend to have a high need for: A B C D E dominance. achievement. afliation. security. risk aversion.

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1.26 A manager with a high personalised need for power would prefer: A taking control of others to setting challenging goals for a work group. B gaining opportunities to improve communication to gaining recognition from his superiors through promotions. C quick performance feedback to loyal and dedicated subordinates. D taking individual responsibility to control of others. E to be involved in community affairs. 1.27 According to organisational behaviour research, the relationship between job satisfaction and job performance is: A strong and direct. B indirect and not always consistent. C strong and negative. D positive for younger employees and negative for older employees. E impossible to measure. 1.28 A manager with a socialised need for power who had also been promoted several times would look favourably on: A employees who took a strong interest in their jobs and the work goals for their units. B raising work unit performance goals and making employees bonuses contingent on those goals. C employees who willingly expressed their personal loyalty to him and valued unit goals. D A and B only. E None of the above. 1.29 Twentieth-century research concerning organisational behaviour and work-force management has focused on all of the following except: A employee job satisfaction. B small group behaviour. C power and inuence dynamics. D leader-follower relationships. E production engineering and computer assisted design. 1.30 Which of the following statements is correct with respect to total quality management? A Quality control is the responsibility of specialists who perform quality checks as products come off the assembly line. B Quality is a design characteristic that becomes the responsibility of all employees and managers. C Quality is a management tool to help managers communicate more effectively with their employees. D Total quality management programmes can only be installed in organisations which are highly bureaucratic and machine-like. E Quality improvements must be made only at the beginning of production operations if they are to be permanent.

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Short Essay Questions


1.1 What kinds of problems would a supervisor confront if all of his subordinates had an external locus of control? Are there steps a supervisor can take to inuence employee beliefs about the causes of work outcomes? 1.2 Develop an account of the current thinking about the relationship between job performance and job satisfaction. If a supervisor believes that happy employees are productive employees, what kinds of problems might he encounter? Be sure to emphasise the role of rewards in your answer. 1.3 Which of the socially acquired needs do you consider to be of the highest value? 1.4 How has the managers job changed in the delayered and downsized organisation of the 1990s? 1.5 Discuss some of the factors that might shape a companys emphasis on terminal and instrumental values in its mission statement. How do you make a mission statement relevant in a global company?

Case Study 1.1: Measuring Job Involvement in the Work Setting


This case study stresses the importance of job involvement, which develops as employees gain more experience in their jobs. You can learn a great deal about the signicance of job involvement in employees lives by completing this exercise. The exercise is broken into three components: 1) the administration of a questionnaire to at least ve employees in your organisation, 2) conducting personal interviews with the employees who have completed the job involvement questionnaire and 3) answering some simple questions after you have completed 1 and 2. The questionnaire you use is shown in Table 1.10. The questionnaire is scored in the following manner: add up each respondents circled answers for a total job involvement score. Scores can vary from a low of 12 (minimum job involvement) to 48 (maximum job involvement). Most individuals will fall in between and typical scores range between 24 and 36. After you have determined each respondents score, calculate an average score for your sample of employees. The personal interviews that you conduct with employees should address the following questions: 1 2 3 4 5 6
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What is your job title? How long have you worked at this job? What are the ve key responsibilities that you have in your job? What are the three aspects of your job that you like best? What are two actions that the company could take to make you more effective in your work? If you could change your job in two ways, what would they be?
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Table 1.10

Job involvement questionnaire


Strongly agree Agree 3 3 3 3 3 3 Disagree 2 2 2 2 2 2 Strongly disagree 1 1 1 1 1 1

Instructions: Please circle the choice which most closely matches your opinion for each item.

1 2 3 4 5 6

Staying late to nish a job doesnt bother me You can tell a lot about a person by his work I get most of my satisfaction from my work My days at work really y by I always arrive at work a little early to get started The most important things that happen to me are related to work Sometimes I lie awake at night thinking ahead about work tomorrow Im a work perfectionist I feel lousy when I fail at some part of my job I must admit that I am a workaholic I would keep on working even if I didnt need the money I get deeply involved in my work

4 4 4 4 4 4

8 9 10 11 12

4 4 4 4 4

3 3 3 3 3

2 2 2 2 2

1 1 1 1 1

Once you have gathered your questionnaire and interview information, answer the following questions and prepare a brief written report of your ndings. The questions and the rationale for each one are presented below. There are no right answers to any of these questions. They are designed to help you consider the unique meaning of job involvement for employees. 1 What are the major responsibilities of the employees interviewed? RATIONALE: All employees usually understand their job responsibilities. Further, these responsibilities should contribute to their personal growth in some way. Are the employee suggestions of ways to improve their personal effectiveness related to their job responsibilities? RATIONALE: Employees should perceive ways to improve their performance through their own actions. In addition, they should perceive a linkage between their job responsibilities and their effort and behaviour. Do the employees generally want to change their jobs relative to their major job responsibilities? RATIONALE: There should be a connection between low job involvement scores and dissatisfaction with major job responsibilities. How do you explain the average that you obtained for employees scores on
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the job involvement questionnaire? RATIONALE: A clear pattern between the paper and pencil test results and interview results should surface.

Case Study 1.2: General Electric Has a Whistle-blower


General Electric Corporation consists of over 186 companies organised into 43 strategic groups and six business sectors. With over 250 000 employees, it is one of the oldest consumer and industrial products manufactures in America. For over 40 years it has been one of the largest defence contractors. For the US armed services it builds jet engines, radar systems, missile components and a variety of replacement parts. It also builds military hardware for purchase by friendly countries after the Department of Defense and the Commerce Department have cleared the transactions. All defence contracting rms in the USA have started efforts to prevent or eliminate fraudulent and deceptive business practices. These programmes have been stimulated by the provisions of the 1986 False Claims Act and the investigative practices of the US Justice Department and the Defense Criminal Investigative Service, both components of the US Attorney General. Besides spelling out fraudulent practices, remedies and penalties, the law specically protects whistle-blowers. A whistle-blower is an employee who reports corporate wrong-doing such as bribes, kickbacks, false accounting practices or cheating to federal ofcials. The law noted above specically protects such individuals from retaliation (termination, pay loss, job transfer, demotion, discipline or harassment) by their employers for informing the federal ofcials or for giving testimony in government-initiated suits against defence contractors. Further, whistle-blowers can receive up to 25 per cent of the ne or penalty assessed against the rm when wrongdoing is proven. General Electric mounted an ambitious campaign to comply with the False Claims Act. In spite of internal controls and employee training, GE has been charged with fraudulent defence contracting activities several times in recent years. One such case involved a long-time employee named Chester Walsh. He blew the whistle on a scheme designed to create payoffs and kickbacks to a GE manager and an Israeli general. During the 1980s the pair defrauded the US government of about $42 million. Mr Walsh charged that Herbert Steindler, a GE marketing ofcial who handled Israeli accounts, conspired with Israeli Air Force General Rami Dotan to prepare and submit false invoices for payment for military equipment and services which were never provided by GE which then passed the bills on to the appropriate US defence agency. The ruse lasted for several years until Mr Walsh detected it. Rather than report the illegal activities right away, Mr Walsh learned the details of the 1986 law and he gathered irrefutable evidence of the conspiracy. For four years he assembled documents and recorded conversations. By 1991 he had reported the abuses and he led suit against his employer under the False Claims Act. The US Justice Department and the US Air Force investigated the charges. Eventually 24 GE employees were dismissed or disciplined, including Mr Steindler. In Israel, General Dotan was convicted of bribery and related
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crimes and given a 13-year prison sentence. Mr Walsh received $11.5m of the $69m GE had to pay the federal government to end the case.27 1 Do you think that fraudulent business practices are more common in very large organisations? If so, why? 2 Why did Mr Walsh wait for four years to reveal the conspiracy between Mr Steindler and General Dotan? In your mind did he gain anything by delaying his accusation? 3 What are your recommendations to GE for preventing fraudulent practices and encouraging ethical employee conduct?

References
1 2 3 Mintzberg, H. (1975) The Managers Job: Folklore and Fact, Harvard Business Review (JulyAugust): 61. Fondas, N. (1992) A Behavioral Job Description for Managers, Organizational Dynamics (Summer): 4758. Kraut, A., Pedigo, P. R., McKenna, D. and Dunnette, M. (1989) The Role of the Manager: Whats Really Important in Different Management Jobs, Academy of Management Executive (November): 28693. Kreitner, R. and Kinicki, A. (1995) Organizational Behavior, 3rd edn. Homewood, IL: Irwin Publishing Co., 811. Rokeach, M. (1975) The Nature of Human Values. New York: Free Press, 5. Tung, R. (1991) Handshakes Across the Sea: Cross-Cultural Negotiating for Business Success, Organizational Dynamics (Winter): 3040. Ibid. Hodgson, K. (1992) Adapting Ethical Decisions to a Global Marketplace, Management Review 81: 537. Rotter, J. (1966) Generalized Expectancies for Internal vs. External Locus of Control of Reinforcement, Psychological Monographs 80: 123. Watson, D. and Baumol, E. (1967) Effects of Locus of Control and Expectation of Future Control Upon Present Performance, Journal of Personality and Social Psychology 6: 21215. Organ, D. and Hammer, C. (1982) Organizational Behavior, 2nd edn. Plano, Tex: Business Publications, 4660. Gartner, W. (1985) A Conceptual Framework for Describing the Phenomenon of New Venture Creation, Academy of Management Review 10: 696706. Brockhaus, P. (1986) The Psychology of the Entrepreneur. In C. A. Kent, D. L. Sexton and K. H. Vespers, (eds.), Encyclopedia of Entrepreneurship. Englewoods Cliffs, NJ: Prentice Hall, 3956. Eysenck, H. (1967) The Biological Basis of Personality. Springeld, IL: Charles C. Thomas, Inc., 153.

4 5 6 7 8 9 10

11 12 13

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Cooper, R. and Payne, R. (1967) Extroversion and Some Aspects of Work Behavior, Personnel Psychology 20: 4567. Christie, R. and Geis, F. (1970) Studies in Machiavellianism. New York: Academic Press. McClelland, D. (1961) The Achieving Society. Princeton, NJ: Van Nostrand. McClelland, D. (1962) Business Drive and National Achievement, Harvard Business Review 40: 99112. Sheridan, J. (1985) A Catastrophe Model of Employee Withdrawal Leading to Low Job Performance, High Absenteeism, and Job Turn-over During the First Year of Employment, Academy of Management Journal 28: 88109. Wanous, J. (1980) Organizational Entry: Recruitment, Selection, and Socialization of Newcomers. Reading, Mass: Addison-Wesley. Smith, P., Kendall, L. and Hulin, C. (1975) The Measurement of Satisfaction in Work and Retirement. Chicago: Rand McNally. Loquist, L. and Davis, R. (1975) Adjustment to Work: A Psychological View of Mans Problems in a Work-Oriented Society. Chicago: Rand McNally. Porter, L., Steers, R., Mowday, R. and Boulian, R. (1974) Organizational Commitment, Job Satisfaction and Turnover Among Psychiatric Technicians, Journal of Applied Psychology 59: 6039. Learning to Cope, The Economist, 6 April 1996: 1516. Steers, R. (1981) Introduction to Organizational Behavior. Glenview, IL: Scott-Foresman. Rabinowitz, S. and Hall, D. (1977) Organizational Research on Job Involvement, Psychological Bulletin 31: 26588. Miceli, M. and Near, J. (1995) Relationships among value congruence, perceived victimization and retaliation against whistle-blowers, Journal of Management 20: 773 94.

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Contents
2.1 2.1.1 2.2 2.3 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.4 2.5 2.5.1 2.6 2.6.1 2.6.2 2.6.3 2.6.4 2.6.5 2.7 Introduction to Stress and Well-Being at Work Job Stress Goes Global Understanding Job Stress and its Components A Model of Causes and Consequences of Stress Environmental Factors that Can Induce Stress Organisational Factors that Create Stress Personal Lifestyle Factors that Can Aggravate Stress Individual Differences Consequences of Stress Individual Approaches to Managing Stress Organisational Programmes of Wellness and Job Stress Management Corporate Wellness Plans Go after the Not-So-Well Employees Downsizing: A New Form of Permanent Job Insecurity? Domestic Competition Merger Mania Government Spending and Labour Market Involvement Small Is Beautiful Restless Shareholders A Semi-Last Word on Downsizing 2/2 2/2 2/3 2/4 2/4 2/6 2/8 2/8 2/10 2/11 2/13 2/14 2/16 2/16 2/16 2/17 2/17 2/18 2/19 2/20 2/21 2/22 2/24

Summary Points Review Questions Case Study 2.1: Samuel Logston Case Study 2.2: The Pain of Downsizing

Learning Objectives
By the end of this module you will be able to: Describe the causes and consequences of stress on the job. Explain the nature of the general adaptation syndrome. Explain the relationship between job stress and employee performance. Describe the features of the Type A personality that lead to adverse consequences shown in General Adaptation Syndrome.
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Enumerate the features of a successful company stress-management programme. Conceptualise the relationship between job stress, job insecurity and continuing efforts to control costs through corporate downsizing.

2.1

Introduction to Stress and Well-Being at Work


A large American insurance company regularly conducts nationwide surveys designed to assess the amount of job stress experienced by people at all levels in all types of organisations. A survey of over 22 000 employees in 1992 found that job stress exacts a heavy toll. Seventy per cent of employees said that their jobs are extremely stressful.1 Further, the respondents reported that they were three times as likely as employees reporting low work stress to experience problems in their lives or work due directly to the stress that they experience on the job. Their employers reported that those stressed-out employees: 1) make more physical and mental health insurance claims, 2) are less productive and 3) exhibit more turnover, absenteeism and substance abuse. Twenty-eight per cent of the respondents said that they were burned out by work overload and the tension-producing aspects of their jobs. They reported other stress inducers that intensied the chronic effects of work overload. Respondents identied other organisational stressors: 1 2 3 Unfair and demanding bosses or managers (25 per cent). Unsupportive and abrasive co-workers (18 per cent). Job responsibilities that exceed their authority and time resources (57 per cent).

Respondents reported that organisations efforts to reduce costs also contribute to the toxic brew of job stress. Reduced employment benets, the effects of mergers and acquisitions or a change in ownership, frequent mandatory overtime work, downsizing programmes and major departmental reorganisations were cited as job stressors by substantial numbers of respondents.1 2.1.1

Job Stress Goes Global


The Japanese call it karoshi. It means sudden death by heart attack or stroke caused by too much work.2 The typical Japanese manager works annually 500 hours more than his German counterpart and 250 hours more than his American counterpart. After typical work days, Japanese managers go to hotels near their ofces and they collapse into chairs in the lobbies and promptly fall asleep. Surveys of Japanese managers and ofce workers consistently show that over 40 per cent of them fear that they will literally work themselves to death. Medical experts in Japan conservatively attribute 10 000 deaths annually to karoshi. The Japanese government recently announced a $2m study and major companies like Sony are requiring all employees to take a two-week vacation each year, whether they want it or not. It looks as if karoshi is a global disease of the twentieth century because workers in Sweden, Great Britain, Canada, Germany and France all report similar fears.

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While these global results are depressing (do you feel stressed out by these dreary research ndings?), there are many examples of work systems and organisational practices that have a highly propitious effect on employees, their work attitudes and their productivity. Before we plunge into those programmes, it is necessary to describe the current thinking about job stress, its causes and its consequences.

2.2

Understanding Job Stress and its Components


Stressors refer to objects, events and situations in our physical and social environments that make a demand on our minds or bodies. A stress response is a mental and physical reaction to a stressor. Our perceptual mechanism causes us to interpret the stressor in a positive or negative fashion. If we respond to a request from a superior at work (stressor) as an exciting challenge that can lead to more job responsibility then we are experiencing eustress a positive mental or physical reaction to stress. But if we experience the request as a threat to our job prospects, then we are experiencing distress a negative mental or physical reaction to stress. Distress is the dysfunctional result of stress and it may mean that the employee is unsuccessful in adapting to or removing the stressor from his work environment. When we experience eustress it is a reection of our successful adaptation to stress in the work setting or it represents a degree of stress that does not exceed our personal capacity to cope with stress. Hans Selye, a noted medical researcher, coined the expression General Adaptation Syndrome for the process whereby human beings adjust to stressors in their environments.3 Figure 2.1 presents the model.

Alarm

The body and mind prepare to fight or to adjust to the stressor by increasing heart rate, respiration, muscle tension and blood sugar level. These rapid reactions are amplified by the endocrine system in preparation for the 'fight or flight' response. For example, an executive is told by his boss that he must give a keynote speech to investors at the company's annual shareholders' meeting and he only has one day to prepare for it.

Resistance

The body tries to re-establish a normal state using more resources to adapt to the stressor. The executive prepares for the speech by practising with a public speaking consultant. After chronic exposure to a stressor, the body begins to wear down. Stress-related illness may result. The executive experiences severe insomnia for two nights before he gives the speech.

Exhaustion

Figure 2.1

General Adaptation Syndrome

All employees have experienced General Adaptation Syndrome in their work and in their lives. The near-miss automobile accident, a project that is suddenly in a crisis, the sudden death of a loved one are examples of experiences that can trigger major physiological changes, attempts to cope with the experiences and possible stress-related reactions to these inevitable life events. Stress is a perfectly
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natural human response to situations that are overwhelming in either positive or negative ways. Equally apparent in General Adaptation Syndrome is the idea that humans do have considerable personal and physical capabilities to cope with stress and to overcome its effects. For instance, the superior performance of Olympic athletes in intensely competitive situations shows how they use stress positively to raise their performance above the levels of world records in their events or sports. The more conventional aspects of stress are the constraints and demands it imposes on us to prevent us from doing what we wish to do. Stress is an obstacle in our lives and in our work. Our environments have innitely more capacity to create stressors for us than we have reserves to cope with them. Individuals who perform emergency rescue and medical work, direct and co-ordinate the ights of aircraft and perform police work all experience near-constant alarm reactions in their work. It is therefore not surprising that workers in these occupations often experience the symptoms of the exhaustion stage more quickly than their counterparts in less taxing occupations. Leaders of such work teams and military rescue units know the value of rehearsal and emergency simulation. Constant practice and readiness remove the temporary performance obstacles presented by the alarm reaction stage. Preparing people to be rational and effective under emergency conditions means that the alarm reaction stage must be suppressed through countless trials and practice runs. While this is entirely possible and desirable in such professions, nonetheless, people in these careers usually leave them at an early age. For instance, the average retirement age for commercial divers who perform under-water construction tasks is a ripe old 32! As employees, we may understand the nature of the stressors that we confront and they do not generate high uncertainty for us. For instance, if you have received many excellent performance reviews and you have successfully completed several key projects during the current performance appraisal period, you are probably very certain that you will receive an outstanding annual work assessment. The constraints and demands of the job may generate, for the employee with little project experience and limited job experience, considerable apprehension about an upcoming annual work assessment. This example shows how two people with the same job can have totally different perceptions of stressors and opposite reactions to them.

2.3

A Model of Causes and Consequences of Stress


Researchers now agree that there are three categories of causes of job stress: environmental, organisational and individual.4 Three categories of consequences of job stress exist: physiological, psychological and behavioural symptoms. Along with the effects of individual differences, the stress model is shown in Figure 2.2.

2.3.1

Environmental Factors that Can Induce Stress


Economic uncertainty represents the apprehension that people experience when employment conditions deteriorate and job insecurity rises for workers. When companies struggle with increased competition due to deregulation, falling

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Causes of Stress Environmental factors Economic uncertainty Political uncertainty Technological uncertainty Individual differences Perception Job experience Locus of control Type A behaviour

Consequences of Stress Physiological symptoms Headaches High blood pressure Heart disease

Organisational factors Task demands Role demands Interpersonal demands Organisational structure Organisational leadership Organisation's life-cycle stage

Experienced stress

Psychological symptoms Sleep disturbances Depression, anxiety Declines in job satisfaction

Individual factors Family problems Financial problems

Behavioural symptoms Productivity level Attendance pattern Quitting the job Accidents Substance abuse

Figure 2.2

The stress model

demand or falling prices, they often compensate by downsizing, reducing pay levels and shortening work-weeks. Under these dour conditions business bankruptcies rise and employees are thrown on the dole. In turn, personal bankruptcies rise and labour groups press politicians for legislation to protect trade and jobs. In Europe, government involvement in labour markets generally follows the practice of state-supported training to help workers cope with changes in the job market. As The Economist notes in an editorial, With more training, [European] governments can encourage not only lots of new jobs, but lots of good jobs. It is a prescription temptingly in tune with the times: knowledge workers . . . exibility . . . human capital.5 The problem is that governments do not do it very efciently because, after all, government training is a form of labour market regulation. Further, the costs of state-sponsored training programmes must be borne by the private sector in the form of higher taxes on income and prot. For instance, in the United States, for an employer to create a job that pays $50 000 per year, he must shell out $88 000. The extra $38 000 covers unemployment insurance costs, payroll taxes and other levies. By comparison, a company based in Denmark must cough up $100 000 to create that same job! It is not surprising therefore that Denmark has a much higher unemployment rate in a much less competitive economy than the USA. A similar argument could be developed for all of the countries in the EU. Those countries are good at creating job training programmes but they are terrible at lowering their unemployment rates! The primary antidote to economic uncertainty for workers is, of course, job creation. The private sector in Europe has been woefully inadequate in this area because the true costs of creating another job in Germany, Sweden, Denmark, France etc., is so high that many productive rms in these nations have simply
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found greater returns in building plants in foreign markets. The added costs noted above reects the governments involvement in labour markets. As long as European governments remain involved in national labour markets, Europe will continue to experience jobless growth and the United States will stay on top in the world competitiveness race.6 Those who will suffer the most will be unemployable young people in Europe. For them, economic uncertainty will remain a fact of life. Political uncertainty is probably more of a source of job stress in countries with unstable or repressive political systems. Comparatively speaking, workers in the UK, Europe, Canada and the United States experience far less job stress induced by political uncertainty than their counterparts in Iraq, Iran and the African nations. Technological uncertainty induces job stress through technological breakthroughs and its attendant knowledge obsolescence. Organisations nd competitive advantage in improvements that are technology based and some of their employees will nd that their job knowledge and skills become obsolete as a result. This form of uncertainty may motivate some threatened employees to retrain to obtain skills that will enable them to meet more technologically sophisticated job requirements while other threatened employees accept the inevitable pink slip and move to less technically sophisticated jobs for lower pay in other industries. Job displacement is never easy for the employee affected by technological uncertainty. However, organisations become more efcient and their productivity improvements generally raise living standards for their employees. In the aggregate, the general economy becomes more competitive and better jobs are created. 2.3.2

Organisational Factors that Create Stress


Task demands are potential stressors related to your job. They include the extent to which you experience autonomy, variety and feedback about your performance on the job. The physical surroundings for your job also may be sources of stress. These are such things as noise levels, vibration, the speed of work ow, temperature and humidity levels and the frequency of shift work changes. In general, greater autonomy dampens the level of job stress experienced by employees, as does variety in work and skills required. Role demands refers to conicts that arise between the employees personal values and supervisory and organisational values. Conicts in expectations among peers, supervisors and the employee can also induce stress. In downsized organisations employees often experience role overload: the expectation that an employee will accomplish more work in less time and with fewer resources. Role ambiguity is a source of job stress because it represents the employees poor job understanding and the uncertainty of not knowing where to start on a newly assigned job. Heres a recent example of how organisational role demands can undermine employees terminal and personal values and lead them to become whistle-blowers (see Module 1 for a case that details whistleblowing).7

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Once security engineer Glenda Miller questioned the reliability of an employee identication system to be brought on-line at a TVA-run power plant in Alabama, she knew she was in for trouble when the plants operator sent her to company psychologists. The sessions with the psychologist were a series of hostile interviews in which she was questioned about her church attendance, whether or not she missed her husband when he travelled and whether or not she had failed to pay parking tickets. Six months after she questioned the systems reliability she was red for being unt for duty. Now she has brought a wrongful termination suit against TVA, which at this writing, refuses to comment on the case, citing concerns for Ms Millers privacy. The practices used on Ms Miller seem to be more common in the nuclear energy generation business. Employees get normal performance reviews and promotions until they question operating procedures or safety. Needing a method to discredit them, management turns to psychological counselling. Lately, the US Nuclear Regulatory Commission has weighed in by challenging several power companies that operate nuclear facilities to prove that their operations are safe based on concerns raised by employees. Psychological testing of nuclear-plant workers is now routine because of dangers presented by employees who may use drugs and possess behavioural problems. Plant operators are supposed to monitor employees closely and offer assistance to employees who are showing signs of stress. NRC ofcials say that they are aware of utility companies that are abusing the rules to harass whistleblowers but that it is difcult to prove that psychological exams are not necessary. NRC ofcials are rightly concerned, because they feel the operators harass whistleblowers because they have raised safety concerns that would cost millions of dollars to correct. Now the federal agency has ordered a review of its programs for protecting whistle-blowers from retaliation. Advocates for whistle-blowers hope the review signals the beginning of a tougher stand by the agency.

Interpersonal demands refers to the pressures created by groups and the employees co-workers. Lack of co-operation, collaboration, trust and support among members of a work group will create job stress for many members of the group. Dysfunctional group dynamics will be particularly stress inducing for employees who are afliation oriented and place great value on effective group relations. Organisational structure is the extent to which the organisation is highly formalised with extensive work rules and policies that constrain the work choices of employees. Centralisation is also an aspect of organisational structure that can act to limit employee discretion in decision-making. Extensive rules, high centralisation and low levels of employee participation in decisions that affect employees are all examples of structure characteristics that may induce stress. Organisational leadership is the dominant culture created by the leadership style of top executives. Some CEOs create a culture that emphasises a short-run viewpoint, higher output with fewer resources, expendable human capital and tight nancial controls. Over long periods, this culture and leadership style will lead to employeeburnout and poor work-force morale. (See Table 2.2 to measure your potential for job burnout.) Organisational life-cycle stage refers to the stages of establishment, growth, maturity and decline. Each stage produces unique stressors for employees. For instance, company survival is uncertain in both the establishment and decline phases. Both phases may be characterised by lay-offs and structural change.
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The growth and maturity phases might cause the organisation to become too structured and formalised. 2.3.3

Personal Lifestyle Factors that Can Aggravate Stress


Family problems may surface in the employees work. Divorce, ageing parents, childrens misbehaviour and dysfunctional personal relationships can all undermine the employees performance on the job. These stressors cannot be left at the ofce door; they often seep into the employees relations with his work group, the companys customer and his boss. Financial problems create job stress for employees when they live beyond their means. Using one credit card to pay off the debt on another card is often an act of nancial desperation that can distract the employee to the point where he is a low performer. The employee who takes out a home equity loan to pay off credit card debt is simply swapping high-interest debt for slightly lowerinterest debt. As consumer debt mounts, personal nancial advisory services proliferate along with personal bankruptcies. These personal problems nd all sorts of ways to intrude into the workplace and lower employee performance. The causes of job stress that are summarised above create a cumulative stress effect as they build up in the employee. Alone, each stressor might be easily managed by the affected employee. It is a different story as one unresolved stressor piles on top of another. In this common condition, co-workers are always surprised when a small thing incapacitates an employee in the ofce or on the work team. People may comment that so-and-so just snapped but the real story lies in the accumulating nature of multiple, unresolved stressors which push the employee into the exhaustion phase of General Adaptation Syndrome.

2.3.4

Individual Differences
The middle portion of the stress model in Figure 2.2 shows the role of individual characteristics. Together, individual characteristics provide the mechanism that allows the person to interpret stressors in a positive or a negative fashion (eustress or distress). These factors also moderate the relationship between potential stressors and experienced stress. Research has found perception, job experience, locus of control and Type A behaviour to inuence this relationship. Perception is a moderator because it shows that we react less to the reality of the situation than to how we interpret and perceive the situation. Reality matters less than our perception of it as a cause of stress. Apprehension about an upcoming job event is usually much worse than the event itself. Further, what one employee views as an energising job challenge may be experienced by another employee as a threat to his job security. Job experience is a powerful stress reducer once it is acquired. But, for the new employee or the recently transferred employee in a new job, the absence of job experience is a powerful stressor that can be the basis for role ambiguity and fears of inadequate or obsolete knowledge. Accumulated job experience means the acquisition of job-coping skills by employees. Employees who are well-practised and condent because of their job seniority, are much less likely

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than their untested colleagues to have with the same intensity and frequency the jolting physical and emotional discomfort of the alarm stage in General Adaptation Syndrome. Locus of control is a pattern of beliefs about the connection between behaviour and its consequences (see Module 1). Internalisers believe that they are in control of their lives because they are responsible for the things that happen to them in life. Externalisers believe that often fate intrudes to create outcomes in life that are not related to their behaviour. Research evidence concludes that internalisers perceive their jobs to be less stressful than do externalisers.8 Type A behaviour is dened as an action-emotion complex that can be observed in any person who is aggressively involved in chronic, incessant struggle to achieve more in less and less time, and if required to do so, against the opposing efforts of other things and other persons.9 Type A employees generally share the following behavioural and emotional qualities. 1 2 3 4 Work long, hard hours under the conditions of constant deadline pressures and chronic role overload. Often take work home and are unable to relax at weekends or on vacations. Compete constantly with themselves by setting high standards for performance and productivity to the point of being driven and obsessed. Become frustrated by the work situation, are impatient, easily irritated with the work efforts of others and misunderstood by co-workers and superiors.
Classical proles of type A and type B behavioural patterns
Type B behavioural pattern Is mild-mannered Relaxes without guilt Is not concerned about time Is patient Does not brag Plays for fun, not to win Has no pressing deadlines Is never rushed

Table 2.1

Type A behavioural pattern Measures success by quantity of results Is always active and moving Walks rapidly Talks rapidly Eats rapidly Does two or more things at once Cannot cope well with leisure time Is obsessed with numbers and measures of performance Is socially aggressive Is highly competitive Experiences constant time pressure

Recent research on Type A and Type B behaviour proles (see Table 2.1) has found that impatience with the pace of work is less of a contributor to stress symptoms experienced by employees than the extent to which a person is angry, hostile and insecure regarding his abilities on the job.10 Leading medical researchers agree that the Type A and Type B proles have outlived their usefulness because being hard-working, interrupting people and being in a hurry are not necessarily bad for your heart.11 The emerging portrait is that adaptive Type As reduce experienced stress by being hard-driving, but with no sense of hostility or aggression towards others. Aggression, hostility and anger
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can contribute to experienced stress. These tendencies are associated with the revised Type A behavioural pattern that is now strongly correlated with forms of heart disease. 2.3.5

Consequences of Stress
Physiological symptoms are the changes in metabolism that accompany stressors. While the links between stress and physical symptoms such as increased heart rate, blood pressure and breathing rates are poorly understood, nonetheless, these metabolic activities do change dramatically in people under stress. With chronic exposure to intense stressors, wear and tear on the body becomes more noticeable and problematic. Back trouble, migraine headaches, insomnia, heart disease, hypertension, diabetes and even cancer are linked to extended exposure to chronic stressors. Psychological symptoms are major consequences of stress and they may appear before chronic physical problems or disease. The mental health of employees is threatened by high levels of stress, and often poor mental health in employees, rather than physical symptoms, can very quickly cause their performance to deteriorate. Anger, anxiety, depression, nervousness, irritability, aggressiveness, passiveness and boredom accompany high stress. In turn, these problems result in low employee performance, declines in self-esteem, resentment of supervision, inability to concentrate, trouble in making decisions and job dissatisfaction.12 A frequently mentioned psychological symptom of job stress is burnout. Job burnout is a prolonged withdrawal from work, which causes the sufferer to devalue work and to see it as a source of dissatisfaction. Take the simple test in Table 2.2 to see if you are a candidate for job burnout.
Table 2.2 Are you aame from job burnout?

These questions help you assess your feelings about your job. They tap matters concerning your career, the match between your job and your skill set, and current job stressors that you may be experiencing. Think about your job during the last six months and rate how often each questions symptom is true for you. Scale: 1, only rarely; 2, sometimes; 3, often; 4, frequently; 5, always. 1 2 3 4 5 6 7 8 9 10 I have difculties concentrating on the job. I nd myself considering the benets of quitting. Im more withdrawn at home. When I wake, I dread going to work. Ive been missing a lot of work lately. My job is expanding into my leisure hours. Ive become more irritable with some of my co-workers. I dont feel refreshed after the weekend. Im often bored at work even though Ive got lots of work to do. Lately Ive been using alcohol and drugs to unwind from the pressures of work.

Scoring: 1020: You are doing OK. 2130: Think about the value of preventive action and some life changes. 3140: You are showing signs of burnout and you must take immediate action to achieve improved work-life balance. Over 40: You have burned out. Watch out for other signs of diseases of adaptation in the General Adaptation Syndrome.

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Behavioural symptoms related to stress include changes in performance, absenteeism, hopping from job to job, altered eating habits, exercise patterns, cigarette smoking, use of alcohol and drugs, rapid speech pattern, nervous dgeting and withdrawal behaviours. Considerable research has tried to explain the relationship between job stress and performance.13 Figure 2.3 shows the relationship between stress and job performance. The logic of the graph is that low to moderate stress levels stimulate the employee and increase his tendency to act to reduce stress levels by performing effectively on the job. However, high levels of stressors create unattainable demands on the employee that cause performance to deteriorate rapidly. Likewise, if stress levels on the job are moderate, but long lasting, performance will also deteriorate due to the problem of cumulative stress. This last point explains why hospitals rotate medical personnel from emergency department duty and military units rotate personnel from duty assignments with a high potential for hostilities.
High

Low High

Job Performance Low

Stress Level

Figure 2.3

The stressjob performance relationship

2.4

Individual Approaches to Managing Stress


Employees are now much more aware of their personal responsibilities for coping with job stress and for maintaining healthy lifestyles. Most employees do not have to be convinced of the value of taking responsibility for their own well-being. Below is a review of some techniques that employees can use to manage prolonged stress. 1 Exercise. People of all ages are walking, riding bicycles, attending aerobic classes, practising yoga, jogging, swimming, playing tennis and swatting
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squash balls. While there is no conclusive research that shows that prolonged physical exertion will stave off strokes and heart attacks, no one doubts the sense of well-being imparted by regular, vigorous exercise. Most runners and tness addicts will quickly tell you that it is very hard to focus on job stress when you are trying to complete a vigorous workout. No matter what form the exercise takes, it will require more blood ow to muscles and lungs. This physiological requirement causes our exercising employee to be more distracted from work problems and stressors. 2 Relaxation. Herbert Benson was one of the rst researchers to discover the relaxation response. When he studied Western and Eastern peoples, he found that the Judaeo-Christian people have created the response through prayer, and the Eastern people create it by meditation. Achieving the relaxation response does not require a theological or religious orientation. However, if you regularly pray or meditate, you probably encourage the relaxation response. The relaxation response reverses the stress response in the human mind-body system. When it is practised, the individual sits peacefully in a comfortable chair in a quiet location. All tight clothing is loosened before the person becomes completely still. Beginning with the extremities, the person wills his muscles to completely relax while he focuses on breathing through his nose in a slow and deliberate manner. Without using an alarm, the individual allows 20 to 30 minutes to pass while he is in this quiet state. Once the relaxation period is completed, the individual opens his eyes fully and sits peacefully for a minute or two before getting up. The practised individual will engage the relaxation response once or twice per day.14 Practitioners of meditation and relaxation exercises claim that it reduces their heart rates, blood pressure and other physiological indicators of stress. Diet. We are what we eat. Diet plays a signicant, indirect role in stress management. Foods with high sugar content stimulate or prolong the stress response and high-cholesterol foods adversely affect blood chemistry. Good eating habits contribute to our overall health, making us less vulnerable to distress. In his strict diet that de-emphasises medication and surgery for individuals with coronary artery disease, Dean Ornish puts patients on his reversal diet to open up their coronary arteries.15 He claims to have had success in greatly reducing the blood cholesterol levels of individuals who have rigorously followed his approach to nutrition-based good health. Further, he claims that long-term followers of his approach to nutrition have greatly lessened or completely eliminated their need for heart medication. Opening up. We all experience traumatic events in life. A healthy response to these moments or periods of personal crisis is to conde in others. It may not be easy to discuss difcult personal traumas with others, but selfdisclosure can induce lower stress and a more positive outlook on life. Some limited research exists that shows that individuals who wrote once a week about traumatic events had healthier outlooks and lower absenteeism than those subjects who only wrote about non-traumatic events.16 Confessing to others is thus not the only pathway to lower stress: Honest entries on a regular basis in a diary may accomplish the same thing.
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Professional help. Sometimes employees have problems coping on their own and they seek professional help or clinical counselling. People who want this kind of help can choose among psychological counselling, career counselling, nancial and family counselling, physical therapy, medical treatment, surgical intervention and stress debrieng. Organisations often make these services available to employees on a condential basis through an Employee Assistance Programme (EAP). EAPs help promote early detection of stress reactions to avert permanent physical and psychological damage to employees.

2.5

Organisational Programmes of Wellness and Job Stress Management


At the Merck Corporation when eight top-level managers asked employees in a focus group how they would respond if company managers handled work-life issues with exibility and respect, they were surprised and delighted.17 The employees told them they would react with increased loyalty, a willingness to work hard and productivity improvement. At rst, creating competitive advantage from managerial exibility in helping employees handle personal conicts seemed nice, but too hard to measure and justify. Since Merck was a sponsor of the Wharton-Merck Roundtable, the company felt it had to make headway in this area. The Roundtable is a discussion group made up of 20 managers from Merck and professors from the University of Pennsylvanias Wharton School of Business. Together these professionals are trying to develop the skills needed by managers and employees to achieve life balance and to help others do the same. Merck managers and the Wharton professors believe that it is possible to train a new enlightened manager who is not a creature of the increasingly unfavoured command and control organisational design. Here are the skills identied by the Roundtable participants, followed by an example and comment. Reward performance and productivity, not face-time spent working. A Merck employee who travelled 30 per cent of her time including weekends resented her boss who required her to be in the ofce by 8 a.m. on Mondays. While she kept up her performance, she told herself, OK Ill do the best I can, but youre not getting any more from me. Relieved when this boss left, the employee was much more productive and motivated by his replacement who had a very different management style. She told the employee, I trust you to get your job done. The employee responded by thinking, I was completely loyal to her and much more enthusiastic about my work. Live by your values and encourage others to live by theirs. A top female manager and her female subordinate took very different approaches to handling work and motherhood. After maternity leave, the subordinate was tormented by her job-induced separation from her child while her boss joked, [Im] more of an ice queen. She cares for her two children without any guilt or sense of distraction at work. Despite the bosss different views, she helped her subordinate ease her concerns by designing a job-sharing programme that has delighted her

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subordinate, raised her loyalty to Merck and prevented the occurrence of a host of performance problems. Build respect based on trust and respect. A nancial analyst did not expect time off when her toddler needed a tonsillectomy. To her surprise, her boss looked at her and said, Your daughter comes rst. The gesture fostered intense loyalty in the employee. As she was preparing for a long-awaited vacation her bosss assistant called for help in preparing a pressing management report. Without hesitation she drove to work and helped get the report done. It is clear that there are ways to generate organisational commitment in a period of downsizing and structural change in organisations. The point in each of the examples is that employee loyalty and exceptional performance spring from one-to-one work relationships that reect a supervisors concern for stressors that can act on a subordinate. The fact that enlightened companies and thoughtful academics are confronting these issues is encouraging. 2.5.1

Corporate Wellness Plans Go after the Not-So-Well Employees


Many companies that are interested in having t and healthy employees have spent large sums of money on exercise programmes and tness centres. Through these efforts, managements hoped to lure sedentary employees away from their desks and into exercise programmes to make them more t and to lower healthcare costs along the way. Many companies have found that their elaborate wellness programmes, weight loss clinics and on-site gyms have not delivered the anticipated savings connected to lower absenteeism due to sickness and lower health-care costs.18 Rather than simply building an on-site gym and hoping that employees will use it, companies are now revising their programmes to use their wellness dollars more effectively. For instance, some companies use questionnaires and tests for high blood pressure and cholesterol and body-fat measurements to identify high-risk employees. Then, using a variety of direct and indirect incentives, like discounts on health insurance premiums, the rms hope to lure the couch potatoes into more active and healthy lifestyles. There is general agreement that it is very difcult to calculate the benets of wellness programmes, on-site gyms and lifestyle management programmes. And many employers feel that they have done about all they can on the supply side to cut health-care expenses through managed care and joint ventures with hospitals and physician groups. Thus, companies are looking for ways to reduce their employees use of health-care resources. For instance, Champion International Corporations ambitious wellness programme once provided free weight-loss classes and state-of-the-art tness centres at its US headquarters and at four other company sites. At any given facility, fewer than 10 per cent of the employees used the wellness resource centres. The company recently stopped paying for weight-loss programmes, but it has kept open the tness centres. The company now offers on-site physical therapy programmes and it waives insurance deductibles for cholesterol screenings, pap smears and other tests. Johnson & Johnson Company tries to identify employees with costly habits. Employees can earn $500 discounts on their health insurance premiums if they

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agree to have their blood pressure, cholesterol and body-fat checked and answer 150 questions about aspects of their lifestyle. Examples of the questions include: 1) Do you drive within the speed limit? 2) How often do you eat fried foods? 3) Do you exercise regularly, and if not, why not? Those workers who are found to be at high risk receive a letter that urges them to join a diet and exercise programme. If they fail to do it, they forfeit the $500 discount. While the programme is new, J&J says that participation has risen and over 96 per cent of the companys 35 000 US employees completed the questionnaire, as compared with 40 per cent before the incentive was offered. Quaker Oats Company gives employees a $140 credit that can go towards benets if they make a healthy lifestyle pledge. The more promises employees make, the more they earn. For instance, pledging to exercise three times a week earns them $20 as does the pledge to wear a seat belt when driving. Pledging to not smoke and to drink in moderation nets them $50 for each pledge. The programme runs on the honour system and Quaker Oats ofcials feel that employees do not abuse the system. The J&J and Quaker Oats programmes are strictly voluntary and both companies state that they maintain strict condentiality on workers health proles. J&J stores its employees health data on a separate computer that is not hooked up to the companys mainframe system. In spite of these safeguards, some legal experts are concerned that companies will use the data to eliminate employees who have been evaluated as poor health risks. Companies counter-argue that they are trying to combat specic health problems in their work-forces. For instance, Tenneco, Inc., a large conglomerate, gives doctors in its preferred provider health-care system its employee data so that the doctors can identify health problems in particular plants. Recently, Tenneco found that its workers on oil platforms in Louisiana were all too fat because they were gorging themselves on the rich local cuisine. Based on this nding, Tenneco built an on-site exercise facility and retrained the cooks to prepare low-fat meals. At this writing, no one knows how the workers feel about all of this corporate interest in their waistlines! L. L. Bean, the big US mail-order catalogue company found that blue-collar workers were uncomfortable exercising alongside white collar employees in an on-site workout centre. To increase the participation in exercise programmes among blue-collar workers in a new facility, the company built a separate workout centre for blue-collar workers. Our last example is from Applied Materials Company which broadened the denition of exercise to increase employee participation. Under the companys old scheme, prizes such as tee shirts, socks and hats were given to employees who exercised aerobically for periods of 45 minutes during a six-month period. The company was disappointed with the rate of employee participation. To raise the rate, the company changed the programme to award points for activity periods that lasted for 30 minutes per day. The activity periods could be climbing stairs, gardening and housework. Under the new scheme participation jumped to 2000 employees from 500 employees under the old scheme.

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2.6

Downsizing: A New Form of Permanent Job Insecurity?


The effects of downsizing on employees and their fading belief in guaranteed jobs is fuelling a lively debate in America.19 The discussion has centred on the political aspects of free trade as an alleged cause of job lay-offs. Patrick Buchanan, a Republican candidate seeking that partys presidential nomination, framed the debate this way, Weve got to get those good-paying jobs back into the United States, stop exporting them. To hear Pat tell it, free trade is the enemy of working class Americans. John Challenger, executive vice president of Challenger, Gray & Christmas, an outplacement rm in Chicago, Illinois, believes that downsizing occurs for many more reasons than shifts of production to overseas locations. Economist Brian Horrigan in Boston says lay-off decisions are almost never directly related to foreign competition. Many are decisions executives could have, should have, would have done anyway. The big corporate lay-offs shown in the table in the Nynex case at the end of this module occurred for many more organisational reasons than free trade. Inuential economists and government ofcials have noted several reasons for downsizing which are shown below. Free trade does not seem to make the list.

2.6.1

Domestic Competition
Deregulation in airlines, banking and telecommunications has opened up huge opportunities to small and large competitors. In the late 1980s, AT&T made telephones in Louisiana. By 1992 the plant was closed and its 350 workers were sent home. Those phones are now made in Singapore. The big lay-offs at AT&T represent the companys efforts to be prepared for the rough and tumble competition in the telecommunications wars. In late February 1996, AT&T announced that its long-distance customers would have free access for one year for ve hours of use per month to the Internet. America On-Line, Prodigy and Microsoft have all red back with equally attractive offers. Meanwhile, AT&Ts promised service has not materialised and customers complain of software glitches and ineffective on-line technical service. It appears that even mighty AT&T can be tarred for promising more than it can deliver.

2.6.2

Merger Mania
The combining of Chase Manhattan and Chemical Banking Corporation to form the largest commercial bank-holding company in America made large numbers of jobs redundant in the new company. At least 12 000 jobs will be lost in the new company because there is simply too much overcapacity in the US banking system. A spokesman for the new company said, its not like the foreign banks operating in the US are taking business away. The next US industry in which a similar overhaul can be expected is insurance. With intense competition from huge mutual funds that are ush with cash, the insurance industry is rapidly waking up to an explosion in product and service choices from domestic and foreign competitors. Giants like Fidelity, with $420bn in assets, are taking a huge chunk of business away from insurance rms that once thought they had a rm grip on nancial services and pension-related business lines.

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2.6.3

Government Spending and Labour Market Involvement


Since the height of the US military build-up during the Reagan years, there have been substantial cuts in defence spending. The recently formed LockheedMartin Corporation (1995 merger) has pared 15 000 jobs to raise productivity and reduce overhead. Competition from Airbus Industrie certainly prompted Boeing Co. to dismiss 13 600 employees. World-wide excess capacity in the aircraft manufacturing industry forced Boeing to do this rather than start a price war that it might not be able to win. Consolidation continues to sweep through Americas aerospace and defence contracting companies as Boeing recently announced its friendly merger with McDonald-Douglas Corporation. The merger gives Boeing a world market share of 64 per cent in commercial jet airliner production. Related to cuts in the size of government spending is the position taken by experts who believe that one of the responsibilities of government is to ensure employability by subsidising the training of laid-off employees to help them sustain serial employment. Serial employment implicitly recognises that companies and industries will inevitably go through cycles of lay-offs but that there is no reason that those who are laid off should not be employable in another, growing industry.

2.6.4

Small Is Beautiful
Large companies that dominate their industries like IBM, WalMart and General Motors have seen smaller companies and start-up operations grab chunks of market share with more efcient, technologically superior methods. Some of these large rms are trying to mimic some of the frugal ways and adaptiveness of small companies. For instance, DuPont, 3M, Bell Atlantic, Sprint and Motorola have had programmes to nurture intrapreneurship or the creation of innovation from within the organisation. In the large companies that have successfully wrapped smallness around intrapraneurship are some common beliefs held by employees: share credit (without being told or forced to), know it is easier to ask for forgiveness than for permission, come to work each day willing to be red, follow your intuition about people and build the best team, ask for advice before asking for resources, build a coalition for ideas, early publicity (leaks) triggers the corporate immune system, only bet on those races in which you are running, stay the course and be realistic about how to achieve your goals and honour your sponsors.20

Not all large companies respond to aggressive, small competitors by trying to be more like them. GM, in response to powerful competition from Japanese car-makers with plants located in both Japan and the USA has reduced capacity
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and tried new manufacturing methods and management strategies. Increasingly, GM is ghting back, not with intrapreunership, but with outsourcing of all noncore business activities. It will take a while for this change to make a difference at GM which still makes over 70 per cent of its components and parts in-house and a union that will ercely resist job losses through outsourcing. 2.6.5

Restless Shareholders
Proponents of shareholder rights argue that the only responsibility of top managers is the maximisation of shareholder wealth. Therefore, downsizing, reengineering and the outsourcing of all non-core business activities are strongly encouraged by those who support this view. This is the short-term argument that supports any action that increases net income. Increasingly, the managers of pension funds, mutual funds and individual investors are leaning on corporate executives to raise returns to capital. Only six years ago, Kmart was a larger retailer than WalMart. In that period Kmarts sales have risen only $6bn annually while WalMarts rose nearly $60bn. Kmarts downsizing was due to its own efforts to turn around the operation, which is an internal issue, a spokesperson said. The other reason for downsizing at the retailer is an intense rivalry among large US retailers. At the time of writing, AT&T is having considerable difculty matching its downsizing announcements to its current operations.21 To the chagrin of upper management, new hirings slightly outpaced cutbacks during 1996. On 1 January 1996, senior executives vowed to eliminate 40 000 jobs over the next three years with 70 per cent of those coming by the end of that year. However, growth in AT&Ts local phone services, data outsourcing and Internet access have forced AT&T to increase stafng. Analysts are chiding AT&T by saying that the company will not be prot-competitive with its major rivals without achieving the proposed cutbacks. Currently, revenues per AT&T employee are growing at half the rate of most of its major rivals. The drubbing the company has taken in the press has not claried its downsizing plans. Only 1000 people have been laid off since January 1996 and 6000 managers left the payroll in January after accepting voluntary redundancies. These reductions have been offset by the hiring of 4400 new workers since January, and that includes 1300 new managers. Another 1000 managers in at-risk jobs have been reassigned to other jobs and 1800 managers who were to be laid off have had their jobs extended indenitely. Another 1400 managers who took redundancy in January 1996 have still not left and most are still on the payroll. If you can discern the executive plan in this paragraph, then you are far more perceptive than this writer! About the only result of AT&Ts downsizing confusion has been a plunge in employee morale to its lowest point ever. AT&Ts regular attrition rate is 810 per cent per year, meaning that the company loses about 30 000 people a year through voluntary separations and retirements. This of course prompts many employees to wonder why management could not have used attrition to achieve the cuts and relied on transfers instead of hiring new outsiders. As many employees note, Its tense here. Lots of workers are confused by this downsizing.

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2.7

A Semi-Last Word on Downsizing


Holman W. Jenkins Jr., the Editor of the Wall Street Journals editorial page makes some observations about downsizing and the value of human capital.22 First, he differentiates job security and employment security. He says that job security, which is usually contingent on highly rm-specic knowledge, is on the wane and it is clearly threatened by downsizing. Recent widespread layoffs indicate that employees with highly rm-specic work experience and job knowledge do have something to fear as downsizing rolls through their industries and rms. Employment security is a different creature and it is possessed by individuals who have wide experience and knowledge in many phases of industry production and service activities. In Mr Jenkins view job security is hard to come by but employment security is not. He says that those workers who have employment security have acquired a variety of skills, worked hard to achieve career goals and sought responsibility in all jobs they have held. They are rewarded for their work-focused self-reliance in terms of mobility, versatility and value that is sought by employers. Mr Jenkins argues with some effectiveness that such individuals will always nd meaningful work because they know how to add value to the products and services produced by the organisations in which they work. He also suggests that the demise of job security is not necessarily a bad thing because it will prod creative and self-reliant people to put more trust in their innate abilities than in the strategic planning skills of executive teams bent on trying to raise prots by lay-offs. Mr Jenkins comments may provide little comfort to people who have received pink slips and been told that their work unit has been downsized. Cost cutting and downsizing will be permanent xtures in industries that confront deregulation, restless shareholders, low-cost foreign competitors and ever-shortening product and service life-cycles. In a similar fashion, employees are nding that they must shoulder greater responsibility in their own pension planning as dened benets plans are scrapped and replaced by dened contributions plans. In this environment, employers are telling their workers that Well make a contribution for you to a pension plan, but youll be responsible for making wise investment decisions so that these assets will grow and provide you with a secure retirement. Finally, health insurance benets are no longer a presumed benet of employment. In the USA, over 15 million workers are contract or temporary workers who do not receive health-care insurance. When you add in their family members, nearly 39 million Americans are uninsured against illness. Those employees who are lucky enough to have health-care insurance nd that they must shoulder a bigger chunk of its costs in the form of a rising co-payment. It is not surprising that wage increases have stagnated even as productivity and prots have risen for corporations. The simple conclusion from the discussion above is that employees cost more and companies are extremely cautious about hiring more people, especially if they can avoid it by using contract employees, outsourcing of functions and improvements in technology. These trends underscore the argument advanced by Mr Jenkins. He is right when he says that the employees who prosper and survive in industries buffeted by the forces noted above are those who have acquired skills that make them self-reliant, exible and instant contributors to

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any organisation that they work for. In strategy terms, these individuals have developed a personal source of competitive advantage that employers cannot easily nd among current employees and applicants from external labour pools. Indeed, they are self-contained knowledge workers who possess intellectual capital that can be quickly used to support and advance a rms competitive advantage. And, in this respect, they are highly sought after (and compensated) by companies that recognise their value. Employees who resist acquiring exible, highly portable intellectual capital run the risk of being swept away by downsizing, outsourcing and re-engineering. From a stress perspective, they are forced to determine ways to become more versatile and exible after they experience a major economic and emotional jolt such as downsizing. Becoming more versatile and developing ones own knowledge-based competitive advantage can be very tough to accomplish when debts pile up and families experience stress induced by the breadwinners lost job. The employee who focuses less on job security and more on developing his own source(s) of competitive advantage can more easily weather the inevitable effects of cost containment trends that sweep through their industries. Call these human capabilities what you want: need for achievement, self-efcacy, entrepreneurial urges, whatever. They are powerful antidotes to job stress induced by ineffective management teams who feel they can downsize their companies out of rising costs and falling competitiveness.

Summary Points
Alarm is the initiation of the ght or ight physiological and psychological response to stress and it mobilises the body and mind to defend themselves against physical threat. Behavioural stress symptoms are employees actions that denote low performance in attentiveness and lack of carefulness in work. The existence of these symptoms in employees may suggest that they are nearing the exhaustion phase in General Adaptation Syndrome. Cumulative stress effect occurs as stressors accumulate in a multiplicative fashion and as employees resources and capacities to cope with stress remain the same or deteriorate in the face of growing or unlimited distressors on the job. Distress is a negative physical and psychological reaction to a stressor. Environmental stress factors originate from economic, political or technological uncertainty and induce alarm reaction or press employees with limited stress-coping resources into exhaustion in General Adaptation Syndrome. Eustress is a positive physical and psychological reaction to a stressor. Exhaustion is the nal stage of General Adaptation Syndrome, and is the wear and tear on the body and mind created by chronic stress overload. General Adaptation Syndrome is a model that shows how all living things react to stressors. Individual stress factors represent personal life circumstances and relationships which induce General Adaptation Syndrome.
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Job burnout is prolonged psychological withdrawal from work in employees who have come to devalue their work. Karoshi is a fatalistic Japanese expression that means to die of a heart attack or stroke on the job. Organisational stress factors are characteristics of the organisation that induce General Adaptation Syndrome. Physiological stress symptoms are changes in a persons metabolism and bodily processes that can occur as headaches, high blood pressure and heart disease. Psychological stress symptoms are chronic negative emotional reactions to stress such as anxiety, irritability and depression. When numerous and consistent, they probably indicate that an employee has entered the exhaustion phase of General Adaptation Syndrome. Resistance is that phase of General Adaptation Syndrome where a person uses his body and mind to cope with higher stress loads. Stressors are demands on our minds or bodies that are made by objects, events or people in our environments. Stress response can be either a physiological or a psychological reaction to a stressor or both. Type A behaviour is the action-emotion pattern characterised by competitiveness, impatience and hostility.

Review Questions
True/False Questions
2.1 Job burnout is principally caused by work overload. T or F? 2.2 As far as the physiology of stress goes, the body cannot tell the difference between eustress and distress during the alarm reaction phase of the General Adaptation Syndrome. T or F? 2.3 An employee with high employability would have probably shown considerable adaptiveness and resourcefulness in his previous positions. T or F? 2.4 Whistle-blowing behaviour may be a response to job stress induced by conict between organisational work demands and personal values. T or F? 2.5 The Type A person who is most prone medically to the effects of job stress is hostile towards others and unsure of his own abilities. T or F?

Short Essay Questions


2.1 Comment on the relationship among job stress, formalised work systems that allow little employee work discretion and long-term employee productivity.

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2.2 Why might managers experience high levels of job stress and burnout if their companies are trying to lower their costs by downsizing? 2.3 Comment on some of the features of organisational stress-management programmes and suggest those features that may be most useful from the employees perspective.

Case Study 2.1: Samuel Logston


Samuel Logston left home at 5 a.m. and headed for the train station for his 30-mile ride to the centre of the city. As usual, Sam hoped that the train would be on time so that he could catch a series of buses that would take him to his temporary job at a construction company in the congested industrial district. He was not looking forward to the journey, but he really had few choices since he had not worked full-time for 18 months. He is a master plumber with over 15 years of experience, but he was laid off from his job with a small, industrial plumbing subcontractor. His boss had apologised for the pink slip by saying that industrial and commercial construction was so slow that over 60 per cent of the citys plumbers were unemployed. That was little consolation to Sam. Sam believed that the commercial and industrial construction business would never recover to full employment, so he had begun the ambitious job of learning computer repair skills so that he could land a job in the citys bustling service industries. Although he vowed to study hard in all of his computer courses, he had found it very difcult to concentrate because he had assumed all of the childcare and household duties since his wife worked as a full-time teacher. This was a serious commitment because their two children were not yet in school. Caring for the two little ones left Sam with scant time to concentrate on the complexities of computer repair. Sams wife, Nora, taught social studies in a tough, inner-city school known for its gangs and drug problems. While she was a senior teacher at the top pay level, pay increases were few. When they were both working full time, they had to get up early, prepare the children for daycare and travel by public transport to their jobs after one or the other had dropped the children at the daycare centre. When one of the children was sick, either Sam or Nora had to leave work to take them home to see to their needs. Sometimes this created problems for each of them at work because it was difcult for their employers to arrange to nd a qualied substitute at short notice. Recently Sam always picked up the children from daycare, prepared the evening meal and completed all the house cleaning. At the weekends, he added shopping and bill paying to his list of chores. Nora concentrated on her job and frequently at the weekends she would mark her students exams and prepare lesson plans for the coming week. By the time the children were in bed at 8 p.m., both Sam and Nora had put in 15-hour days and they were simply too tired to talk. If Nora had her school work done, she frequently slept in front of the television. Only Sams snoring would awaken her around 11. She would nudge Sam and they would stumble to bed. Increasingly, Nora complained about her job and the extra work she was expected to do. Teachers had to handle discipline problems and they had to
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be available to meet the parents of students who were disruptive at school. It was not unusual for the parents to become abusive and hostile toward Nora and the school principal in these meetings. While she still enjoyed teaching, she dreaded her job activities that took her out of the classroom. She found being a hall monitor to be particularly stressful. She felt uncomfortable with the tougher teenage boys and she knew that they sensed her uneasiness. Some bolder boys would make threatening remarks to her. Just last week she had to fail a student who retaliated by saying that his father would be paying her a visit in her classroom. Sam had noticed that lately Nora seemed more depressed and he was concerned because she frequently talked about giving up her job. One of her colleagues had called recently and told Sam that she was worried about Nora. In spite of Noras discomfort at work, neither she nor Sam had counted on the nancial effects of his under-employment on their living standards. During the 18 months he had worked an average of two days a week. After six months of unemployment he had given up going to the plumbers union hall to bid for jobs. Companies simply were not hiring. Since Noras salary would not adequately cover their living expenses and the costs of his computer repair courses, he had begun to do small plumbing and carpentry jobs for people in the neighbourhood. If the children were sick, he would try to make arrangements with Mrs Phillips, the next door neighbour, to take care of the children when he had a repair job to nish. By now Sams temporary job had lasted for a month. It consisted of routine plumbing work on a major ofce remodelling project. At 6.30 p.m. when he returned home, he found Nora crying in the living room. The children were crying too and apparently they were hungry. As he looked closely at his wife, Sam saw that she had a bruised cheek. Nora then explained how the irate father of her failed student barged into her classroom as she was preparing to leave for home at 4.30 p.m. He said that she had to change his sons mark because failing the course might mean that he would be held back for a year. Nora had said that she couldnt change his mark and he would have to take up the matter with the schools principal. The boys father had blocked her exit from the classroom. A security guard had heard the fathers threatening remarks and he called the police. While the boys father had not hurt Nora in any way, nonetheless, she was so unnerved by the experience that she had tripped and fallen on her way out of the building. In the fall she had bruised her cheek. She told the police that she did not wish to pursue the matter in any way. However, she had to attend a meeting with both of his parents, the school principal and a security guard tomorrow at 9 a.m. Nora told Sam that she did not want to go to the meeting and that she could not stand the idea of being in the same room with the boys parents, particularly his father. As Sam saw the pain on his wifes face and the nervousness in her voice he understood why she wanted to leave. 1 What are the stressors that are at work on Sam and Nora? 2 Given their current circumstances, is it possible for Sam and Nora to overcome their difculties? What recommendations would you make to them?
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Case Study 2.2: The Pain of Downsizing

The bombshell fell last summer in the guise of a videotape. It was a slick, corporate news programme for employees, the kind that typically delivers some feel-good message. Not this one. It featured a nervous Nynex Corporate executive who insisted that the protable company need to slash its operating budget by up to 40 per cent to remain competitive. The upshot: another downsizing that would eliminate 15 000 to 25 000 people from the payroll. That meant more than one in ve employees would lose their jobs. The survivors of an earlier cutback cried foul, while management soberly tried to justify the employee meltdown. This is the tale of what has been happening at Nynex in the wake of that shattering announcement. It is the story of a abby company in the midst of a gargantuan effort to remake itself, reduce costs, improve customer service, and prepare for an onslaught of more aggressive competition in the years ahead. But it is also a wrenching human drama. The players: a dynamic, steely executive leading the effort; an outside consultant whose rm is billing the company $1m per month to help with the downsizing; a thoughtful survivor; and a resentful victim. In unusually revealing, introspective interviews, they offer an inside look at what its really like to live through the painful process that has become a central fact of corporate live in the 1990s. ANGRY AND BITTER. Like many corporations, Nynex has been shrinking for years. Since 1990, the company has rid itself of 19 200 employees out of a total of 95 400, including 13 000 managers. In pure percentage terms, this latest cutback is one of the largest ever reported by a major corporation. The company made its plans ofcial on January 24, 1994 by taking a $1.6 billion charge to earnings to cut 16 880 employees, or 22% of the work-force, over the next three years. Two months later, Nynex acknowledged the cutbacks would cost an additional $1.3 billion in charges for severance terms more acceptable to union leaders. Even though the company hopes to avoid forced layoffs by enticing employees to accept buyout offers, many months ago I would have said that morale was low and it couldnt go any lower, says one executive. But Id have to say its even lower today. Adds a former manager: The top executives are willing to sacrice people to make their bottom line on a quarterly basis. In the long term, they are selling the corporation out. The drama now playing out at Nynex is being enacted at many other corporations. Despite the economic recovery, massive downsizings continue at one brand-name behemoth after another. Rarely a week passes without the announcement of yet more cutbacks, in what has become the most unsettling and disruptive events in Corporate America. In a quest for efciency, companies have been charging billions of dollars off their earnings to lay off hundreds of thousands of workers. The current euphemism is reengineering a bloodless term for corporate bloodletting on an unprecedented scale. In the years rst quarter, employers announced an average of 3106 pink slips per day. * John A. Bryne, (1994) The Pain of Downsizing, Business Week, 9 May, 603 and 668.
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The sight of so many bodies on the corporate scrap heap is sparking a complex debate about prots and loyalty, and about the benets and unforeseen consequences of layoffs. Critics, including some prominent executives, believe massive downsizing has become a fad, a street when investors begin baying for cost cuts. Others maintain that large-scale staff reductions even at protable companies such as Procter & Gamble Co. and Xerox Corp., are necessary to maintain competitiveness in a fast-changing global marketplace. HARD CHOICES. Few observers expect an end to the spate of downsizing announcements. In many large companies, we still see tremendous fat, says Noel M. Tichy, a management professor at the University of Michigan. Yet there still remains this naive view that as the economy continues to take off, these jobs will come back. Thats nonsense. Tichy and others believe that recent gains in productivity which rose at a 4% rate in the last half of 1993 are largely the result of these employee meltdowns. What the statistics of efciency dont measure, of course, is the costs in emotional trauma to laid-off workers and their families, to the executives who often carry out the orders, or to the less secure survivors in dramatically changed organisations. Todays corporation is no longer a secure or stable place. Its an uncertain, turbulent environment where managers often nd their compassion and humanity in conict with the pressures of competition and ambition. Fear is almost palpable in the corridors of the reengineered workplace, where loyalty takes a backseat to survival and personal advancement. The events that unfolded at Nynex are unique and colored by the companys own culture, traditions, personalities, and politics. But they are also universal: they exemplify the challenges and the pain that face both healthy and troubled organisations everywhere.

Downsizings
In the quest for efciency and survival, many of Americas corporate behemoths have been shedding employees at unprecedented rates. Table 2.3 shows 25 of the largest announced staff reductions during 1994 and 1995.

The Recession Is Over But Downsizing Isnt


Corporate America announced 615 186 layoffs last year a new record. Even in the midst of an economic recovery, big companies continue to shed workers. In the rst quarter of 1994, announced layoffs totaled 192 572, or more than 3100 per day.

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Table 2.3
Company IBM AT&T General Motors US Postal Service Sears Boeing Nynex Hughes Aircraft GTE MartinMarietta Du Pont Eastman Kodak Phillip Morris Staff cutbacks 85 000 83 500 74 000 55 000 50 000 30 000 22 000 21 000 17 000 15 000 14 800 14 000 14 000 Company Proctor & Gamble Phar Mor Bank of America Aetna GE Aircraft Engines McDonnell Douglas Bellsouth Ford Motor Xerox Pacic Telesis Honeywell US West Staff cutbacks 13 000 13 000 12 000 11 800 10 250 10 200 10 200 10 000 10 000 10 000 9 000 9 000

The Cost-Cutter: Hes Gutsy, Brilliant, and Carries an Axe


Behind every major downsizing there is a person who leads the effort, and in so doing becomes both leader and scapegoat. At Nynex, it is Robert Thrasher. He is a tough-minded, 51-year-old executive vice president with a history of breaking the rules. At 5 feet, 3 inches, Bob Thrasher is a compact, muscular bundle of frantic energy a bionic gerbil, he jokes. Thrasher is always pacing, always talking at high-decibel level. And he is committed to the company. Divorced from his physician wife, he typically arrives at his ofce by 6.45 a.m. and leaves at 7 p.m. He cant remember a Sunday in the past 20 years when he hasnt worked at home or in the ofce. Thrasher would surely prefer to be known as the agent of change. Instead, the executive who nervously announced the impending layoffs on that in-house video has been branded the corporate assassin the person responsible for the plan to eliminate 16 800 jobs. His critics and there are many of them would say that he has ice water in his veins and a pocket calculator for a heart. Since Nynex announced its downsizing, he has had to disconnect the answering machine at his Stamford (Conn.) home because every evening it was lled with obscene messages and threats from anonymous employees. Colleagues dub him Thrasher the Slasher. In that same employee video an interviewer wryly noted that he was running unopposed as the top management SOB. A former Air Force captain in a tactical ghter group, Thrasher insists that the tough choices hes now making are inevitable. I know this is the right thing to do, he says. Today, we have a virtual monopoly, but the states are in the process of opening up their markets. We have to improve service and reduce costs to stay competitive. That realization, says Thrasher, came in mid-1992, during long-range planning discussions when he was chief operating ofcer of Nynex New York Telephone unit. Top management concluded that if it continued to run the business the
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same way, the companys costs per access line would keep increasing even as revenues steadily declined. Thrasher was relieved of his COO job to head the effort to reinvent Nynex. Why him? Many companies, from IBM to Westinghouse Electric Corp., have sought outsiders to lead their attempts at transforming themselves. Thrasher, by contrast, is the consummate insider. He joined the company as a construction foreman in 1965, fresh out of Massachusettes Institute of Technology, where he earned a graduate degree in structural engineering. The job was in his blood: His late father was a foreman for the Niagara Mohawk Power Corp. And what would he have thought of what his son is doing now? My dad would have thought Im breaking a social contract we have with our employees, Thrasher says but then dismisses the notion. Thats the monopoly mind-set. No one would ever accuse Thrasher of being a Bell-head, the sort of cautious bureaucrat who found shelter in the highly regulated embrace of the mother of all utilities. If anything, several associates describe him as crazy because of his gutsy candor and his irreverence for authority. As general manager of the companys Long Island unit in the mid-80s, he transformed what had been one of the most troubled operations with horrendous service into one of the best. He did not worry about bruising feelings. In the rst six months, boasts Thrasher, I reassigned, furloughed, and forced-retired half of the senior management team there. It was that sort of hardheadedness that made him a natural for the companywide reengineering effort. There was no other choice than Bob Thrasher says Ivan G. Seidenberg, president of Nynex. He has enormous energy, commitment, and passion for the company. Hes relentless. WEEKEND HUDDLE. Thrasher wanted to examine the company not by division, or department, or function. Instead he planned to analyse the company by its four core processes, which cut across the $13.4 billion corporation: customer operations, customer support; customer contact i.e., sales and marketing and customer provisioning, that is, the planning, design, and building of Nynex network. He created four teams, with a handpicked captain for each. After spending three days at GTE Corp. to get an inside look at its reengineering effort, he hired GTEs consultants, Boston Consulting Group (BCG), to help with the process at Nynex. By late march 1993, at a weekend meeting at the Stouffer Westchester Hotel in White Plains New York, he put his teams together with the consultant and told his incredulous audience what he wanted: a 35% to 40% reduction in operating expenses. The teams with 80 Nynex insiders and some 20 BCG consultants in total, dispersed and rushed through the bureaucracy observing all its key operations. They visited 152 best practice companies from Avis Inc. to Virginia Power & Light, looking for useful ideas. Back home, the inefciencies they discovered shocked all of them most of all Thrasher. Among many things, he learned that Nynex bought 83 brands of personal computers a year; that dozens of New York Telephone Co. employees spend their time repainting newly purchased trucks a different shade of white at a cost of $500 per truck; that Nynex spent $4.5 million to nd and bill only $900 000 in previously unbillable telephone calls. There was plenty more. Think
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of how, ask myself how I could have presided for two and one-half years over an operation that has been that screwed up. His teams rst came up with a list of 85 quick wins easy xes to make. By printing on both sides of customers bills, for example, the company will save $7 million a year on postage alone. By standardising on only two personal computers, Nynex could save $25 million in annual capital outlays. And then, in November, came the more substantive recommendations that would lead to the massive layoffs. All told, the teams compiled more than 300 specic changes, from consolidating work centers to simplifying procedures for approving customer service. Change doesnt come free, however. Thrasher initially estimated the moves would cost $700 million in capital. By 1997 the changes will cut $1.5 billion to $1.7 billion from the companys $6 billion in operating expenses. HUGE RETURN. On three consecutive days last December the most excruciating days of my life he made presentations to the directors of three boards at Nynex and its operating subsidiaries, New York Telephone and New England Telephone. He did something that would make any executive cringe: he asked the directors to swallow a record $1.6 billion charge against earnings and to make wholesale cuts from the payroll. The slide that clinched the decision contained the prediction that all of Thrashers xes, if implented, would generate an internal rate of return of 1025% and a payback on investment in two years. Thrasher told directors that if his teams could achieve only 25% of their goals, they would see a 226% return and a three-year payback. But those estimates didnt reect the sharp increase in the actual cost of cutbacks, which had grown from $700 million in January to $2 billion two months later as a result of union negotiations. Although he got approval to move forward some 950 people are working to carry out the changes Thrasher still meets resistance. Some of our senior management still dont get it, he says. What weve got to do is nd them and get them out of the business. Thats tough talk. This is tough, ugly work, he says. The stress is palpable, Im vilied throughout the company. People look upon me as the principal to the downsizing. Thats a tough thing to carry around. Hell, Id like not to downsize a single employee. But that would not be a prudent decision to make.

The Consultant: A Dentist Who Only Does Root Canals


For Phillip Catchings, the Nynex assignment has been the most challenging and difcult of his consulting career. As a partner at Boston Consulting Group, Catchings is the day-to-day leader of the consulting project that is costing Nynex $1 million a month. If BCG stays at Nynex until the job is done, the total bill could reach $40 million. Like Thrasher, hes hardly a popular gure at Nynex these days. For one thing, employees have seen their share of high-priced consultants come and go. Nynex is a champion at spending millions of dollars on consultants and doing nothing with the results grouses one manager.
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Besides, every time Catchings begins a consulting assignment he has done about 45 so far he is typically met with cynicism. There is some natural resentment when we come in, he says. People ask, What makes you guys so smart? and Why doesnt management trust us to do this ourselves? His job, he says, is to allay such fears but he cant do so by pretending that his remedies will be painless. A dentist who claims a root canal is not going to hurt will lose his credibility, he says. Im here to do the best possible for the organization. Above all, of course, Catchings presence provokes shudders because he is a memento mori in pinstripes. His arrival at Nynex or anywhere else usually means layoffs ahead. In half of his past 10 assignments, he has been part of a retrenchment effort. Yet his background hardly seemed to have prepared him for his role as the hardheaded, cold-hearted consultant. After graduating from Dartmouth in 1973, with a degree in psychology, Catchings ran a foster home for delinquent teenagers. He grew a beard and long hair, bicycled across the country, and studied pottery in Washington state. The wanderlust out of his system, he spent ve years in human resources with AT&T, then headed to Harvard Business School. He graduated with his MBA in 1982 and went straight to BCG. Like most consultants, hes aficted with jargon. Catchings, 42, speaks of crafting process platforms and de-averaging costs, of optimum solutions and phase-one diagnostics. He concedes that his family is often disappointed with his inability to tell an anecdote about his work. I must have a condentiality lter on my brain, he says. Along with his partner, Jeffery A. Bowden, Catchings rst consulted for Nynex and Chairman William C. Ferguson in 1989. That established a relationship that led to the current assignment. Catchings, whose expertise is mainly in change management, has spent 80% of his 55-hour workweeks at Nynex since late 1992. Bowden, a telecom expert, was already spearheading a similar effort at GTE that will claim 17 000 jobs. SCRIPTWRITING. The consulting pair huddled with Thrasher and other top executives once a week for four months, mapping out the project. By early March, Thrasher had picked his captains for the teams; Catchings and Bowden assembled two-dozen BCG consultants. Their role: write the script for the reengineering exercise and guide the effort. A compendium of several hundred pages detailed the projects ve major phases, from direct process observation in the rst four months to broad scale implementation, which is now under way. Catchings and Bowden helped to select the companies that teams visited for inspiration and ideas. After each trip, teams engaged in so-called clay-modeling sessions from the visits were molded into recommendations. Now Catchings must get on with the painful task of building the new structure and helping to make the staff reductions that will entail. How does he reconcile himself to the job of helping others wield an axe to people, their careers, and families? I try not to focus on that aspect of it, he says. Im also part of taking a frustrated, comparatively unsuccessful 70 000 employees and transforming their
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environment so they can be more productive. I think Im involved in saving lots of jobs, not destroying them.

The Survivor: Staying Power Has Rewards and a Price Tag


Nancy P. Karen, 46, is sure her job wont be destroyed. In her 24 years with the company, she has been an energetic workaholic in the critical area of information systems. As director of the companys personal computer network, Karen is facing new and tougher demands as a result of Thrashers efforts. She joined Nynex in 1969 during the companys big bulge in hiring, often called the service glut. To meet rapid growth, the company hired tens of thousands of people in the late 1960s and early 1970s. Karen, a Vassar College graduate with a degree in math, was one of the 103 000 employees at NY Telephone (NYT) in 1971. Today, NYT has about 40 000 people. Working in a regulated monopoly, she felt a sense of comfort and security that now seems a distant memory. Downsizing was totally unheard of, she says. Just about everybody here started with the company at a young age and retired off the payroll. Thrashers plan and Nynex earlier efforts to slash the payroll have changed all that. Of the 79 people who report directly to Karen, 59 have already seen colleagues forced off the payroll in previous rounds of cutbacks. Her department is likely to suffer a 30% reduction in stafng. When they started talking about another round of downsizing, people were a little more anxious because they feel theyre already stretched thin. Now well have to learn to work smarter and completely change the way we do things. Working smarter also means working harder much harder. She once directly supervised 26 people, instead of 79, and she used to work more normal hours as well. No longer. Karen now puts in 5060 hours a week, from 8 a.m. to 7 p.m. every weekday, at Nynex White Plains (NY) ofce. Wherever she goes these days, she carries a beeper and a cellular phone and checks her voicemail every hour. Its a different mentality, she says. My weekends and holidays are not reserved. On a recent biking vacation through Californias wine country, she called the ofce at least once a day from every little town. Since Karen is single, nobody complains about my work hours, she says. Nynex did not push Karen into her new and grueling pace completely unprepared. The company dispatched her to a local hotel in 1993 for a workshop on culture change put together by Senn, Delaney Leadership, a Long Beach (California) consulting rm. She was skeptical at rst. To me, it was yet another program, she says. Surprisingly, Karen left a believer. The sessions dubbed Winning Ways is an effort to inculcate the values and skills that Nynex believes it needs to make Thrashers reengineering changes take hold. It is a quick-and-dirty roundup of todays managerial commandments, stressing teamwork, accountability, open communications, respect for diversity, and coaching over managing. Although impressed by how the sessions encouraged employees to speak more freely to each other, Karen saw her share of nonconverts at the initial two-and-one-half-day meeting. Some people come back to work unchanged,
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she says. But theres a big middle section that seems willing to change, and then theres a small percentage at the top thats very enthusiastic about it. . . Despite the increased workload and her concern over employee morale, Karen considers herself lucky. This is a wonderful challenge, she says. Im looking at a task of building a new organization in the next six months to a year. I have the chance to test myself as Ive never been tested before.

The Victim: The Living Hell of Life on the Firing Line


Not everyone shares Karens optimistic view of life at Nynex. Uncertainty and fear loom over many. Only two weeks ago, Nynex began sending out details of the buyout packages to some workers in New England. Employees know that if enough people refuse the package, the company will be forced to push them out. Many are understandably bitter. They feel as if they are victims of some abstract management exercise beyond their control or even their capacity to understand. One of them, an urbane manager with more than 20 years of experience, expects to pounce on an early-retirement package, to walk out, and start a new phase of life. This companys values have changed, the manager says. There are now right people and wrong people here, and I dont believe in that. Fearful of retribution, this employee doesnt want to be identied. But Pat, as well call this middle manager in a staff position, is remarkably candid about the turmoil inside the company. Pat has made presentations before Bob Thrasher and thinks hes a brilliant, if ruthless executive. As an ofcer of the company, hes very focused and clearly sees the possibilities. But this Nynex veteran fails to see Thrasher and other top managers sharing the pain. The ofcers all have golden parachutes. Theyre in charge of their own fates. Were not involved. Were just affected. Looking at the fate of the managers and employees who lost their jobs in Nynex earlier cutbacks, Pat can see the profound changes that may lie ahead. Many are still without work. More than 150 of them have joined a class action (wrongful termination suit) against the company, alleging that they were selected for dismissal because of age discrimination. Although the company formally announced its latest round of cutbacks three months ago, not one employee has yet lost a job. Details of buyout offers, including accelerated pensions, are being sent to employees in selected business units. Thrasher says the buyout offer removes the anxiety and angst in the work-force. Not to this middle manager, who believes offering incentives to quit isnt that much different from ring employees outright with severance pay. Even if people wont be red this time, theyre still frightened of the future. It affects their self-esteem and their pocketbook. And most people arent going from something to something. They have no place to go. Sure Pat fears for a job that may be lost. But mostly, Pat claims to fear that the company to which this middle managers life has been devoted will never recover from the bloodletting. Pat recalls taking hours to walk to work in the
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aftermath of a major snowstorm a degree of commitment employees wont be likely to feel in the future. This manager wonders if the repairmen who now rush to set up emergency communication lines at the scene of incidents such as the bombing of the World Trade Center will move less urgently because of Nynex perceived lack of loyalty to its employees. Corporate values that not long ago focused on caring for employees have been rewritten so that now employees come last, Pat says, after shareholders and customers. The Draconian downsizing, Pat believes, is really a knee-jerk response to a complex set of problems that might be addressed more subtly. Other companies, like Hewlett-Packard, have refocused their strategy, cleaned up their product and service lines, and for the most part retrained their folks without massive layoffs, and theyre doing exceptionally well. Such humane options, however, may be for executives and companies that do not have to cut as deeply or as thoroughly as Nynex. As everyone involved would concede, the pain of this massive downsizing is not likely to go away any time soon.

An Update on Nynex
By April 1996, Nynex executives believed that the road to protability and market share would be easiest to travel by way of merger. To create this $50bn titan, a merger was planned with the Bell Atlantic Corporation.23 Second only to AT&T, the new company would have $2.93bn in prots, 136 000 employees world-wide and more than 36 million home customers. If the two companies can win the necessary approvals from regulators, they still must overcome the signicant challenge of merging two managements that are used to competing, not co-operating. 1 What are the organisational stressors for managers at Nynex? 2 What may be some of the long-run dangers to companies in service industries that seek to gain competitive advantage through extensive downsizing?

References
1 2 3 4 5 6 Northwestern Life Insurance Company, (1992) Employee Burnout: Americas Newest Epidemic. Minneapolis, MN: NWNL. Miller, K. (1992) Now, Japan is Admitting to It: Work Kills Executives, Business Week (August 3): 17. Selye, H. (1956) The Stress of Life. New York: McGraw-Hill. Cooper, C. (1985) The Stress of Work, Aviation, Space, and Environmental Medicine (July): 628. Editorial, (1996) Learning to Cope, The Economist, 16 April 1996: 1516. International Institute for Management Development, (1996) World Competitiveness Yearbook, Lausanne.

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7 8 9

Kerber, R. (1996) Was Therapy Used to Punish Nuclear Workers?, Wall Street Journal (March 20): B1, B3. Murphy, R. (1986). A Review of Organizational Stress Management Research, Journal of Organizational Behavior Management (FallWinter): 21527. Howard, J., Cunningham, D. and Rechnitzer, P. (1976) Health Patterns Associated with Type A Behavior: A Managerial Population, Journal of Human Stress (March): 2431. Brief, A., Schuler, R. and Van Sell, M. (1981) Managing Job Stress. Boston: Little, Brown, 94. Heart Disease, Anger Linked Research Shows, (1989) Lincoln Journal, 17 January: 4. Beehr, T. (1986) The Current Debate About the Meaning of Job Stress, Journal of Organizational Behavior Management (FallWinter): 815. Sullivan, S. and Bhagat, R. (1992) Organizational Stress, Job Satisfaction and Job Performance, Where Do We Go From Here, Journal of Management (June): 3614. Benson, H. (1974) Your Innate Asset for Combating Stress, Harvard Business Review 52: 4960. Ornish, D. (1990) Dr. Dean Ornishs Program for Reversing Cardiovascular Disease. New York: Morrow. Francis, M. and Pennebaker, J. (1992) Putting Stress into Words: The Impact of Writing on Physiological, Absentee, and Self-reported Emotional Well-being Measures, American Journal of Health Promotion 6: 2807. Shellenbarger, S. (1996) Enter the New Hero: A Boss Who Knows You Have a Life, Wall Street Journal (23 April): B1. Jeffery, N. M. (1996) Wellness Plans Try to Target the Not-So-Well, Wall Street Journal, (20 June): B1, B5. Duff, C. (1996) Is Buchanans Take on Layoffs Too Pat?, Wall Street Journal (5 March): A2. Cauley, L. and Lipin, S. (1996) Bell Atlantic, Nynex Reach Accord for $23b Merger of Equals, Wall Street Journal (22 April): A3, A5. Schellhardt, T. (1996) David in Goliath, Wall Street Journal (23 May): R14. Jenkins, H., Jr. (1996) Heres to Human Capital, Wall Street Journal (2 April): A 15. Keller, J. (1996) AT&T Faces Slow Going in its Effort to Slash Jobs, Wall Street Journal (17 May): A3, A5.

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Module 3

Contemporary Theories of Motivation


Contents
3.1 3.1.1 3.1.2 3.1.3 3.2 3.2.1 3.2.2 3.2.3 3.2.4 3.3 3.3.1 3.3.2 3.3.3 3.3.4 3.3.5 3.4 3.4.1 3.4.2 3.4.3 3.4.4 3.4.5 Introduction What Stimulates Human Behaviour? Is there a Distinction between Motivation and Performance? Are there Different Types of Motivation Theory? Content Theories of Motivation A Question of Needs: Maslows Hierarchy Applying the Need Hierarchy Herzbergs Two-Factor Theory of Motivation Comparing Maslows and Herzbergs Models Process Theories of Motivation Equity Theory: Social Comparisons in the Work Setting New Research Light on Equity Theory Applications Understanding the Basics of Expectancy Theory Applying Expectancy Theory Extending Expectancy Theory to the Individual and the Organisation Cultural Differences in Motivation Principles of Behaviour Modication Making Sense of Schedules of Reinforcement Behaviour Modication in Perspective Understanding the Role of Punishment in Management Practices Setting up a Behaviour Modication Programme 3/2 3/2 3/3 3/4 3/4 3/4 3/6 3/7 3/10 3/11 3/11 3/12 3/13 3/16 3/16 3/20 3/20 3/23 3/25 3/27 3/31 3/32 3/33 3/37 3/38

Summary Points Review Questions Case Study 3.1: Promoting Employee Productivity Case Study 3.2: Motivating Employees at Cypress Semiconductor

Learning Objectives
By the end of this module you will be able to:
Organisational Behaviour

Identify the elements that make up employee motivation. Clearly distinguish motivation from performance. Explain the various levels of human needs.
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Differentiate hygiene factors from motivators. Describe the differences between content theories of motivation and process theories of motivation. Explain the connection between personality and employees patterns of social comparison of work outcomes. Explain the major components of expectancy theory and how they relate to organisational processes. Develop organisational examples of how behaviour modication works. Suggest some important differences in motivational patterns across various cultures. Detail the meaning of a contingency of reinforcement and how managers can apply the concept. Articulate the differences between various schedules of reinforcement. Explain why managers should practise the rule of stretching the ratio in providing rewards to employees. Detail the steps in setting up a behaviour modication programme in a company. Identify the pros and cons of using punishment in the workplace.

3.1

Introduction
The study of motivation is extremely complex. It is necessary for managers to consider the importance of motivation because it stimulates employee behaviour to achieve organisational goals. Motivation sustains our behaviour and keeps it systematic and focused. It directs our responses towards the goals we value. Without knowledge of motivation, managers will make critical mistakes in guiding the behaviour of subordinates towards outcomes desired by the organisation.

3.1.1

What Stimulates Human Behaviour?


Human behaviour rests on the basic concepts of needs and motives. A need is an experienced state of deciency that pushes ones behaviour. Examples of needs are hunger, thirst and belongingness. A motive pulls ones behaviour in a predictable direction. Table 3.1 illustrates these concepts. For example, you may need a pay rise to cover the cost of your summer holiday. You begin to work harder at your job with the knowledge that pay rise decisions will be made four months before your scheduled summer departure. You come to work on time, avoid taking sick leave and work more closely with your colleagues. You engage in all of these behaviours with the hope that they will trigger a rise. Your behaviour is thus pulled in the direction of your increased performance motive. Work motivation is referred to as the direction, level of effort and extent of persistence evident in the behaviour of an employee. The direction of behaviour refers to which behaviour an employee chooses to perform a task in the organisation. The direction of motivation is evident when an engineer chooses to consult with his project leader concerning rising design costs for a new product

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Table 3.1
Need

Understanding needs, behaviours and motives


Behaviour Increased work output No absenteeism No lateness Improved co-operation with co-workers Higher work quality Better customer service Motive High performance on the job to obtain merit pay rise

Pay rise to pay for summer holiday

option. The level of effort component of motivation is how hard the employee will work to perform the behaviour chosen. For instance, if the engineer prepares a written analysis and empirical evidence of rising costs in the design project, he is working much harder than if he simply mentions his concerns to his project manager over an informal lunch. The level of persistence refers to the employees tenacity in the face of obstacles to performance and goal accomplishment. When the project manager disagrees with the engineers cost analysis, does he give up or does he rene his analysis with better assumptions about expenditures? 3.1.2

Is there a Distinction between Motivation and Performance?


On the surface, it may appear that motivation and performance are the same thing. However, while managers and employees may often confuse them, they are distinct aspects of behaviour. Performance always involves the evaluation of a persons behaviour on the job. Motivation, on the other hand, is only one of several factors that inuence performance. For instance, an engineers performance is reected in the quality of his designs, the number of patents he obtains and the customers satisfaction with the new product innovation that reects his work. While we would expect a highly motivated engineer to produce excellent products that satisfy the needs of customers, it would also be true that his performance could be affected by many other factors besides his motivation level. Additional factors affecting his performance would include: 1) ability, 2) personality characteristics, 3) difculty of the design task, 4) extent of job resources available, 5) working conditions and 6) work attitudes such as organisational commitment and job involvement. Based on our argument above, it should also be clear that low motivation does not necessarily cause low performance. An employee may have skills and abilities in such abundance that his high performance is assured in spite of his motivation level. Managers who always assume that poor performance is a result of low motivation risk taking the wrong steps to correct performance problems in the workplace. For instance, they may overlook the pivotal role of training and development, better equipment and technology or excessive centralisation of decision-making as primary causes of performance problems.

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Module 3 / Contemporary Theories of Motivation

3.1.3

Are there Different Types of Motivation Theory?


Motivation theories are of two types content theories and process theories which are considered separately in this module. A content theory of motivation species those factors in individuals which stimulate, direct, sustain and stop behaviour. Therefore, a content theory of motivation answers the question: What specic needs cause motivation? A process theory of motivation explains how behaviour is stimulated, directed, sustained, or stopped. Therefore, this type of motivation theory explains how motivation occurs. Both types of theory offer information which can be applied to the problems of motivating employees. The rst content theory of motivation to be examined is Maslows hierarchy.

3.2

Content Theories of Motivation


A Question of Needs: Maslows Hierarchy
Abraham Maslow believed that motivation could be explained by organising human needs into ve levels.1 He formulated his motivation theory to address human behaviour in all settings. His theory was quickly applied to the narrower range of human behaviour in organisational settings. Along with denitions and organisational examples, the ve levels of Maslows hierarchy are shown in Table 3.2.
Table 3.2
Need level Highest-level needs Self-actualisation The need to reach ones fullest potential The need to feel good about oneself and ones abilities; and to be respected by others and to receive their approval The need to experience social interaction, friendship and love An engineer uses all of his design skills to create a new subcomponent Company promotes deserving managers and recognises employees with awards Having and sustaining good relations with co-workers, supervisors, being a member of a cohesive work team and being a part of social functions at work Having good job benets, safe working area and job security Guaranteed minimum pay level that is sufcient to provide basic necessities

3.2.1

Maslows hierarchy of needs


Description of the level Organisational example

Esteem

Belongingness

Safety Physiological

Need for security, stability and a safe work environment Food, water, shelter and clothing to ensure survival

Lowest-level needs

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Physiological needs are the lowest level of needs in the hierarchy; they include food (hunger), water (thirst), shelter (warmth) and sex (reproduction). In todays world these needs rarely dominate us. Real hunger (starvation) in developed nations is rare. Mostly our rst-level needs are satised. Only an occasional experience of a couple of days without sleep, a day on a diet without food or a frantic 30 seconds under water reminds us that these basic needs are still with us. As Maslow notes, physiological needs are basic to our biological survival and are therefore dominant over psychological needs. Therefore, physiological needs are often referred to as lower-order needs. Maslow states that physiological needs must be satised rst. For example, your concern about a business meeting will abruptly disappear if you arrive home to see your house in ames. Your motivational base will shift dramatically to saving your family, home computer and your Heriot-Watt Distance Learning MBA courses. Safety needs are also called lower-order needs and they are activated next. They relate to protection against danger, threat or deprivation. Once their physiological needs are met, people want guarantees that their safety needs will be satised too. Economic and physical security are generally embodied in these needs. Safety needs are tied strongly to physiological needs because meeting safety needs ensures continuity and predictability for fullment of the basic needs.

How Do Safety Needs Affect Employee Actions?


Looking at examples of employee behaviour helps us answer this question. One market researcher provides for his continued employment by joining a professional group meeting once a month to discuss new trends in market research for new products. This individual becomes prominent in the association and other professionals come to seek his advice on market research for new products. A second employee fulls the same job security need by attending a course in marketing research at the local university. Because the companys goal is the development of new marketing procedures, both employees try to help achieve the goal through different behaviours. Belongingness needs represent the third level of Maslows hierarchy. This complex set of needs covers the desire to give and receive affection, acts of friendship, altruism, the desire for group acceptance and giving and receiving emotional support. The belongingness need level marks the beginning of higherlevel needs which were considered by Maslow to be personally innite, i.e., you can never satisfy them completely. Higher-order needs are learned, we are not born with them and they function at psychological levels (see Table 3.2). People develop them through sustained contact with their social environments. Esteem needs represent the fourth hierarchy level. It has an external component identied as social status, which is dened as recognition, prestige and appreciation from others. The internal component of the esteem need consists of challenge, autonomy and self-reliance. Employees usually experience the internal component as personal feelings of control over work. When work does not adequately meet this need, employees describe their work as monotonous or mind-numbing. Work which activates these reactions can lead to job dissatOrganisational Behaviour Edinburgh Business School

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isfaction and low performance. As employees become more competent on the job, they often experience enhanced self-efcacy. Self-efcacy is dened as personal condence to achieve a very high level of performance. Often called the can do trait, it is strongly reinforced in employees who have high self-esteem. Recognition on the job and approval from peers, managers and executives can all contribute to self-efcacy and social status. Self-actualisation is the nal level of the hierarchy. This need is dened as the desire to full oneself by making maximum use of talents and experience: in other words, living up to ones potential. People sometimes describe it as their desire to full their potential through the activities they pursue. As noted for esteem needs, self-efcacy is also strengthened by success in self-actualising on the job. Self-actualisation can occur in many other life settings than work. Similarly, many jobs do not provide employees with much opportunity to selfactualise on a regular basis. As a result, employees quickly learn to satisfy this need outside the job. Managers should take note of this tendency and address themselves to improving the design of work to provide more opportunities for employee self-actualisation. Maslows hierarchy assumes that physiological needs must be satised before higher-order needs can be satised. There are several other points which are crucial to a complete understanding of Maslows hierarchy, as follows: 1 A satised need ceases to motivate behaviour at that need level. For instance, when an employee decides that he has sufcient insurance coverage for himself and his family, part of his security or safety need is met. Unsatised employee needs lead to undesirable outcomes at work. Unsatised needs create perceived inequity for employees. When this condition persists, employees experience job dissatisfaction and they respond by reducing their performance, coming to work late, not coming to work at all or leaving. People are assumed to have a need to grow and develop their full potential, and consequently, they strive to move up the hierarchy and satisfy higherorder needs. All human beings self-actualise in some way. However, only some employees self-actualise on the job. Needs are not usually satised completely. Individuals can satisfy more of their lower-order needs than their higher-order needs. In organisations, lower-order needs are satised largely by monetary rewards. In contrast, higher-order needs are satised by social interactions (to meet social and ego needs) and by the design of meaningful jobs (to meet self-actualisation needs).

3.2.2

Applying the Need Hierarchy


The need hierarchy tends to parallel employee career development. Early career stages are characterised by security concerns and learning organisational values. After ve years or so, concern shifts to the establishment of a professional identity in the rm and in the employees chosen profession (external component

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of ego need) and autonomy (internal component of ego need). Self-actualisation needs soon materialise as employees strive to attain their full potential at work. Senior employees may seek to make organisational contributions which will endure after they leave. Senior employees often become mentors or sponsors for younger employees who show exceptional capacities for noteworthy careers in the organisation. Being a mentor can be a particularly rewarding self-actualising pathway. Other employees choose to start their own business so they can obtain more autonomy. Becoming an entrepreneur can be a powerfully sustaining form of self-actualisation because it strongly and consistently reinforces the human desire for self-determination. Experiencing more self-determination also has important effects for esteem need. For instance, great success in ones career leads to greater satisfaction of the internal component of the esteem need and enhanced intrinsic motivation. The theory makes it clear that unmet needs are more motivating than needs which have been satised. The implication is that motivation and need satisfaction are anticipatory in nature. Much of employee job satisfaction is based on the belief that future job situations have great potential for meeting higherorder needs. Managers must seek to guide and direct employee behaviour that meets organisational needs and individual needs simultaneously. The quality of an organisations motivational programme is determined by the clarity of pathways between employee performance and rewards which satisfy lower and higher-order needs. This idea will be developed later in the module.

Criticisms of Maslows Hierarchy


Data from research on two different companies suggest that the hierarchy of needs can be reduced to two levels. The research suggested that a physiological level existed separately from a second hierarchy which included all the other needs. Researchers have also found that as managers advance in an organisation, their needs for security and safety decrease, with a corresponding increase in their social, esteem and self-actualisation needs.1 Research studies also indicate that while lower-order needs become less important as they are satised, there is no decline in the importance of higher-order needs as they are satised.1 In other words, employees will continue to strive for status and autonomy in their work even after experiencing considerable success in these need areas. In summary, strong evidence supports the view that unless physiological needs are satised, the higher-order needs cannot come into play. As employees move through their careers, their need patterns shift to consideration for higher-order needs. In early career stages, employees focus on job security and on developing an accepted position in the organisation, i.e., social needs directed to belonging. By near mid-career, their attention begins to shift to recognition, autonomy and self-development. 3.2.3

Herzbergs Two-Factor Theory of Motivation


A content theory of work motivation which is closely related to Maslows hierarchy is known as Herzbergs two-factor theory or the motivator-hygiene theory.2 In his study of engineers and accountants, Herzberg discovered that

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the reasons these professionals gave for positive or negative job satisfaction and motivation differed systematically. Herzbergs conclusions are summarised in Figure 3.1.

MAXIMUM
Job Satisfaction Range

Hygienes only get you halfway there! WORK PEER RELATIONS ENVIRONMENT PAY JOB SECURITY SUPERVISION CO. POLICIES JOB SITUATION

NEUTRAL

Job DISSatisfaction Range I QUIT! STATUS

WORK ITSELF PROMOTION CHALLENGES ACHIEVEMENT PROF. GROWTH RESPONSIBILITY RECOGNITION MOTIVATORS

HYGIENES

Figure 3.1

Herzbergs two-factor theory of motivation

Figure 3.1 shows that employee work attitudes range from maximum job satisfaction to maximum job dissatisfaction, which can lead to higher employee turnover. The level of experienced job satisfaction depends on the availability of hygienes and motivators shown on the right of the diagram. From the diagram it is apparent that hygienes are not sufcient to move the employee completely into the zone of job satisfaction and motivation. The various motivators must also be included to ensure a fully motivating and satisfying job situation. In other words, hygienes are necessary but not sufcient conditions for sustaining high job satisfaction and motivation. The diagram also shows that the absence of hygiene factors leads to job dissatisfaction, but when present, hygiene factors do not necessarily provide job satisfaction. In contrast, the presence of motivators does lead to job satisfaction if the hygienes are already in place.

Why Are the Factors called Hygienes and Motivators?


The explanation for the terminology used lies in how employees experience their job environment and how they react to the specic features of their work. The hygienes are dened as components of job context. Because of this quality, some motivation experts refer to them as contextual factors because they emphasise
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the elements of the environment surrounding the job and the employee. When they are not present, the employees job is impoverished and this condition can lead to turnover, absenteeism, low performance, job withdrawal, job burnout, alienation and sabotage. Employees experience job frustration and stress if their jobs have few hygienes. In some cases, they may actually experience physical illness because of extremely adverse work environments. As managements improve hygienes, employees often experience short-term positive feelings, but the general improvement in hygiene factors does not lead to sustained job satisfaction and performance. According to Herzberg, employees soon take hygiene improvements for granted.3 However, if the hygienes are removed due to organisational restructuring or corporate take-over, job satisfaction plunges. For this reason, hygienes are often referred to as maintenance factors. Consider the following example.
For years, employees of the Acme Referral Service shared a bonus plan which distributed ve per cent of prots as semi-annual bonuses. The rm had declared these bonuses for the previous nine years. In some years, the bonuses had represented as much as 45 to 55 per cent of employees salaries. Because of poor sales one year, no bonuses were declared for the next year. However, senior executives did receive bonuses, although these were smaller than usual. Management neglected to explain to sales and ofce personnel its decision to eliminate their bonuses due to the poor nancial performance of the company. Consequently several skilled salespeople left the rm in the next six months.

Bonus loss was perceived by ofce and sales personnel as a unilateral decision to reduce their pay hygiene relative to senior executives (whose pay hygiene was increased). This threatened lower-order need satisfaction for the affected employees. The loss of the bonuses led to increased employee turnover. Notice how quickly the highly skilled employees experienced inequity and reduced their performance because of dissatisfaction on the job. The management lesson in this example is that reductions in hygienes must be fully explained to employees and managers must share in the loss of hygiene. (In Japan, executives are the rst to experience pay cuts.) Moreover, hygienes should be restored as soon as possible. The factors that raise job satisfaction and performance in the long run are called motivators (see Figure 3.1). Motivators are related to the employeejob interaction, and are job-centred characteristics. Often they are called intrinsic job factors or content factors. When they are present and hygienes are acceptable, employees are more likely to achieve satisfaction of higher-order needs. Absence of the motivators can lead to apathy and alienation because the jobs are experienced as unchallenging and boring. This means that employee ego and self-actualisation needs are not met by their work. Consider the following example:
Ian is a highly successful manager of a data processing department in a large insurance organisation. During his tenure, the department has grown from 25 to 90 employees. He has always been responsible for training new employees and working with other executives to set up new systems to manage information ows. Last week Ian was told that a committee would now be responsible for devising new work systems which he would install with the help of the accounting department.

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Furthermore, accounting and human resources would now be responsible for training new employees for Ians department.

Several motivators were removed from Ians job. His autonomy and responsibility were reduced sharply by the committees control of all new information systems. His ability to meet challenges and obtain recognition through his employee training work was eliminated. Although all hygienes remain intact, one would expect Ian to experience reduced job satisfaction and his performance, as well as that of his department, would drop. Ian may seek employment elsewhere to re-establish his experienced equity regarding the availability of job motivators. The example above indicates that motivators are rewards which occur when employees perform their job successfully. The abundant availability of motivators encourages employees to seek various ways to achieve job satisfaction. Some employees will respond very favourably to abundant motivators in their jobs by demonstrating more intrinsic motivation.4 , 5 The fact that motivators are sources of intrinsic motivation implies that hygienes, or context factors, are the sources of extrinsic motivation. Building on that principle, it is true that extrinsic motivation originates in the control systems of the organisation (e.g., the reward, supervision and performance appraisal systems). Therefore, the control and availability of extrinsic motivators is less subject to employee control whereas the sources of intrinsic motivation are in the content of the employees job.

Benets of Herzbergs Work


Herzbergs work has inuenced thinking in organisational behaviour and management. Its most enduring benet is the attention it focuses on the effects of company systems and job design on employees job satisfaction. Here, job design refers to how work is arranged and how much employees control their work. Before Herzbergs theory, employee job satisfaction was thought of only in extrinsic terms (satisfaction was only a function of pay). He pointed out that the origins of job satisfaction and job dissatisfaction were different. We now know that concentration on hygiene factors will not ensure that organisations have creative, involved, productive and motivated employees.6 3.2.4

Comparing Maslows and Herzbergs Models


The work of Maslow and Herzberg is different yet related. Herzberg is concerned with job and organisational sources of job satisfaction and dissatisfaction. Maslow focused on human needs which encompass a variety of life situations, one of which is work. Maslows lower-order needs resemble hygiene factors because they sustain individuals to trigger the search for personal growth. Maintenance factors (Maslows lower-order needs) do not guarantee this growth for employees on the job. They merely create the conditions for it to occur if employees value higher-order need satisfaction at work (Maslows higher-order needs). Thus, hygienes are necessary but not sufcient to ensure employees personal growth through work. In the larger view, Herzbergs model is a specic application of Maslows hierarchy to work. It answers some very practical

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questions about the factors which lead to job dissatisfaction and job satisfaction. Further, it answers them in everyday work-oriented terms. Thus, its simplicity appeals to managers. Despite the important contributions made by Herzberg, the two-factor theory has been criticised for several reasons. The most important criticism centres on the method for testing the theory which requires employees to consider their work experiences retrospectively.6 Such historical comparisons are subject to distortion as employees consider those factors which led them to experience job satisfaction or dissatisfaction. Other researchers believe the theory oversimplies the nature of job satisfaction.4 Critics of Herzbergs work suggest that more emphasis be placed on the motivational and performance consequences of the model.5

3.3

Process Theories of Motivation


Now we turn our attention to those process theories of motivation that help us understand how the process of motivation occurs. In this section we will return to equity theory and discuss its important contributions to managers understanding of employee motivation in organisations. Then we shall address expectancy theory: an even more prominent process theory of motivation.

3.3.1

Equity Theory: Social Comparisons in the Work Setting


As we noted in Module 1, equity theory makes a contribution to understanding how employees react to incentives and outcomes in the work setting. In the context of the performancejob satisfaction relationship, equity theory shows how employees react to the available rewards from work in terms of their experienced levels of job satisfaction. In its own right, equity theory is a prominent process theory of motivation.7 Its developer, Stacy Adams, explains that employees gauge the fairness of their work outcomes in comparison to the work outcomes received by others in similar jobs. To review briey, to the extent that employees feel that their rewards are inadequate, they experience or perceive inequity. Felt or perceived inequity is a motivating state which encourages the employee to eliminate it by pursuing various actions. Experienced inequity arouses the employees to remove the discomfort to restore a sense of balance or felt equity to the situation at hand. Inequities at work exist whenever employees feel that their rewards for their efforts are less than the rewards or inducements received by others for their efforts or contributions. This cognitive process of comparison is shown below. Employees rewards Employees inputs (efforts) compared to Others rewards Others inputs (efforts)

A felt negative inequity occurs when the employee believes that he has received relatively fewer rewards than others in proportion to the level of effort that he expended on the job. Felt positive inequity occurs when an employee feels that he has received relatively more rewards than someone else for a measured level of effort or input. Both of these mental states are motivating and
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the employee in question seeks to return the felt inequity to a state of balance or equity. To restore a state of equity, an employee might: 1 2 3 4 5 6 Change work inputs and reduce performance efforts (to eliminate negative inequity). Change the outcomes received (ask for more responsibility to reduce positive inequity). Exit the circumstances (leave a job or request a transfer). Change the people who are used for comparison. Mentally distort or alter the comparison (rationalise that the inequity is only temporary and will be resolved in the future). Take a decision to alter the inputs or outcomes of the comparison other (get his or her co-worker to work less hard).

Numerous organisational and laboratory studies generally conrm that people who feel overpaid (felt positive inequity) are often motivated to increase both the quality and quantity of their work. Those who feel underpaid and overworked often compensate by decreasing both the quality and quantity of their work. Further, most research indicates that felt negative inequity is a stronger motivating state than felt positive inequity. Thus employees are less likely to correct an overpaid imbalance than they are to correct an underpaid imbalance. 3.3.2

New Research Light on Equity Theory Applications


An important revision of the original equity theory concept proposes that there are three types of individuals with different preferences for equity.8 Benevolents are employees who are comfortable with an equity ratio which is less than that of their comparison other(s). Such employees are altruistic and they willingly volunteer to cover for colleagues and they will expend extra effort to achieve unit goals. Equity sensitives are those employees who prefer equity which is based on the original formulation. Entitled are those employees who are comfortable with an equity ratio which exceeds that of their comparison others. Some researchers view these individuals as slackers who will gladly accept additional rewards without feeling any desire to exert more effort on behalf of the organisation or their work group. When a manager employs principles of equity theory he soon sees that his allocation of rewards is quickly ltered by employees through the equity comparison noted above. An employees felt inequity is dependent on his interpretation of the reward and work situation. Thus, it is a managerial mistake to believe that all employees will perceive their new work assignments in the same way. How a manager feels personally about the allocation of outcomes to employees is much less important than how his employees perceive or feel about the outcomes that they receive. The manager must be on the lookout for imbalances and must channel employee behaviour in a constructive fashion to restore balance without sacricing important unit goals. When employees feel positive equity they also respond to their jobs and their employers with more job satisfaction, commitment and job involvement. If the rewards are experienced as felt negative inequity, then these important outcomes are lost or diminished for

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the employees in question. Following the guidelines of equity theory, a manager should keep these principles in mind. 1 When very important or valued rewards are allocated, then employees who are equity sensitive are most likely to make equity comparisons which are based on the traditional rewards available in the work setting. In making reward allocation decisions, anticipate that certain employees will feel both positive and negative inequity (entitleds and benevolents). In advance, tell employees about salary ranges, pay increases and promotion opportunities. Avoid practices which encourage secrecy about pay policies and procedures. While it may not be advisable to encourage employees to compare their levels of pay with others, do make sure that they fully understand pay ranges, pay brackets and the relationship between excellent performance and valued rewards (instrumentality).

2 3 4

3.3.3

Understanding the Basics of Expectancy Theory


In this section we discuss expectancy theory, which is a process theory of motivation. It will assist us in understanding why motivated behaviour occurs at work and how that behaviour can be channelled and directed. Let us begin with an example.
Tristan was selected to assist Paul in a project which had interested him for some time. The project involved the study of pricing and economic factors which inuenced commodities brokers who bought agricultural products in international markets. The study was part of an overall strategic plan designed to help the company decide if it should enter this related line of business. Paul realised that Tristan was the logical person to assist in the project because he had experience as a broker and his university degree was in international nance. Tristan also realised that he was the logical choice as assistant on the project, yet he was not highly motivated to work on the problem, even though he worked well with Paul. Tristan attributed his lack of interest to his belief that completing the project would have little impact on his career with the company. For the past ve years he has not worked in the international markets for agricultural commodities. Instead, he has focused his attention on reducing the overhead cost structure of the rm. He now feels that this is the area in which he would like to advance his career. So, he perceives the commodities study as interesting, but unrelated to his chosen career path. Paul recognised that Tristan was not highly motivated to work on the project. On several occasions, he had tried to raise Tristans level of motivation and enthusiasm for the project. He was not successful until he sent Tristan to the head of the internal auditing division, Andr Worthington. Andr had been a broker at one e e time and he pointed out to Tristan that the project was important because it could mean that the company would create a new division that handled commodities trades for several large commodities houses on the Continent. The new division would need a controller. If Tristan successfully completed the project with Paul, he could easily be a serious candidate for the job. Paul followed up on Andr s point e with Tristan. Soon Tristan was highly motivated by the project and he found his interest in the commodities markets on the rise.

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Tristan had a motivational problem. His project abilities were high, but he was uninterested until Andr pointed out the connection between the successful e completion of the project and the creation of a new division which would require a new controllers position. Once Tristan saw the connection between the project and a goal he valued personally, his effort level on the project increased dramatically. The management point made by the example is that motivated employees view their work activities as helping them to achieve personally important goals. The motivational process which explains Tristans story is expectancy theory. The expectancy theory of motivation was developed by E. C. Tolman in 1930.9 He realised that behaviour is always purposeful and goal directed. He stated that behaviour must be understood in terms of the probabilities that a certain behaviour will lead to outcomes valued by the individual. Vroom applied Tolmans ideas to employee behaviour.10 Expectancy theory is now a leading explanation for employee behaviours such as 1) turnover, 2) absenteeism, 3) joining a new organisation, 4) career choice, 5) performance and 6) leadership effectiveness. Researchers continue to add new explained behaviours to the list each year. For the sake of simplicity, let us rst describe the theory, then describe its components, give examples of each component, and nally apply the ideas to Tristans story.

Components of Expectancy Theory


Valence is dened as the personal attractiveness of different outcomes. If an outcome such as a promotion has a positive valence, then the employee is strongly pulled to those behaviours which make that outcome more likely. Negative valence is attached to undesirable outcomes. Thus, being censured publicly by the boss is negatively valent for most employees. The concept of valence is highly idiosyncratic and value-laden. Our teachers, parents, coworkers and superiors all inuence our assigned valences for the outcomes we receive in life.

Outcomes in Expectancy Theory


Expectancy theory has two classes of outcome. First-level outcomes are the result of expending effort in some directed way. Important rst-level outcomes at work would be job performance, coming to work late, leaving or accepting a position and working at home. These outcomes are important to organisations and they have profound effects on employees. Second-level outcomes occur after rst-level outcomes and are the direct result of achieving, or not achieving, rstlevel outcomes. Examples of second-level outcomes include getting a promotion, being transferred, receiving recognition, obtaining a pay rise and attending a training programme. Employees assign valences to each type of outcome.

Probabilities in Expectancy Theory


Instrumentality is the personal belief that rst-level outcomes lead to secondlevel outcomes. If instrumentality is positive, then the employee believes a second-level outcome will occur given some level of performance. For example, if a worker believes that he will not be promoted if he continues to be the
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lowest producer in his unit, then he will increase his performance to gain the valued promotion. Negative instrumentality refers to the employee belief that a second-level outcome will not occur after a given rst-level outcome. Managers should be concerned deeply with instrumentality. When they address employee performance issues, they want employees to see a clear pathway from performance excellence to second-level outcomes that are positively valent. If rewards are distributed equitably for excellent performance, then employees experience rising instrumentalities and increased job satisfaction. In other words, the pathways from excellent performance to valued rewards become clearer and employees are more motivated. Any organisational responses or systems that cloud instrumentalities must be removed. Unintended turbulence in instrumentalities signals lowered levels of employee effort and performance.11 Expectancy is the subjective belief that a given level of effort will lead to a rstlevel outcome on the job. Expectancies are judgements about the relationships between given levels of effort and various rst-level outcomes. When you watch a horse-race and your choice is leading, you raise your expectancy that your horse will win. The same reasoning applies to employees when they decide to expend energy on the job. If expectancy is zero, then they believe that there is no connection between effort and rst-level outcomes. For example, a student with a degree in zoology will not try very hard to get a job as a lawyer even though he may be interested in the behaviour of lawyers. If expectancy is high, then the employee believes that it is likely that a given level of effort will yield valued rst-level outcomes. Figure 3.2 shows all of the concepts discussed so far. In the gure, the employee exerts effort to achieve a rst-level outcome such as high performance on the job. He does this for two reasons. First is the fact that high performance may be positively valent in its own right because he enjoys the feeling of selffullment for a job well done. This is intrinsic motivation. A second reason that the employee in the gure exerts effort is his belief that success at the rst level (performance) will yield a valued second-level outcome (instrumentality is strongly positive).

WORK ENVIRONMENT

FIRST-LEVEL OUTCOME

SECOND-LEVEL OUTCOMES Promotion Pay rise

Effort

Excellent report delivered on time and it saves the company 50 000

New high-status title Purchase a new town house Become member of prestigious club

Expectancy

Ability

Instrumentality

Valences

Figure 3.2

The expectancy theory of employee motivation

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By way of contrast, no effort will be forthcoming if the employee believes that no connection exists between effort and performance (e.g., No matter how hard I try, Ill never get to be a chartered accountant). Notice in the gure that prompt feedback about performance and rewards (second-level outcomes) is necessary to sustain high effort levels. The ability of the employee is an important component of the model. Ability must be sufcient to attain a given level of performance. Thus, the employee must have ability to perform the task. If ability is low, no amount of effort will cause successful performance. Therefore, performance is the product of motivation times ability. The last component in the model which should be explained is the block labelled work environment. The elements in this component include both hygienes and motivators. For instance, the nature of supervision would be included in this component. The reward and performance appraisal systems would also be included in the work environment. Finally, the way work is organised is an element of work environment. 3.3.4

Applying Expectancy Theory


The story of Tristan and Paul conforms to expectancy theory. Tristan became extremely interested in the commodities project. High performance on the project became a rst-level outcome which he believed was associated strongly with becoming a candidate for the controller position in the new division. Thus, the second-level outcome of being a candidate for the controller position had high positive valence for Tristan. The instrumentality between making a success of the project and being a candidate was also positive. This means that if the division were to be established then he would be a strong candidate for the job. Once Tristan perceived the instrumentality between working with Paul on the project and an improved opportunity to advance his career, his level of effort (motivation) improved. His expectancy (belief that effort will lead to performance) was high and outcome valences were high and positive. Assuming that Tristan has the ability (we must trust Pauls judgement on this), then the project should be completed by the desired date. Referring to the model in Figure 3.2, Andr becomes an important compoe nent of Tristans work environment. Andr pointed out the connection between e the project and Tristans potential candidacy for the controller position in the division, if it were to be established. Tristan was previously unaware of this connection, so his instrumentalities for the project were low. Through Andr , e Paul cleared a pathway for Tristan from effort to performance, and from performance to rewards. He raised Tristans instrumentalities for a highly valent second-level outcome (a promotion consistent with his chosen career path). This example emphasises the critical role of leadership as a component of the work environment.

3.3.5

Extending Expectancy Theory to the Individual and the Organisation


Expectancy theory is a powerful analytical tool for managers. It can help them to have a better understanding of their subordinates and the organisation in which

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they work. There are several other factors that have to be understood to manage effectively the motivational process described by expectancy theory. Figure 3.3 shows how these factors cluster into individual factors and organisational factors. The individuals need for achievement is a personal trait which systematically inuences level of effort, instrumentality and expectancy. The achieving employee believes his performance can and should be high, and he is willing to expend much effort on the job if it represents a challenge to his skills and abilities. If the achieving individual believes the organisation rewards performance instead of effort, then his instrumentalities will be high and positive. If the achieving employee believes the organisation does not equitably reward performance, then he will probably leave. Remember, every frustrated employee with a high need for achievement is a potential entrepreneur!

SELF-EFFICACY INDIVIDUAL FACTORS NEED FOR ACHIEVEMENT LOCUS OF CONTROL SELF-ESTEEM EFFORT PERFORMANCE ROLE AMBIGUITY ROLE CONFLICT PERFORMANCE APPRAISAL SYSTEM REWARD SYSTEM JOB DESIGN SYSTEM VALUED EMPLOYEE OUTCOMES

ORGANISATIONAL FACTORS

Figure 3.3

Individual and organisational factors in motivation

Locus of control has systematic effects on the motivational process. It represents the employees beliefs about whether his behaviour inuences the outcomes he experiences in work. If an employee has a strong external locus of control, he may see no instrumentality between performance and second-level outcomes (instrumentality is zero). On the other hand, the individual with an internal locus of control believes that a strong connection exists between his behaviour and valued outcomes. Under conditions which enable this employee to control his work, he will be more motivated than his externalising co-worker. Locus of control shows the importance of providing employees with opportunities to control signicant features of their jobs. Organisations tend to develop complex reward systems which distribute extrinsic rewards exclusively. Employees often believe that rewards are not distributed equitably (i.e., the system does
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not recognise performance as the sole basis for assigning rewards) in their companies. These complex systems also place layers of external control between employees and their jobs. Thus, employees come to believe that management does not trust them to exert self-control on the job. These complex reward systems may have been designed to raise motivation levels, but their real effect is to reduce motivation levels for internally oriented employees. Self-esteem (ego needs in Maslows hierarchy) also inuence the expectancy theory model. If employees have a positive self-image, then they are likely to believe that their ability will lead to successful performance. Thus, they have high expectancy that effort will lead to performance. Employees with negative self-images will believe that their abilities are inadequate, and they will expend less effort on the job. This is a dangerous self-fullling prophecy because the employees fail at the task and this justies their negative self-images.

Organisational Factors and Motivation


Numerous organisational factors inuence employee motivation. Let us consider those that have been the focus of systematic research. Role ambiguity is an important motivational inuencer. It is dened as a lack of clarity or lack of understanding of job or work demands. When supervisors explain a job or give employees feedback about their performance, then role ambiguity is removed and they are able to see the connection between effort, performance and second-level outcomes. If supervisors do not take the time to explain their work expectations or if they do not give performance feedback to subordinates, they will lower their expectancies and instrumentalities about performance and its connection to rewards. Role conict leads to inconsistent work expectations. The essence of role conict is having two sets of work expectations which are in disagreement. For instance, a manager of a production unit may be held responsible for increasing output while maintaining a given level of product quality. At the new level of output it may be very difcult to preserve the quality requirements dictated by higher management. Supervisors are often sources of role conict. Employees often report to more than one supervisor. If they cannot agree on what the subordinate is to do, role conict emerges. In essence, the employee is in the damned if I do, damned if I dont position. When role conict and role ambiguity are both high, the accuracy of employee perceptions about expectancy and instrumentality deteriorates. Employees experience wide uctuations in instrumentalities under these conditions. One day they may feel condent about the relationships between work standards and valued second-level outcomes such as promotions and pay rises. The next day supervisors alter work demands and employee instrumentalities erode. These volatile conditions lead to employee frustration and job dissatisfaction. The organisational performance appraisal system plays an important role in expectancy theory. It provides employees with tangible information on their performance progress and goal attainment. Excellent systems provide periodic feedback formally and informally during the year. The primary goals of performance appraisal are: 1) informing employees about where they stand relative to performance, 2) developing information to make personnel decisions,
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e.g., promotion, pay rises and termination and 3) identifying employees with training and development needs. Communication between employees and their supervisors must take place to accomplish these three goals. If supervisors take their responsibilities in assessing the performance of their subordinates seriously, then their employees will have more dependable expectancies and instrumentalities regarding work standards, productivity goals and performance feedback. If supervisors then make informed recommendations for pay rises, promotions, training programmes and terminations, then subordinates will perceive the system as being equitable and understandable. They will recognise that a dependable relationship between performance and reward exists. This will lead to higher levels of effort, performance and job satisfaction. The reward system plays a key role in the expectancy model that managers must apply. Employees may not be confused about performance expectations and company goals because supervisors keep them informed about requirements for successful job performance. However, if poor performers consistently get larger rewards than excellent performers, then the expectancies and instrumentalities of the excellent performers disintegrate. This triggers lower motivation, performance and job satisfaction for high performers. The high performers judge the reward system to be unfair and may start searching for new employment opportunities. The valence of alternative jobs has increased for them! The biggest loser in this situation is the organisation because it is thinning the ranks of its competent performers while maintaining the ranks of the duds! The job design system also inuences key facets of expectancy theory. Most employees prefer more control rather than less control over their work. Employees try to satisfy their control and autonomy needs by getting promotions. Promotions are not, however, available to all employees, so the organisation must make existing jobs more challenging and fullling. One way to do this is to reward employees for acquiring new skills. The more skills they learn, the more control they acquire over their work assignments. Managers can also delegate authority for more meaningful tasks to subordinates. This too creates the conditions for personal growth in subordinates. When an organisation strives to make work more meaningful through altered job designs, employees experience stronger connections between their performance and second-level outcomes (rewards). The process and content motivation theories which we have discussed up to this point have emphasised the role of the individual in relation to his work environment. These models emphasise that people are motivated by thoughts, feelings, sentiment and mental processes. They are cognitive theories that specify the individual as the originator and processor of motivated behaviour. The work environment aspects of motivation have taken a back seat to the description of the psychological processes which compose the work motivation puzzle. After we look at cultural elements of motivation, we shall examine organisational behaviour modication. This is a process theory which describes the role of the environment in shaping the behaviour of employees.

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3.4

Cultural Differences in Motivation


Many theories of motivation have been developed by American academics who live in America and perform their research there. Recent research has examined the generalisability of these motivation theories and has found that cultural differences seem to exist. These differences apply to 1) socially acquired need theory, 2) Maslows hierarchy, 3) Herzbergs two-factor theory and 4) expectancy theory.12 For example, Americans rate self-actualisation as very important while the Greeks and Japanese regard security as the most important need. Individuals in other cultures also fail to value need for achievement as much as Americans do. In Sweden and Norway, belongingness needs are highly valued. The hierarchy of needs, as studied by Americans, has largely been replicated by researchers studying people from Peru, India, Mexico, the Middle East and Canada. Research conducted in New Zealand indicates that supervision and relationships with peers are classied as motivators while American workers generally consider these to be hygiene factors.13 In cultures which value co-operation and collaboration, principles of expectancy theory break down because the theory is individually based rather than team based. Thus, when rewards are dependent on team efforts and performance, the salience of expectancy and instrumentality is diminished. For example, US managers and employees have a consistently high expectancy that their efforts will lead to higher performance. In sharp contrast, Muslim managers believe their performance and success are determined by God.14 Behaviour modication is an environmental theory of motivation. This means that behaviour modication de-emphasises the role of the individual in the motivation process and emphasises instead the role of the environment. Concepts such as Maslows hierarchy and Herzbergs two-factor theory are not emphasised. Whereas Maslows hierarchy posits that a person is motivated by the need for ego gratication, behaviour modication predicts that employee behaviour occurs because of the learned connection between behaviour and rewards. In behaviour modication, ego needs have little to do with motivation. Instead, it emphasises the relationship between behaviour and its consequences. Behaviour modication has had a major impact on our understanding of how human beings learn. You will soon learn that it has broad organisational applications. Let us now establish the basics of behaviour modication (B Mod) so that you can begin applying it to problems in your own organisations.

3.4.1

Principles of Behaviour Modication


Organisational B Mod is rooted in the work of B. F. Skinner. Professor Skinner and others argue that behaviour is a function of its consequences. Please recall that cognitive motivation theories posit that behaviour is a function of internal needs and motives. B Mod states that external or environmental consequences determine behaviour. Table 3.3 lists the key concepts used in B Mod. The main principles of B Mod are the four methods of reinforcement dened in Table 3.3 and shown in Figure 3.4. Table 3.3 helps you distinguish between these methods. Both positive and negative reinforcements strengthen behaviour.

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Table 3.3
Key concept

Key concepts in B mod


Denition Reinforcement which modies behaviour through its consequences Tendency to repeat behaviours which cause favourable consequences, and not to repeat behaviours which cause unfavourable consequences Favourable or pleasant consequences Unfavourable or unpleasant consequences Consequences which are not favourable or unfavourable Strengthening a behaviour by occurrence of a pleasant consequence Strengthening a behaviour by removing an unpleasant consequence Weakening a behaviour by occurrence of an unpleasant consequence Weakening a behaviour with occurrence of a neutral consequence or removal of a positive consequence Successively closer and closer approximations of desired behaviour Frequency with which reinforcement accompanies behaviour Altering the rate of reinforcement

Operant conditioning Law of effect

Positive reinforcers Negative reinforcers Neutral reinforcers Positive reinforcement Negative reinforcement Punishment Extinction Behavioural shaping Schedule of reinforcement Stretching the ratio

Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations. St. Paul, MN: West Publishing Co.

CONSEQUENCE PRESENTED PLEASANT CONSEQUENCE POSITIVE REINFORCEMENT PUNISHMENT

CONSEQUENCE REMOVED EXTINCTION NEGA TIVE REINFORCEMENT

UNPLEASANT CONSEQUENCE

Figure 3.4

Contingencies of reinforcement

In the case of positive reinforcement, a pleasant outcome is obtained; in the case of negative reinforcement, an unpleasant consequence is avoided. In both cases, the frequency of a given behaviour is strengthened. For negative reinforcement, the behaviour that is strengthened is the one that helps the person avoid an unpleasant consequence. Therefore, when you are negatively reinforced you have successfully avoided an unpleasant consequence. In extinction a pleasant consequence is removed or a neutral consequence occurs. This has the effect of weakening a behaviour. Consider what happens to you in a meeting when you try repeatedly to make a point and you are unable to get the attention of the meeting chairman. After a while you will
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cease participating because a neutral occurrence takes place (you are ignored by the chairman). Punishment occurs when an unpleasant consequence is presented. Punishment and extinction both weaken behaviour. Figure 3.4 shows that behaviour can be linked to its consequences in four ways. Each of these relationships is called a contingency of reinforcement. Lets develop an example of each of the contingencies.

Positive Reinforcement
A behaviour is strengthened by the occurrence of pleasant consequences. A manager gives a subordinate a difcult assignment. The employee exerts great effort and completes it on time in excellent form. The manager reviews the work and has him present the analysis to higher management. His analysis results in a savings of $4000 for the rm. He is given 25 per cent of the savings in the form of a bonus.

Negative Reinforcement
A behaviour is strengthened by removal of an unpleasant consequence. This is called avoidance learning. Employees come to work on time to avoid supervisory reprimands. Negative reinforcement is abundant in most organisational employment policies. As a preventative measure, various forbidden behaviours are specied in an employee handbook. Along with those behaviours, a variety of organisational sanctions are also specied. Together the forbidden behaviours and their sanctions represent a contingency of negative reinforcement and they strongly inhibit the employee. The employee matches his behaviour to the demands of the employment relationship and the sanctions never occur and presto, the negatively reinforced employee who toes the line is the result.

Extinction
A behaviour is weakened if a positive consequence does not follow. For example, an employee engages in distracting conversations with his fellow workers. They ignore him. His efforts to distract them from their work eventually cease. From an operational standpoint, extinction is a useful strategy for managers to employ if they see that employees are engaging in behaviour that has no adverse effect on their performance.

Punishment
A behaviour is weakened if an unpleasant consequence occurs after the behaviour. For example, an employee has been playing hearts on his laptop computer. The supervisor issues a humiliating public reprimand to the employee.

Behavioural Shaping and Employees


Behavioural shaping is an important extension of contingencies of reinforcement. Animal behaviourists have successfully taught animals to perform tricks that are not part of the creatures normal behavioural repertoire. This is done by basing rewards on closer and closer approximations to the desired behaviour. Further reinforcement occurs only as the behaviour conforms more closely to the desired pattern.
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Managers can help employees learn new skills by using careful performance feedback and applying liberally praise and recognition as the employees behaviour approaches the desired pattern. For example, a manager may need to reduce wastage rates by 15 per cent without incurring any additional labour costs. The decrease in wastage may be achieved through improved cross-training. As employees learn each others jobs, the manager would use praise and recognition to reinforce the new waste-reducing behaviours. As waste began to diminish, he would insist on further improvements before he would administer rewards. Eventually he would achieve the new wastage rate. The essence of behavioural shaping is catching employees doing things approximately right. With positive reinforcement combined with behavioural shaping, employees can acquire new and valuable behaviours. 3.4.2

Making Sense of Schedules of Reinforcement


So far we have implied that consequences occur predictably after each relevant behaviour. This condition is called continuous reinforcement and represents only one of an innite number of possible reinforcement schedules. Partial reinforcement schedules refer to the number of behaviours occurring before reinforcement or the amount of elapsed time between reinforcers. The various reinforcement schedules and an organisational example of each are shown in Table 3.4.

How Partial Reinforcement Schedules Inuence Employee Behaviour


Each of the schedules noted in Table 3.4 has a unique effect on behaviour response rate. Behaviour learned under partial reinforcement schedules is more resistant to change or extinction. Two distinctions are apparent in Table 3.4. When rewards occur after a given elapsed time, the reinforcement is called an interval schedule (xed or variable). When consequences occur after a certain number of behaviours, the reinforcement is called a ratio schedule (again, xed or variable). As the table shows, four types of partial reinforcement schedules are used in organisations.

Characteristics of Partial Reinforcement Schedules


The xed ratio schedule links consequences to a given number of behaviours. This schedule produces a very high behavioural response rate. For example, rms often use individual piece-rate pay systems to generate high output. These systems require a certain number of units to be produced before the employee can obtain an incentive reward. Under these systems, employees will work extremely hard to trigger the incentive condition. The schedule can also be used in sales work where it is referred to as a commission system. The variable ratio schedule presents consequences based on an average number of responses. A variable ratio schedule implies that an uncertain (but around some average) number of responses must occur before the consequence is given. For instance, an employee might be rewarded after successfully handling 10 customer inquiries, while at another time the reward may occur after the employee successfully handled only six. The variable ratio schedule would average out to
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eight behaviours to generate a reward. This schedule produces extremely resistant behaviours once they are well learned. The response rate for the behaviours reinforced with this schedule remains constant and high.
Table 3.4
Schedule Continuous

Schedules of reinforcement
Description Consequence follows each response Consequence does not follow every response Example Co-worker comments each time an employee comes to work late.

Partial Types of partial reinforcement schedules: Fixed Ratio (FR)

A xed number of behaviours must occur before reinforcement occurs A variable number of behaviours (around some average number) must occur before reinforcement After a given amount of time has elapsed, reinforcement occurs. After a variable amount of time (varying around an average time) has elapsed, reinforcement occurs.

After testing 25 units, a technician is eligible for a bonus of one on each additional unit tested A service technician might get rewarded after handling ve accounts then he might be rewarded again after handling seven accounts Co-workers get together for a tea break at 10 a.m. and 2 p.m. In one instance, a superior disciplines an employee after two days; in the next instance, he lets four days elapse before he disciplines the employee.

Variable Ratio (VR)

Fixed Interval (FI)

Variable Interval (VI)

Fixed interval schedules require that a constant amount of time pass before the consequence occurs. This schedule produces response rates that are punctuated by bursts of high and low activity. Consider an example. Imagine your work behaviour if your manager came into your work area each day at 9 a.m. and 3 p.m. Your activity level would rise and fall around those time periods. The variable interval schedule means that a consequence is given for the rst behaviour after a variable amount of time has passed. The interval between consequences always averages out to a pre-established time. An example of this schedule is the length of customer waiting time at a bank tellers window. While the time for a given customer can vary, there is an average waiting time. Now that we have developed several examples of partial reinforcement schedules, lets see how good you are at identifying them. Please follow the instructions below for Identifying Reinforcement Schedules. Instructions: Please read each description and then indicate the type of reinforcement schedule in operation.
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1 2 3 4 5 6 7

Two hours of time off if clerks are error-free in their work of matching register funds to the paper record of sales for ve working days. Giving a 20 bonus to hourly workers if electricity bills are reduced by 5 per cent. Dividing all prots above 6 per cent among employees. Giving employees the use of a company car for four hours if they are not absent from work over a one-month period. The time clock on the wall where employees punch in and out of work. Pay day every Friday. If employees do not miss a day of work for one year, they become eligible for a draw in which they can win from 25 to 50. Answers: 1 FI, 2 FR, 3 FR, 4 FI, 5 FI, 6 FI, 7 FI

Stretching the Ratio and Interval of Reinforcement


Stretching the ratio or interval of reinforcement refers to shifting a reinforcement schedule from one rate to another. Let us consider an example of how this idea could be applied in the workplace.
Adrian is the manager of a shipping department. He recently discovered which shipping errors were due to an ineffective feedback system which did not indicate when employees were incorrectly processing orders. He corrected the feedback problem and set a goal of 95 per cent accuracy in order processing. He then trained his supervisors to reinforce goal attainment with praise and recognition arranged on a xed interval schedule. Once the employees were consistently exceeding the goal, the supervisors were instructed to shift reinforcement to a three-day average using a variable interval schedule. After three months, employees were averaging a 99.7 per cent accuracy rate. At this time the supervisors stretched the variable interval schedule average to ve days. No change in accuracy was detected.

Is Stretching Ratios or Intervals a Way to Use Fewer Rewards?


Denitely not. The procedure is used to keep employees from taking rewards for granted. This can be a problem when reinforcers such as praise and recognition are used on a continuous basis as supplements to pay. At rst, the rewards are appreciated by employees. But, if they continue to occur too often, they can lose their meaningfulness. Their potency can be maintained by stretching the ratio or interval of reinforcement. As a rule, nancial rewards should not be administered through stretching reinforcement schedules. This would only lessen employee motivation through increasing distrust of management. 3.4.3

Behaviour Modication in Perspective


The major benet of B Mod is that it focuses on observable employee behaviour which can be measured and used to improve motivation and performance. Because it focuses on observable behaviour, advocates argue that it is more objective than other approaches to motivation. Critics argue that B Mod methods are undemocratic and that they undermine individual choice in the workplace.15 The critics label these problems as the manipulative aspects of B Mod (see

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Table 3.5). Supporters of B Mod argue that it is naive to believe that organisations can be made to be free of manipulation, persuasion and inuence. They state that these are natural aspects of organisational life. For the proponents of B Mod, the primary issue is whether or not employees are active participants in the design and administration of B Mod programmes.
Table 3.5 Pros and cons of B mod
Opponents believe It undermines employee respect and dignity It makes organisations more manipulative and exploitative It makes employees dull and dehumanised extensions of the machines or systems they operate It oversimplies work behaviour and erodes employee creativity

Supporters believe It focuses on observable employee behaviour instead of intangible individual differences No manipulation occurs when employees participate in the behaviour modication It improves employee instrumentalities Employees receive higher quality feedback about their performance

B Mod systems can be designed to assist workers in obtaining higher performance levels and more signicant rewards. A key feature of any B Mod programme is giving employees more control over the process of generating feedback about their performance. Employees are trusted to gather, record and report on their performance levels to management. The performance feedback process is more meaningful when employees are trusted to generate their own performance information, which is then checked regularly by employees working with their supervisors. This is the team approach to improving performance. The consistent interaction of employees and supervisors on the issue of performance can re-acquaint employees with intrinsic work outcomes (higher-order need satisfaction). Research indicates that employees are more motivated when they believe that rewards are performance contingent.16 Conversely employees react negatively when rewards are not performance contingent. When workers are not rewarded for excellent performance, their motivation and job satisfaction decline, and other positive work attitudes are eroded.

Criticisms of B Mod
On the surface, B Mod violates some of our most cherished assumptions about human nature.17 Critics argue that B Mod undermines individuality in the workplace and they believe that B Mod research results cannot be extended to human beings. One critic says you cannot apply ratomorphism to humans.16 Proponents often concede that rats, pigeons and chickens are not the same as human beings. They do counter with the point that the learning mechanisms in humans and animals are quite similar for certain levels of behaviour. Other critics state that human organisations are much more complex settings for behaviour than the simplied learning circumstances in a rat laboratory. Because of these complexities and differences, human behaviour in organisations is much harder to control and predict than the simple, repetitive behaviours often found in the laboratory.16 Such critics would scoff at attempts to control employee
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behaviour by using B Mod principles. They say that such programmes ignore the complexity and spontaneity of human beings at work. They charge that the application of B Mod principles reduces valued differences among employees and makes them interchangeable. Finally, critics believe that B Mod programmes oversimplify work and create rigid patterns in work behaviour which reduce the creative urges of employees. Applications of B Mod in industry have been criticised because they seem to work best when applied to highly routine tasks which are learned in a short period of time. As tasks become more complex and require more creativity, B Mod has less application. B Mod is also less useful if the work under study is machine paced rather than employee determined. This criticism is accurate because for B Mod to work, employees must be able to select from a number of voluntary behaviours for doing the task. Machine-paced work dictates a specic behaviour in most cases. When B Mod programmes are designed with the sustained involvement of employees, criticisms of manipulation and subliminal control rapidly deteriorate. Participation in setting goals, altering schedules of reinforcement and designing performance feedback systems inject informed consent into a B Mod motivation system. Employees and managers can easily agree on observable behaviours which lead to performance success. When they work as a team to solve performance problems with B Mod principles, improved trust develops. Also, such systems are more equitable because rewards are made contingent on observable behaviours which lead to performance success. B Mod programmes which are acceptable to employees inuence substantially expectancy, instrumentality and valences for both rst-level and second-level outcomes. Thus, the motivational gains achieved through B Mod programmes are soundly based in expectancy theory. 3.4.4

Understanding the Role of Punishment in Management Practices


So far we have emphasised the central role of positive reinforcement in B Mod. Organisations must also be concerned with eliminating undesirable employee behaviours. This section raises important behavioural and social issues associated with the use of punishment in organisations. At the onset, it is most important to note that the need to use punishment may be present in organisations. That point is really not subject to debate. However, the frequency of use of punishment and the way it is carried out are highly debatable. Therefore, a serious discussion of the use of discipline is highly appropriate. Punishment is an unpleasant consequence following a behaviour (see Table 3.3). Managers do not like to talk about punishment because it implies that 1) they have hired the wrong employees, 2) the work environment they help create is less than ideal and 3) they and their organisations treat their employees badly. In spite of these concerns, punishment is an everyday occurrence in organisations.

Why Punishment Receives so Little Attention in Management Circles


The connotations of punishment make people uncomfortable. The dictionary denition of punishment is: to impose a penalty on a criminal or wrongdoer
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for an offence. What manager wants to view his employees as criminals or himself as their judge, jury and executioner? The denition does not create a positive view of human nature. From a practical standpoint, punishment is much more complex than positive reinforcement, and predicting its effects is much more difcult than it is for positive reinforcement. Consider the following example:
Sheila is a troublesome employee. Her performance has been highly erratic and her attendance has deteriorated to unacceptable levels. She has a history of accusing supervisors of sexual harassment. Inquiries have found all of her claims to be groundless. Nonetheless, she has created much concern among managers. In most instances, managers try to have Sheila quickly transferred from their departments. Sheila currently works in Phillips department where she oversees the rms software inventory. He has no knowledge of her habit of accusing supervisors of sexual harassment. Phillip approached Sheila to confront her about her erratic performance and attendance. He began to reprimand her for those problems. In a loud voice, Sheila accused Phillip of making insulting sexual remarks. Several employees overheard their heated conversation. Phillip lost his composure and retreated to his ofce. Sheila triumphantly surveyed the work area and decided to take the afternoon off.

What Has Happened in this Episode?


At rst glance, you may conclude that Sheila was punished for her poor performance and attendance. Wrong! Phillip was punished and Sheila was negatively reinforced! The strength of Phillips reprimanding behaviour has been weakened because he was publicly punished by Sheila. The strength of Sheilas accusatory behaviour was strengthened because she was able to avoid an unpleasant consequence (Phillips reprimand). This analysis illustrates one of the difculties of using punishment at work. Managers cannot always be sure that punishment has taken place. To understand punishment, we must focus on behaviour and its consequences. Remember, punishment always weakens behaviour. Because unpleasant consequences are subjective and emotion laden, what one person perceives as punishment may turn out to be positive or negative reinforcement from anothers point of view. Now, let us consider the use of punishment in the workplace.

Why Is Punishment so Common?


As you may have experienced, control in organisations is often achieved through liberal use of punishment. Indeed, many cyclical work features of organisations can be viewed as unpleasant consequences waiting to happen. Budgets, production quotas, deadlines, performance goals and performance reviews, all occur regularly in the course of work. Successful performance removes the veiled threat in these requirements. Often employees dene successful job performance in terms of escaping punishing consequences! Opponents cite the following objections to the use of punishment in organisations:18 1 2 For it to be effective, managers must closely monitor employee behaviour. Punishment never eliminates undesirable behaviour. It only suppresses it temporarily. When the punisher is removed, the undesirable behaviour returns.
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Employees become anxious, fearful, less creative, hostile, and may reject delegated responsibility.

Given these problems, opponents suggest alternatives to punishment. These alternatives and a description of each are shown in Table 3.6.
Table 3.6
Alternative Extinction

Alternatives to the use of punishment


Description Since much undesirable employee behaviour is intended to gain co-worker attention and to show off, supervisors and co-workers should ignore it. In this way they remove the positive consequence of attention and eventually the employee ceases the unruly behaviour If employees waste time in the break area, install a window so the supervisor can easily observe employee activity in the area Rather than discipline employees for untidy work areas, reward them for cleaning their workplaces When a manager states Its OK to make a few mistakes because we learn from them we are observing this amiable philosophy

Re-engineer the work environment so undesirable behaviour cannot occur Reward behaviour which is physically incompatible with undesirable behaviour Be patient and allow time for undesirable behaviour to disappear

The Positive Side of Punishment in Organisations


Much of our behaviour is learned under the conditions created by naturally occurring punishers. Mother Nature punishes us quickly if we stay too long in the sun or if we try to swim after a big meal. Thus, our natural environment teaches us new behaviour which we learn without permanent emotional damage. This logic extends to organisations which also have many naturally occurring punishers, examples which include: machinery of all kinds, customers, deadlines, production quotas and performance reviews. Employees can readily learn new behaviours from unpleasant encounters with these naturally occurring punishers. A second reason for the use of punishment in organisations is the fact that often there is no logical alternative. Many employees pursue activities for their own pleasure. Employee drug and alcohol abuse are examples. The amiable suggestions made in Table 3.6 will be ineffective in eliminating these behaviours. Figure 3.5 sums up the central aspects of effective administration of punishment or discipline by a manager. The reactions and behaviours that a manager would hope to see in a subordinate who has been disciplined are shown on the right in the gure. Further explanation of the effective use of punishment follows.

How Can Punishment Be Used Effectively?


Punishment can be an effective managerial tool for eliminating undesirable behaviour if these rules are applied.18
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PUNISHMENT IS: rapid intense equitable Supervisor observes undesirable behaviour focused

SUBORDINATE

understands incorrect behaviour learns correct behaviour is less defensive

private informative not followed by rewards does not feel threatened does not focus on mistreatment

Figure 3.5

Effective use of punishment

Undesirable behaviours must be prevented from becoming bad employee habits. Take corrective action before employees become accustomed to working incorrectly. You will gain nothing by waiting and hoping that employees will correct their own behaviour. Losing patience after observing numerous infractions is just as bad since your punishment will be out of proportion to the infraction in most cases. Punishment must be intense and immediate. There should be no mistake about the undesirable behaviour. The punisher should be of sufcient intensity to weaken the behaviour. Incremental disciplinary programmes are not as effective as intense and immediate punishment because employees can build up resistance to the punishers. Punishment must be equitable across people and infractions. Match the punishment to the infraction. Also, senior employees should not be exempt from discipline. Hard-to-replace employees should not be exempt from reprimands. In short, punishment must not discriminate. Punishment must have information value. After the reprimand has been administered, the employee should 1) receive an explanation as to why the behaviour is undesirable, 2) be told how to correct the behaviour and 3) be told the consequence of further infractions. After corrective action has been taken, the employees value to the organisation must be reafrmed. Leave the self-esteem of the employee intact. An employee should remember the behaviour he must correct instead of how he was mistreated. This lessens the degree of emotional reaction to the punishment. Punishment should not be followed by non-contingent rewards. This means that a supervisor should not invite an employee to lunch to alleviate his guilt about reprimanding the employee for being slow in completing a project.

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3.4.5

Setting up a Behaviour Modication Programme


Hundreds of rms have used B Mod successfully in their operations.19 These efforts have common features. Below you will nd the general steps to be followed in setting up a B Mod programme. 1 Conduct a job analysis to ensure understanding of job responsibilities. This usually entails the updating of job descriptions so that affected employees understand the basic requirements of their jobs. The completion of this step also helps educate managers as to the responsibilities of their subordinates. Dene performance behaviours and set performance goals. Management must precisely dene the meaning of performance so employees understand what they must do to be successful. With the help of subordinates, managers can set reasonable goals for performance. These goals should be specied in numerical terms easily understandable by all employees. Conduct a baseline audit to identify the rate of correct performance behaviour. For example, clerical accuracy rates may be 54 per cent and a reasonable target might be 94 per cent (established in step 2). A deciency of 40 per cent would thus be identied through the baseline audit. This example shows that a baseline audit is simply a quantied beginning point for initiating a B Mod programme. Based on the programmes success target, the results from the baseline audit show the extent of the behavioural deciency to be eliminated. Select powerful and abundant reinforcers to reward excellent performance. As employees move towards performance goals, they should receive the rewards they value. Managers should also be sure of the punishments they will be using to eliminate undesirable behaviour. Use continuous reinforcement to encourage new performance behaviours. Praise and recognition are the most useful rewards in the beginning of the programme. Practise behavioural shaping to obtain closer and closer approximations to the desired performance behaviour. Performance slippage should be corrected jointly by the employees and their superiors. If employees experience a performance problem, they should not be criticised. Use teamwork and coaching to solve the problem. Establish desired behaviours by adding new positive reinforcers which employees value. A merit point system or other incentive system can be set up on a variable ratio or variable interval schedule. This will motivate more employees to achieve the performance targets set down in step 2. Stretch the ratio or interval to move employees to a sustained level of performance. Review and evaluate the programme to identify and measure target goals such as cost reduction, employee attendance, safety and improved productivity. In other words, nd ways to expand the programme concept. This will ensure employee equity as more departments develop their own programmes.
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Some Reminders about Initiating a Behaviour Modication Programme


The nine steps noted above are neither complicated nor expensive. They do take time to develop and implement. Before a B Mod programme is installed, management should diagnose key organisational features to see if conditions are right for programme installation. These key areas are noted below. 1 2 Moderate to high trust must exist between employees who will be affected by the programme and their supervisors. Employees must believe good workplace hygiene exists. In other words, they must perceive 1) adequate pay, 2) likeable co-workers, 3) safe and comfortable working conditions, 4) good supervision and 5) fair company policies. Employees must have control over the pace of their work. B Mod does not work well when employees work is machine paced. Employee ability cannot be a cause of the problem. Employees must have complete understanding of successful performance behaviours that they can measure and record. Employees must get regular feedback about their progress towards performance goals. They should be able to control the feedback generation process, i.e., they should keep their own performance records. Supervisors must be trained and committed to the B Mod programme. This means they must understand how to use the principles underlying B Mod.

3 4 5 6

Summary Points
Motives initiate, sustain and channel behaviour. Motivation progresses through a sequence of need, behaviour and goal attainment. Maslows hierarchy consists of two general levels: physiological needs and psychological needs. These levels are also referred to as lower and higherorder needs. Individuals can progress up the hierarchy as their careers advance or as they grow older or both. Ideally, employees become increasingly concerned with higher-order needs as their careers lengthen. Herzbergs two-factor theory states that job satisfaction is the result of factors which are different from those causing job dissatisfaction. Motivation and job satisfaction are created by job content factors such as promotion, challenge and recognition. Lack of motivation and job dissatisfaction are avoided by providing hygienes such as adequate pay, good supervision, pleasant co-workers and decent working conditions. Expectancy theory is a process theory of motivation which explains how motivation occurs and what behaviours it will activate. In contrast, content theories of motivation address the issue of which internal needs cause motivated behaviour. Expectancy theory is a useful managerial tool for understanding employee behaviour. It species the relationships between effort, performance and
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rewards. The theory articulates the signicance of expectancy, instrumentality and valence. These concepts can be applied to work to help employees understand the crucial relationship between performance and rewards. The components of expectancy theory are sensitive to individual differences and organisational factors. Behaviour modication (B Mod) is a process theory of motivation and learning which species the crucial role of the environment in shaping behaviour. It states that behaviour is a function of its consequences. Positive and negative reinforcement increase the strength of a behaviour. Punishment and extinction reduce behaviour strength. These are called contingencies of reinforcement. A contingency of reinforcement can be adapted to continuous or partial reinforcement schedules. Partial reinforcement schedules have variable effects on behaviour. Behavioural shaping is a process which induces closer and closer approximations to a desired behaviour. Behaviours which deviate from the desired approximation are not reinforced. Stretching the ratio or interval of reinforcement helps sustain the strength of a desirable behaviour. Critics of behaviour modication suggest that the application of its principles to work dehumanises employees. B Mod programmes which are designed on the basis of employee participation tend to have a positive effect on employee work attitudes and performance. Punishment has unintended consequences in the work setting when it is used indiscriminately. Punishment, as a contingency of reinforcement, should not be confused with negative reinforcement. Punishment can be an effective behavioural change strategy when it is: quick, intense, fair, focused, private, informative and not followed by rewards. Setting up a behaviour modication programme requires careful consideration of: 1) the level of employee-management trust, 2) current levels of hygiene, 3) employee work which is not machine paced, 4) levels of employee ability, 5) how employees will receive performance feedback and 6) the level of supervisory commitment to the programme.

Review Questions
True/False Questions
3.1 According to Maslows hierarchy, employees are motivated by more than one need at a time. T or F? 3.2 Self-actualisation is always a more important need than physiological or security needs. T or F? 3.3 Safety needs are not strongly related to physiological needs. T or F?

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3.4 The self-esteem need has two components. T or F? 3.5 Motivator or job content factors are easily habituated by employees, so these factors soon lose their motivational impact. T or F? 3.6 Motivator factors are necessary and sufcient for sustaining levels of employee motivation. T or F? 3.7 Content theories of motivation address the how and why of motivated behaviour. T or F? 3.8 Instrumentality is the belief that effort will lead to performance. T or F? 3.9 Locus of control is an individual difference which systematically affects components of the expectancy model. T or F? 3.10 The organisational reward system has minimal inuence on the high performers instrumentalities about the relationship between performance and reward. T or F? 3.11 Before a B Mod programme can be put into operation, the manager should determine the current level of employee performance by conducting a baseline audit. T or F? 3.12 In the long run, praise and recognition are most effective when administered on a continuous reinforcement schedule. T or F? 3.13 B Mod is a cognitive content theory of motivation. T or F? 3.14 The connection between a behaviour and its consequence is called a contingency of reinforcement. T or F? 3.15 A year-end bonus is an example of a variable interval reinforcement schedule. T or F? 3.16 B Mod programmes tend to be most effective when managers design the programme and then train supervisors and employees to use it. T or F? 3.17 It is safe to say that employees are usually hurt emotionally when they are affected by naturally occurring punishment. T or F? 3.18 Punishment can still be used effectively when it is not applied equally to all offending employees. T or F? 3.19 B Mod programmes can be criticised because they manipulate employees towards managerially self-serving ends. T or F?

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Multiple Choice Questions


3.20 You own and operate a small desk top publishing and photocopying business that employs 25 people. Increasing health-care costs have forced you to consider cancelling health and hospitalisation coverage for your staff. Your decision will cause your employees to become concerned with: A self-esteem needs. B self-actualisation needs. C safety and security needs. D afliation needs. E growth needs. 3.21 A major difference between motivator and hygiene factors is: A motivators are controlled by supervisors and hygienes are content factors in the job. B hygiene factors create self-actualisation when present while motivation is triggered by the availability of acceptable pay and benets. C motivators are most concerned with negative factors in the external job environment and hygienes relate to personal appearance and physical health. D motivators deal with job content factors that are intrinsic to the job and hygiene factors deal with characteristics of the work environment or factors extrinsic to the job. E hygiene factors can create job satisfaction and motivating factors can be associated with job dissatisfaction. 3.22 Linking and performance under expectancy theory is necessary to enhance motivation. A knowledge and abilities B rewards C probability D equity E job dissatisfaction 3.23 In expectancy theory applications to job behaviour, the employee can most easily manipulate: A the reward, or second-level outcomes. B expectancy, or the probability that effort will yield high performance. C reward distribution. D effort. 3.24 is useful to shape the behaviour of employees through the use of reinforcers on the job. A Horizontal job enlargement B Expectancy theory C Employee training and development D Organisational behaviour modication E Vertical job loading

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3.25 The schedule of reinforcement which is least effective at strengthening employee behaviour is the schedule. A xed ratio B variable ratio C xed interval D variable interval E All of the schedules produce equal strengthening effects. 3.26 One of your staff members fails to ensure the protection of sensitive company documents by leaving his computer password on an e-mail message. Instead of disciplining the employee, you decide to employ extinction to eliminate the irresponsible behaviour. Therefore you: A reassign the worker to a less desirable job. B ignore the oversight and pretend it did not happen. C change the passwords for all staff members in the ofce. D ignore the staff member in question. E take the whole matter to your supervisor and ask her what to do. 3.27 The A B C D E best action to take against an employee who endangers his co-workers is: no discipline, instead let his co-workers be mad at him. termination or give him the sack. discipline him using a xed interval schedule. ignore the problem and hope that it goes away. take the matter up with your supervisor.

Short Essay Questions


3.1 Given the basic relationships between the constructs in the expectancy theory model, what practical motivational suggestions can managers extract from it? 3.2 Explain the similarities between Maslows hierarchy and Herzbergs two-factor theory. 3.3 How similar are B Mod and the expectancy theory? Identify at least three similarities between these two theories. 3.4 Industrial applications of B Mod have generally yielded improvements in employee performance, work quality and levels of job satisfaction. Briey discuss the caveats which managers must consider before they install a B Mod programme. 3.5 Two employees working at comparable jobs perceive these conditions: 1 Employee one earns 50 000 annually, is a chartered accountant, works 47 hours per week and has received excellent performance reviews. 2 Employee two earns 51 000 annually, is a chartered accountant, works 44 hours per week and has received good performance reviews. What should happen here?

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Case Study 3.1: Promoting Employee Productivity


The accounting employees of Lanchaster Corporation Limited are increasingly harried and pressured by their work. The boss schedules more meetings, the phones are ringing off the hooks, employees from other departments are asking procedural questions, and it is getting hard to concentrate on the work which is piling up on desks. All of the accountants believe that their productivity suffers as a result. At the corporate ofce, accounting employees now have a quiet hour that lasts from 8 a.m. to 9 a.m. each working day. During this time they are supposed to work on long-term projects, research reports and analyses or other conceptual work that requires few disturbances and high concentration. The hour has a corporate label: Achieving Maximum Potential (AMP). It was started because the accounting employees work in a large, public open area. The physical working arrangement prevented them from concentrating on anything but the most routine work. Its like an invisible barrier that we have created to allow us one hour of quiet time early morning. We dont have ofces with doors that can be closed, says Nigel Andrews, staff manager for general accounting. Employees in Lanchasters ofces and regional divisions are getting used to the fact that they cant phone accounting between 8 a.m. and 9 a.m. each day. Initially, there was considerable confusion about accountings responsibilities to other corporate divisions and departments. It seemed that the policy was not widely understood nor accepted. During the AMP hour, employees arent involved in meetings, processing data, running accounting errands, debugging programs or any other distracting activities. Nigel maintains that so far accounting employees are in unanimous agreement: AMP works. He notes that Most people outside the department are not fully supportive of the AMP hour. Some feel it is an inconvenience, but most are tentatively positive about the programme. The accounting staff is exible. If there is an emergency during the hour, we will respond. Diane Rigsby, who processes the corporate payroll, said she had received just one emergency call during the rst month of the AMP programme. We just informed Human Resources that this hour each day is not a time to contact us. And most people think this is a good idea and they wish they could have a similar programme. 1 What kinds of needs is Lanchaster trying to satisfy for its accounting personnel? 2 How might the AMP programme inuence motivation and job satisfaction of employees in other departments?

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Case Study 3.2: Motivating Employees at Cypress Semiconductor


T. J. Rodgers, CEO, says: Most companies dont fail for lack of talent or strategic vision. They fail for lack of execution the mundane blocking and tackling that the great companies consistently do well and strive to do better. At Cypress, our management systems track corporate, departmental and individual performance so regularly and in such detail that no manager, including me, can plausibly claim to be in the dark about critical problems. All of Cypresss 1400 employees have goals, which, in theory, makes them no different from employees at most other companies. What does make our people different is that every week they set their own goals, commit to achieving them by a specic date, enter them into a database, and report whether or not they completed prior goals. Cypresss computerised goal system is an important part of our managerial infrastructure. It is a detailed guide to the future and an objective record of the past. In any given week, some 6000 goals in the database come due. Our ability to meet these goals ultimately determines our success or failure. Most of the work in our company is organised by project rather than along strict functional lines. Members of a project team may be (and usually are) from different parts of the organisation. Project managers need not be (and often arent) the highest ranking member of the group. Likewise, the goal system is organised by project and function. In Monday project meetings, employees set short-term goals and rank them in priority order. Short-term goals take from one to six weeks to complete, and different employees have different numbers of goals. At the beginning of a work week, for example, a member of our production-control staff initiated seven new goals in connection with three different projects. He said he would report on progress with certain mini-computer problems (two weeks), monitor and report on quality rejection rates for certain products (three weeks), update killer software for the assembly department (two weeks) and assist a marketing executive with a forecasting software enhancement (four weeks). On Monday night the project goals are fed back into a central computer. On Tuesday mornings, functional managers receive a printout of their direct reports new and pending project goals. These printouts are the basis of Tuesday afternoon meetings in which managers work with their people to anticipate overload and conicting goals, sort out priorities, organise work and make mutual commitments about whats going to get done. This is a critical step. The failure mode in our company (and I suspect in most growing companies) is that people over-commit themselves rather than establish unchallenging goals. By 5 p.m. Tuesday, the revised schedule is fed back into the central database. This two-pass system generates the work program that co-ordinates the mostly self-imposed activities of every Cypress employee. It allows the organisation to be project driven, which helps us emphasise speed and agility, as well as being functionally accurate, which works against burnout and failure to * Reprinted by permission of Harvard Business Review, No Excuses Management, by T. J. Rodgers, July August 1990, 8498. Copyright by the President and Fellows of Harvard College, all rights reserved.
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execute. On Wednesday morning, our eight vice presidents receive goal printouts for their people and the people below them another conict resolution mechanism. On Wednesday afternoons at my weekly staff meeting, I review various database reports with my vice presidents. We talk about whats going wrong and how to help managers who are running into problems. The following reports typically serve as the basis for discussion: progress with goals on critical projects; percentage of deliquent goals sorted by managers (their goals plus those of their subordinates); percentage of deliquent goals sorted by vice president (the percentage of pending goals that are deliquent for all people reporting up the chain of command to each vice president); all employees without goals (something I do not tolerate); and all employees with two or more deliquent goals, sorted by manager. As weve rened the goal system and used it more extensively, Ive developed some general principles. First, people are going to have goals they dont achieve on time; the key is to sense when a vice president or a manager is losing control of the operation. My rule of thumb is that vice presidents should not have deliquency rates above 20 per cent, and managers should not let more than 30 per cent of their goals become deliquent. When managers do have a deliquency problem, I usually intervene with a short note: Your deliquency rate is running at 35 per cent, what can I do to help? I often get back requests for specic assistance. Part of my role is to hold people accountable. But it is also to identify problems before they become crises and to provide help in getting them xed. Second, people need positive feedback. Every month we issue a Completed Goal Report for every person in the company. The report lists all goals completed over the past four weeks as well as those that have yet to come due. Individual Monthly Goal Report, an excerpt from a monthly report for a production-control staffer, lists all goals completed in work week 45 of last year. The entire report consists of 49 goals, 28 of which were completed on time, 4 of which were completed late, and 17 of which were pending an outstanding record. The completed goal report is also a valuable tool for performance evaluation. At Cypress, the completed goal report triggers a performance mini-review; each month managers read through their peoples printouts and prepare brief, factual evaluations. At year end, managers have a dozen such objective reviews to refresh their memories and ght the proximity effect. Managers shouldnt expect outstanding performance unless theyre prepared to reward outstanding performers. Yet evaluation and reward systems remain an organisational black hole for three reasons. First, managers arent very scientic about rating their people. They may be able to identify the real stars and the worst laggards, the vast majority of people (who must still be ranked) get lost somewhere in the middle. Second, even if they evaluate people correctly, managers like to spread raises around evenly to keep the troops happy. This is a deadly policy that saps the morale of standouts who deserve more and sends the wrong signal to weak performers. Third, managers are totally incapable of distinguishing between merit and equity when awarding increases. Merit refers to that portion of a raise awarded for the quality of past performance. Equity refers to adjustments in that raise to more closely align salaries of equally ranked peers. Merit and
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equity both have a place in the incentive mix, but confusing the two makes for mushy logic, counter-productive results and dissatised people. As with all our resource-allocation systems, the focal-review system starts with policies at the top and forces middle management decisions to be consistent with that thinking. Senior management and the board of directors review our annual revenue forecasts, survey compensation trends among our competitors, and settle on a total corporate allowance for raises. The raise budget is not negotiable, and it drives raises throughout the company. If the corporate budget is 8 per cent, then every department must meet a weighted-average salary increase of 8 per cent. Its up to managers to distribute the 8 per cent pool, which is where the focal-review system comes in. Only after they have awarded percentage increases based strictly on merit can managers make adjustments for salary inequities created by personal circumstances and historical accidents. 1 Does Cypress treat all of its employees in an equitable manner? 2 To what extent does the Cypress system utilise principles of expectancy theory?

References
1 2 3 4 Lawler, E. E., III and Suttle, J. L. (1972) A Causal Correlation Test of the Need Hierarchy Concept, Organizational Behavior and Human Performance, 7: 26573. Herzberg, F., Mausner, B. and Snyderman, B. (1959) The Motivation to Work, 2nd edn. New York: Wiley. Herzberg, F. (1966) Work and the Nature of Man. Cleveland: World Publishing Company. Dunnette, M., Campbell, J. and Hakel, M. (1973) Factors Contributing to Job Dissatisfaction in Six Occupational Groups, Organizational Behavior and Human Performance, 23551. Lawler, E. E., III, (1973) Motivation in Work Organizations. Monterey, CA: Brooks-Cole Publishing. Korman, A. K. (1971) Industrial and Organizational Psychology. Englewood Cliffs, NJ: Prentice Hall. Stacy Adams, J. (1965) Inequity in Social Exchange, in L. Berkowitz (ed.), Advances in Experimental Social Psychology, 4th edn. New York: Academic Press, 267300. Huseman, R., Hateld, J. and Miles, E. (1987) A New Perspective on Equity Theory: The Equity Sensitivity Construct, Academy of Management Review 12: 22234. Tolman, E. and Honzik, C. (1930) Introduction and Removal of Reward and Maze Performance of Rats, University of California Publications in Psychology 4: 25775. Vroom, V. (1964) Work and Motivation. New York: Wiley. Stahl, M. and Harrell, A. (1983) Using Decision Modeling to Measure Second Level Valences in Expectancy Theory, Organizational Behavior and Human Performance 22: 2334.

5 6 7 8 9 10 11

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12 13 14 15 16 17 18 19

Hofstede, G. (1980) Motivation, Leadership and Organization: Do American Theories Apply Abroad?, Organizational Dynamics 9: 4263. Adler, N. (1991) International Dimensions of Organizational Behaviour, 2nd edn. Boston: Kent Publishing Company, 18. Hines, G. (1981) Cross Cultural Differences in Two-Factor Theory, Journal of Applied Psychology 58: 31317. Locke, E. (1977) The Myths of Behavior Mod in Organizations, Academy of Management Review 2: 53353. Fry, F. (1974) Operant Conditioning in Organizational Settings: Of Mice and Men?, Personnel 51: 1724. Hammer, M. (1971) The Application of Behavior Conditioning Procedures to the Problems of Quality Control: A Comment, Academy of Management Journal 14: 52932. Solomon, R. (1964) Punishment, American Psychologist 19: 23953. Lockwood, E. and Luthans, F. (1984) Contingent Time Off: A Non-nancial Incentive for Improving Productivity, Management Review: 4852.

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Module 4

Organisational Control and Reward Systems


Contents
4.1 4.1.1 4.1.2 4.1.3 4.1.4 4.2 4.2.1 4.2.2 4.3 4.3.1 4.3.2 4.3.3 4.4 4.4.1 4.4.2 4.5 4.5.1 4.6 4.6.1 4.6.2 4.6.3 4.6.4 4.6.5 Why Organisations Need to Assess Employees Performance Performance Appraisal Issues and Practices Overcoming Reliability Errors in Performance Appraisal Developing Performance Measures with Job Analysis Performance Appraisal Methods Goal-Setting and Management by Objectives (MBO) How Does Goal-Setting Work from the Employees Perspective? Observing Caution in the Use of MBO Systems Rewards and Reward Systems Classifying Rewards in the Work Setting Distributing Rewards in Organisations Employees Perceptions of Pay Rises Components of Executive Compensation What Are the Current Trends in Executive Compensation? What Has Been the Effect of Downsizing and Delayering on Company-wide Compensation Plans? A Comparison of Company Pay Practices Making Intelligent Choices about Company Pay Plans Individual and Group-Based Reward Systems Cost-Savings Plans Strengthening Competitive Advantage by Using Team-based Rewards The Rucker Plan: an Incentive System that Works in the Self-Directed Team Environment Design and Timing Issues for the Installation of a Rucker Plan in a Delayered Firm Using Self-directed Teams Prot-Sharing Plans 4/2 4/3 4/5 4/6 4/7 4/10 4/11 4/13 4/14 4/14 4/16 4/18 4/19 4/21 4/23 4/25 4/27 4/29 4/30 4/31 4/32 4/35 4/37 4/38 4/41 4/45 4/46

Summary Points Review Questions Case Study 4.1: Performance Appraisal at Work Case Study 4.2: A Swedish-American Joint Venture

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Learning Objectives
By the end of this module you will be able to: Explain why organisations must evaluate employee performance. Describe the key outcomes of the performance appraisal process. Recognise the common threats to the reliability of performance appraisal systems. Describe appraisal methods and discuss their comparative characteristics. Explain why goals have motivating properties. Understand the strengths and weaknesses of management by objective (MBO) systems. Explain the pitfalls which can affect the success of MBO systems. Distinguish among intrinsic, extrinsic, nancial and non-nancial rewards. Describe the signicance of distributive and procedural justice in performance appraisal and reward systems. Explain the ways in which companies reward performance. Note several ways that organisations can use to improve the design of their reward systems. Describe the organisational value of group-based reward systems. Explain that a shift to a group-based incentive plan in an existing rm can only occur after the destabilising effects of delayering and downsizing have been overcome. Describe why empowerment and a strengthened employment relationship can be advanced through the use of group-based incentives. Show why group-based incentive plans have better line-of-sight than pure merit-based reward systems which work only at the individual employee level. Develop the rationale for the accelerating use of ISO plans to strengthen employee commitment to the rms strategic success.

4.1

Why Organisations Need to Assess Employees Performance


An organisations performance appraisal system is dened as a process which generates valid information about employee work effectiveness for the purpose of making informed human resource decisions. Organisations must evaluate employee performance for a number of reasons. 1 2 3 4 5 Employees need to understand the behavioural requirements of the job. Employees work is evaluated for its contributions to company goals. Employees need to know where they stand with the organisation in terms of their performance. Employees motivation to do a good job is increased by the performance appraisal system. Valid information about performance levels of employees should be used to make decisions about salary increases, promotions, bonuses and training needs.
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Employees need a clear understanding of what the rm expects from them in terms of performance.

Firms realise that a good appraisal system makes organisational processes more effective because managers can use the performance appraisal system as a motivational tool. An effective appraisal system creates many opportunities for managers to interact with their subordinates about team performance measures, service quality, cycle times, company goals, and employees career aspirations. If there is no formal and objective performance appraisal system, employees may believe that the rm is unconcerned with treating them fairly. Table 4.1 summarises some of the more important effects of performance appraisal from both the rms and the employee viewpoint.
Table 4.1 Effects of performance appraisal
For the employee Need fullment (security, social, self-esteem) Job satisfaction Organisational commitment Job involvement Satisfaction with supervisors Satisfaction with pay Achievement of promotions Greater responsibility Personal career goals Improved self-efcacy

For the organisation Performance improvement Validation of the selection system Employee counselling Training and development Clarication of job expectations Help in goal-setting Development of employee potential Manpower planning Documentation of existing performance Improved customer service Product and process improvement

4.1.1

Performance Appraisal Issues and Practices


Few managers would question the rms need to assess the performance behaviour of its employees. The process of assessment must produce results which are fair, timely and accurate. Managements hope that actual performance and measured performance are the same. When the focus of measurement is counting the output from operations such as production and productivity, the correlation between actual and measured performance is strong. Measuring managerial performance is much more difcult because the results of managerial work are harder to quantify. Good appraisal systems try to improve the congruence of measured and actual performance. Figure 4.1 shows the performance measurement problems that result from low congruence between the two. It highlights three major measurement problems that crop up in performance appraisal systems. They include deciency, unreliability and invalidity. Deciency represents actual performance that is overlooked because the evaluator ignores it or the appraisal system fails to capture it. An example of this type of failure would be the appraisal system that tracks the time and frequency of calls handled by service representatives while it fails to capture the quality of the service or the satisfaction of the customer.

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Deficiency problem Performance overlooked by the evaluator Reliability problems 1. Situational factors affecting the evaluator, such as mood or timing of the evaluation. 2. Disagreement between evaluators or inconsistent methods. 3. Temporary personal factors, such as fatigue or ill health of the person being evaluated. Validity problem Poorly defined task performance causing invalidity.

Deficiency

Unreliability True Assessment Invalidity

Actual performance

Measured performance

Figure 4.1

Actual and measured performance

Unreliability stems from numerous origins, many of which are related to problems within the evaluator(s). Reliability refers to the constancy and stability of performance appraisal results under the same evaluators and similar circumstances of administration. Invalidity comes from several aspects of performance appraisal work. When a performance appraisal system is poorly documented and not fully explained to managers and employees, it is quite likely that they will engage in work activities that detract from their performance. This problem can also stem from inadequate job descriptions that fail to put forth all critical job responsibilities for employees. Validity is the quality of the measuring components in a performance appraisal system. Do the components measure what they are supposed to measure? Additional types of validity important in performance appraisal are shown in Table 4.3. Performance appraisal systems should have two other properties: consistency, two or more ways of gathering performance data producing results which agree, and stability, the property of dependability of results over time. Stability means that performance measuring items should yield the same scores at various evaluation periods if the performance characteristic or work requirement has not changed.

What Kinds of Errors do Managers Make in Their Performance Appraisal Work?


Table 4.2 shows some of the common threats to the reliability of performance appraisal systems. All of the errors noted in the table are created by managers who are: 1) improperly trained in performance appraisal work; 2) not spending enough time on their performance appraisal work; or 3) not trying to remain objective and fair-minded in their evaluation work.

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Because of the problems noted in the table, it requires some effort on the part of the rm to remove personal biases, prejudices and idiosyncrasies of managers from the evaluation of work performance.
Table 4.2
Type of error Personal bias Halo effect Recency error Central tendency error Strictness or leniency errors Similarity error Forcing the rating to match other criteria

Errors in performance appraisal


Denition A stereotype or bias which inuences a superiors rating upward or downward. Rating an employee on one trait based on their evaluation on other traits. The emphasis on recent performance examples in making performance assessments. Assigning average ratings to all employees resulting in little variation among ratings. Supervisor ratings based on the belief that employees do not measure up, or that all employees measure up. The supervisor has a performance quality in himself which he looks for in subordinates. Deciding on an overall rating rst and then going back to adjust ratings on individual dimensions to justify the overall rating.

Table 4.3
Type of validity Content validity

Forms of validity
Denition and example The performance appraisal measure and its administration are logically related to the aspects of performance being measured. Supervisors and employees agree that the dimensions of performance measured are related to actual job behaviours. Performance measures are statistically related to other important work outcomes. An analysis shows that scores on the performance dimensions are related to quantitative measures of output. The performance appraisal system logically derives from a model or theory of performance behaviour and motivation. A rm develops its appraisal programme from the expectancy theory of motivation. Multiple measures of the same performance dimension yield equivalent scores. Observation methods correlate highly with paper and pencil measures of performance. Measures of performance using the same method produce different scores for different aspects of performance.

Empirical validity

Construct validity

Convergent validity

Discriminant validity

4.1.2

Overcoming Reliability Errors in Performance Appraisal


Methods to overcome the rating problems noted in Table 4.2 are described below. None of these is fool-proof, but when used in the proper combinations they can reduce the effect of errors in performance appraisal work. Use multiple criteria. No job is so specialised that only one task activity is predominant. Since this is true, performance appraisal systems should rely on

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several performance dimensions or criteria. The more complex the job being evaluated the greater the need for multiple assessment criteria. Not all job behaviours need to be assessed. Instead, managers should target for measurement those core job behaviours that are essential to good job performance. Emphasise behaviours rather than traits. Many traits that are valued in employees may have very little to do with excellent performance on the job. For instance, seniority, company loyalty (organisational commitment), reliability, and friendliness may be desirable attributes in employees but they may have little bearing on job performance. While these traits may be prized by managers and their rms, they may not be dependable criteria to use to separate employees by performance levels. Appraisal systems that are heavily weighted with trait measures also create the problem of interrater reliability. It means simply that multiple raters will have different personal meanings for traits such as loyalty, honour, friendliness and dependability. To the extent that they disagree over the meaning of these traits, the degree of reliability of the appraisal system is lowered. Use several raters. As the number of raters used increases, the accuracy of results improves signicantly. Since rater errors are normally distributed, the use of more raters will increase the frequency of ratings near the distributions mean. Because of this principle, you always see multiple judges used in sports competitions such as ice skating, gymnastics and diving. Often the highest and lowest scores are dropped and the competitors score is determined by the average of the scores remaining. Clearly, this logic applies to the rating of employee performance in the organisation. The use of 360 degree performance appraisal creates many of the strengths of multiple raters in performance appraisal work. In organisations that rely heavily on self-directed teams it is possible to perform 360 degree performance appraisal by having: 1) employees conducting self-appraisal; 2) peers evaluating each other; 3) team leader appraising team members; and 4) team members appraising team leaders. Train the raters. There is quite a bit of agreement among experts that systematic training of evaluators can reduce substantially the types of errors that threaten system reliability. In very short order, problems of halo and leniency can be virtually eliminated. With extended training of about two days, all of the reliability errors shown in Table 4.2 can be dramatically reduced.

How Managers Can Improve the Design of Performance Appraisal Systems


The options available to managers for improving the design of performance appraisal system include: 1) conducting job analysis; and 2) improving the validity of performance measures. 4.1.3

Developing Performance Measures with Job Analysis


Job analysis focuses on the content of what employees actually do at work as a basis for extracting dependable performance measures. The procedure consists of dening the job to isolate the work behaviours which lead to performance outcomes. A job analysis produces for each employee a set of primary duties which are documented as a job description. A job analysis also produces a

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clear specication of the employee characteristics and experiential qualications (skills, knowledge, education, etc.) to perform the job adequately. Once job descriptions are prepared for a job grouping, it is then possible to develop the relevant measures of performance effectiveness which make up a performance appraisal system. The most difcult aspect of job analysis is isolating the tasks in a given job. For instance, where does the job of computer programmer stop and computer operator begin? Should part of the programmers job be the repair or replacement of computer modems? Such territorial questions must be answered to dene the content of a job. The analyst has several options he can use to address job content problems. He can: 1 2 3 4 determine the common skills and qualications required to do the job; isolate the work tasks which occur at the same place and time because of task co-ordination required by the technology; use externally accepted qualities to cluster tasks based on professional denitions (accountant or engineer), union demands, and licensing examinations; use the traditions of the rm which dene how work has always been done.

Employees are most sensitive to validity issues in the performance appraisal system used to evaluate their task performance. The validity of the performance appraisal system can be enhanced by addressing the following issues: 1) selecting the most appropriate method to measure performance; 2) developing a system which focuses on specic aspects of performance; and 3) effective training of raters and developing a training manual for appraisal. Careful training can reduce the impact of the errors noted in Table 4.2. Reducing the frequency of these errors raises employees condence in the performance feedback that they receive from their superiors during evaluation conferences. 4.1.4

Performance Appraisal Methods


No system of appraisal can eliminate all the threats to validity and reliability. The most prominent features of any system are the types of data-gathering instruments used. The various mechanisms which can be used are described below.

Absolute Standards
This method judges each employee against a xed and inexible set of performance criteria. When students take a course in which the instructor adheres to the percentage breakdown grading system, they are being evaluated with such a system. The absolute standard system often results in upward biased ratings (leniency error), because instructors (and supervisors) prefer to give positive rather than negative feedback. Figure 4.2 shows an example of an absolute standards rating instrument which requires the supervisor to respond with a yes or no answer for each performance dimension. The performance dimensions on the rating form in Figure 4.2 have an all or nothing feature. The dimensions are largely personality-based and do not assess actual job behaviours. The supervisor must make highly subjective judgments
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about employee traits. Thus, this method can have serious validity problems. How would you react if your supervisor ticked no on intelligence and good judgment in your appraisal?

NAME ................................ SUPERVISOR........................ DATE OF HIRING............... TIME IN POSITION ..................................................... Please tick the YES or NO box beside each performance dimension YES
Exhibits good manners (is polite and tactful)........................................... Has intelligence and good judgement..................................................... Demonstrates stamina and r esilience..................................................... Is committed to the company................................................................... Shows self-confidence............................................................................. Exhibits leadership qualities.................................................................... Is enthusiastic.......................................................................................... Co-operates with other employees........................................................... Demonstrates initiative............................................................................ Persists until the job is done....................................................................

NO

Figure 4.2

Absolute standards rating form

Graphic Scales Rating System


Graphic rating scales are the most popular systems in use today. Surveys indicate that 57 percent of rms using appraisal systems rely on this method.1 The typical graphic rating scale form lists performance criteria which are meaningful to both the supervisor and employee. In other words, the criteria possess content validity. Using a numerical rating scale, the supervisor assigns a number to each criterion. Figure 4.3 shows a graphic rating scale method.

NAME ....................................... DEPARTMENT............................. JOB TITLE................................ PERFORMANCE PERIOD ....................... SUPERVISOR'S NAME..................................................

INSTRUCTIONS: circle a number which best describes the employee Employee Characteristic 1. Dependability 2. Co-operativeness 3. Customer courtesy 4. Willingness to accept responsibility Excellent 5 5 5 5 Good 4 4 4 4 Average 3 3 3 3 Below average 2 2 2 2 Poor 1 1 1 1

Figure 4.3

Graphic rating scale form

This method of rating employees highlights the differences in the performance of subordinates. Use of the system encourages the tendency to spread employees out along each scale. Since degrees of performance success or failure are possible
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for each dimension, supervisors are in a stronger position to assess the strengths and weaknesses of each employee when this system is used. This characteristic improves the quality of information given to employees during performance counselling sessions. The graphic rating scale does not eliminate threats to validity discussed earlier. Often supervisors have a tendency to use only part of the rating scale because of individual supervisor strictness, leniency, or similarity. Some organisations try to avoid this problem by requiring supervisors to generate a xed distribution of performance levels (10 per cent of employees must be rated either excellent or poor, with the remaining 80 per cent rated between the two extremes). Forced distributions can create problems for employees because they may conclude that the distribution is unfair.

Behaviour Anchored Rating Scale (BARS)


This system provides concrete examples of behaviours for different levels of performance. Employees often complain that they do not know what their superiors want in terms of performance. Also, many employees say that little relationship exists between what they do on the job and how their work is evaluated. BARS systems emphasise work behaviour and how the work gets done instead of characteristics of employees. The design and implementation of a BARS system is an involved participative procedure which utilises the input of supervisors and employees rated by the system. Employees are consulted during the design phase to identify critical work activities which lead to success or failure on the job. Other groups of employees who are knowledgeable about the jobs are used to evaluate the critical work activities developed by the rst group of employees. The design process continues with the elimination of critical work activities on which the groups could not agree. This analysis procedure produces a pool of highly meaningful items describing effective and ineffective job behaviours. These behaviours are always written in the language of those employees who do the jobs under analysis. An example of a BARS for a sales assistant is shown in Table 4.4.
Table 4.4 Behaviour Anchored Rating Scale for a sales assistant

Inventory control and management: includes all those behaviours the assistant demonstrates when working with store inventory 7 6 5 4 3 2 1 If the manager asks this assistant about the level of stocking for a product, the assistant can immediately pinpoint the item on the computerised inventory report. You could expect this assistant to ask another employee how to use the computerised inventory report. This assistant would be unaware of reordering dates for items in inventory. When asked by the manager, this assistant could be expected not to know which products are : currently out of stock. This assistant can be expected not to know the names of products in the stores inventory. This assistant does not know where the stores inventory is located. This assistant does not ask where the stores inventory is located.

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In Table 4.4 each level of performance is dened in behavioural terms. These are the behavioural anchors. They provide examples of the possible behaviours related to a performance dimension. The clarity of the behaviours improves employees understanding of their jobs and helps them achieve higher performance. The instructional or teaching property of the BARS is increased because employees were involved in their design.

How BARS Systems Differ from Other Performance Appraisal Methods


First, BARS systems emphasise how the work is performed (through the behavioural examples) versus the traits of employees. The strong behavioural emphasis reduces the chances for extraneous employee traits or peripheral job requirements to nd their way into the employees evaluation. In addition. BARS apply to a closely grouped, or specic set of tasks. While this increases validity for the tasks in question, it may require that multiple BARS systems be developed to match other job groupings in the rm. The quality of performance feedback from a BARS system may exceed the quality of feedback from other systems since the emphasis is on job behaviour and not on whether the individual is a good or bad employee. This in turn may enhance the signicance of performance feedback in the minds of employees through reduced defensiveness. On the negative side, BARS systems take a long time to develop. Furthermore, they work best when job behaviour is always observable. Developing a BARS system for jobs which require creativity, intellectual curiosity, innovation, and complex problem-solving is more difcult. Thus, it would be difcult indeed to develop BARS systems for the jobs of scientists, professors, lawyers, or physicians.

4.2

Goal-Setting and Management by Objectives (MBO)


Experts in management and organisational behaviour acknowledge the signicance of goals in channelling employee behaviour towards organisational goals. The behavioural framework for a work-based theory of goal-setting was articulated by Edwin Locke, who describes the relationship between employees goals and work performance.2 Goals are dened as those end states which reduce the intensity of needs and motives. His theory proposes that clearly specied, difcult goals result in greater performance improvement than easy goals stated in general terms. It is now widely accepted that goal setting systems: 1) increase work motivation and employee job performance; 2) reduce the stress of conicting or confusing work expectations for employees; and 3) improve the accuracy and validity of performance evaluation work in the organisation. Table 4.5 shows the elements which make up a theory of goal-setting. The process involves ve motivational and behavioural steps. First, incentives for performance and channelled employee behaviour are provided by the organisational environment. Here the organisation, through its managers, species what must be accomplished. Further, the organisation should make clear the rewards (intrinsic and extrinsic) which go with goal accomplishment. The second component of the model highlights the importance of the goal-setting process. Note

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that the goals can be mutually determined, employer-centred or assigned, or generalised as do your best. The process option chosen by the manager who is conducting goal-setting with subordinates is a function of 1) the importance of employee acceptance of the goals, 2) the amount of available time for goal setting, and 3) the importance of employee development through goal-setting. If these are prominent features of goal-setting arrangements, then the selection of the mutual establishment approach is most appropriate.
Table 4.5
Environmental issues Specify results expected Explain rewards which are available

Aspects of the goal-setting process

Goal-setting process Mutually established Employercentred Or framed as do your best

Goal attributes Specic Measurable Achievable Resource-based Time-specic SMART

Employee intentions Accept the goals Commit to the goals

Outcomes Work performance Job satisfaction Job motivation

The third element in the model shown horizontally in Table 4.5 highlights the importance of the attributes of the goals. Goals should have the SMART qualities noted in the table. When goals lack these properties, they have less motivational impact because employees lose interest in them. The fourth element indicates that employee commitment and acceptance of goals creates the behavioural intentions to strive for the pre-established goals. Intention is directly related to both properties. Employee intentions are deepened by the clear specication of the relationship between intrinsic and extrinsic rewards and the goals in question. The fth element in the model species the employee and organisational outcomes resulting from the process. Properly managed goal-setting systems having adequate and timely formal and informal feedback generate task performance that is valued by the organisation and its employees. Employees receive valued personal rewards (recognition, pay rises, bonuses, promotions, status etc.) which create job satisfaction and increased work motivation which in turn deepens the commitment to goal-setting per se. 4.2.1

How Does Goal-Setting Work from the Employees Perspective?


Consider the effect of an economisation drive to reduce costs in an insurance company by 10 percent. The manager is told that this is his goal for the next year and he will be eligible for an 8 percent bonus if it is achieved. He decides to organise an employee task force to develop the ofce plan for achieving the goal. He seeks employee input into sub-goal specication (participative goalsetting process). During his contact with subordinates, he explains his incentive plan and establishes goals that have the properties of clarity, difculty and limited number. The process yields high commitment and acceptance of the goal because of reward specication and goal properties (high intention and behavioural effort). The mutual acceptance of the goal by the manager and his employees increases the probability that the goal will be achieved and the outcomes of job satisfaction, task performance, and motivation will occur.

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The example and the model in Table 4.5 both imply that goal feedback is a highly important element for sustaining the focus of effort towards the goal in question. Organisations must carefully incorporate well-timed formal and informal feedback that keeps managers and employees apprised of their progress toward the specied goal. Feedback itself is a highly important intrinsic reward for many employees. Erosion in the valued outcomes shown in the model can occur without well-timed and meaningful feedback. Management by objectives (MBO) is simply an organisational application of goal-setting theory. Peter Drucker coined the term and he has been a leading proponent of the organisational process for several decades.3 He advocates MBO as a process which develops self-control in managers since these individuals control the process that leads to worthwhile organisational and individual outcomes. Drucker pinpoints the importance of employee involvement in the goal-setting process when he concludes that MBO discussions and involvement of employees in goal-setting cause them to work harder and perform better. The MBO cycle shown in Figure 4.4 is an organisational elaboration of Table 4.5. The practical concerns of rms and employees are embodied in the theory of goal-setting. The result is the MBO cycle which rests on several assumptions. 1 2 3 4 Employees perform better when they know what is expected of them and how they contribute to the effectiveness of the organisation. Most employees prefer self-determination at work. Employees can be motivated further by well-timed formal and informal feedback about their work methods and results. Employees prefer intrinsic and extrinsic rewards that are consistent with their performance levels.

Firms may use more than the seven steps noted in the MBO cycle shown in Figure 4.4. The seven steps are common elements in most programmes however. The seven generic MBO steps are briey explained below. Step 1. Analyse the mix of people, jobs, work methods and external demands. The key element here is blending people, work design and technology to meet the constraints in the organisations environment. This is a strategic activity usually conducted by top management. Step 2. Plan goals, strategy, communication and training. This is the production of an MBO blueprint which details organisational goals and how they will cascade down the chain of command. The blueprint should also ensure proper training for those covered by the system. Step 3. Dene the employees jobs in terms of content, authority and responsibility. From the organisational standpoint this must be done to avoid duplication of effort and resources. From the employee perspective, this step claries job duties so that employees can see how their goals interlock up the chain of command. Step 4. Articulate goal difculty, clarity, number and feedback. Here the employee initiates the superiorsubordinate dialogue on goals by developing a set of goals for the next time period. Subordinates and superiors must be thoroughly trained in the proper specication of goals.
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Step 5. Reach mutual agreement about goals, work methods, measurement, and time frame. This step sets down the MBO rules which govern the behaviour of employees as they strive for goal achievement. This step also formalises the role of the superior in the MBO cycle. Step 6. Make informal review of goal achievement, methods and possible revision of goals. The MBO cycle must be exible so that it can be adjusted to meet unanticipated events. For instance, poor economic conditions may force the downward revision of sales goals. Step 7. Make formal review of goals achieved and rewards to be granted. This step completes the cyclical MBO process. It represents the rms formal acknowledgement of employees success in achieving their goals. To close the learning loop, it is necessary to indicate clearly to employees what their rewards are going to be. This step helps ensure that employees will involve themselves in the next MBO cycle in which they will hopefully set even more ambitious goals.

1 ANALYSE the mix of people, jobs, work methods and external demands

2 PLAN goals, strategy, communication and training

3 DEFINE the employees' jobs in terms of content, authority and responsibility

4 ARTICULATE goal difficulty, clarity, number, feedback

7 make FORMAL review of goal achievement and rewards to be obtained

6 make INFORMAL review of goal achievement, methods and probable rewards, and REVISION of goals and methods if necessary

5 reach MUTUAL AGREEMENT about goals, work methods, goal measurements and time frame

Figure 4.4

The MBO cycle

4.2.2

Observing Caution in the Use of MBO Systems


MBO, like any other control system, must be managed and rened over time. Managerial vigilance ensures that the MBO system remains meaningful to employees. The best ways to preserve the quality of the MBO system are noted below. 1 2 Top management support, commitment and involvement must precede MBO systems design, and continue throughout the life of the programme. MBO must have a strong relationship with routine managerial activities and responsibilities. The MBO system must buttress the basic aspects of the rms technology, products, and services. MBO must emphasise organisational and personal development goals. The successful manager always ensures that the MBO system permits employees to achieve higher-order need satisfaction for important areas such as professional competence and growth.
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The rm must devote part of its resources to the effective training of personnel to administer and function under the MBO system. MBO will not work if it is put in place without the knowledge and co-operation of the work-force, because employees will not understand it and the rm will not derive the motivational and performance benets of MBO. The rm must tailor the MBO system to meet the needs of departments which have different technologies and products. If MBO is not customised to t departmental needs, the programme will lack integration and the value of MBO information at the organisational level will be questionable. Managers must avoid over-emphasis on the number of goals and how quantied they are. The 8020 rule is applicable here because it says that 20 percent of the goals represent 80 percent of the work that needs to be done. Observation of this rule prevents managers from burying subordinates under a mountain of overly narrow and quantied goals. The benets of an MBO system should far exceed the costs of the programme in terms of paperwork. MBO paperwork multiplies when managers fail to recognise the importance of participatively setting goals which use informal as well as formal feedback. Equal emphasis should be placed on discussion and evaluation. Overemphasis on discussion leads to uninspired goals while over-emphasis on evaluation leads to perceptions of manipulation and overcontrol. MBO works best when it is exible and goals can be adjusted to meet unforeseen circumstances. This point emphasises how important it is that managers realise that the MBO system is constantly being re-invented and revised by the rm and its members.

4.3

Rewards and Reward Systems


Rewards strongly inuence employee effort and performance levels. Employees at all levels compare their efforts and rewards to the efforts and rewards of other employees. The perceived equity of these comparisons leads to experienced levels of job satisfaction and motivation. How the rewards are perceived can easily outweigh the actual rewards distributed by the rm. The reward system has a heavy inuence on perceptions of rewards. The expectancy theory of motivation makes it clear that if employees perceive a weak connection between performance and reward, then the rewards will not function as motivators. Perceived inequity causes job satisfaction with pay to plummet. The rst safeguard against turbulent or inaccurate employee perceptions of rewards can be installed by correctly classifying organisational rewards.

4.3.1

Classifying Rewards in the Work Setting


Rewards fall into two general categories: extrinsic and intrinsic. Intrinsic rewards are dened as those rewards which employees associate with the job itself. These include being personally responsible for a meaningful portion of work: doing work which leads to personal development and competence; being included

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in the distribution channel for important organisational information: and doing work which requires a number of skills and activities. Examples of jobs or occupations with high levels of intrinsic rewards include physician, politician, judge, research scientist, design engineer and architect. These occupations involve a set of varied and signicant work skills and activities. The contrast in available intrinsic rewards is noticeable indeed when you compare these professions with the work done by employees in a car factory. Car assembly work has little potential for employee development and work cycles are very short and limited to very specic behaviours. Since assembly workers are isolated from the nal product they help produce, they receive very little feedback concerning the results of their work. Extrinsic rewards are given to the employee by the rm and they do not occur as the work unfolds. Extrinsic rewards can be provided by supervisors, peers and work groups, and external organisations such as professional associations and unions. Extrinsic rewards can be further broken down into direct compensation, indirect compensation and non-nancial rewards. Direct compensation refers to extrinsic rewards which include base salary or wages, performance bonuses, overtime and holiday pay, share options and pensions (both are deferred compensation). Indirect compensation refers to rewards that are given because of the employees organisational level versus his performance. Examples of such rewards include top executive personal protection programmes, loans at low interest rates, personal services and perquisites. The last category of rewards consists of non-nancial compensation. The forms of such compensation are legion, with managers concocting some very creative systems of non-nancial compensation. Examples of these rewards include preferred ofce furnishing, assigned parking spaces, impressive titles, recognition programmes, insignias and other status symbols.

Are Intrinsic Rewards More or Less Important than Extrinsic Rewards?


Several behavioural scientists have proposed that intrinsic rewards are more important than extrinsic rewards in inuencing motivation and performance.4 Since 1980 the eld of organisational behaviour has generated considerable research on the signicance and effects of intrinsic rewards on employee behaviour and performance. For instance, one study found that extrinsic rewards (incentives tied to performance) undermined the effect of intrinsic rewards (free time spent on the work) when the work was unstructured and interesting.5 A second study found that the level of personal control over work and the competence level of employees had a much larger impact on perceived intrinsic rewards than on extrinsic rewards.6 The research results noted above indicate the managerial value of separating extrinsic and intrinsic rewards.6 Further, it seems to be true that there is great motivational value in building as many rewards as possible into the job itself (intrinsic rewards). Current management thinking in this area concludes that employees will value goal-setting more if they know that participation in the process will lead to intrinsic and extrinsic rewards that they value. A nal reason for separating intrinsic and extrinsic rewards lies in the fact that rms have much more control over extrinsic rewards. The company can create
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published policy regarding the distribution of extrinsic rewards. This is not the case for intrinsic rewards. The existence of compensation policies acclimatises new employees to the organisation and articulates the relationship between performance and rewards. Further, the policies help specify the relationship between seniority and rewards such as fringe benets. Table 4.6 below shows common intrinsic and extrinsic rewards that are available to employees.
Table 4.6 Intrinsic and extrinsic rewards in organisations
Extrinsic rewards Direct compensation Participation in decision-making More responsibility Opportunities for personal growth More interesting work Variety of job activities Basic salary or wage Performance bonuses Stock options Overtime and holiday pay Indirect compensation Job protection programmes Time off with pay Non-nancial rewards Preferred ofce locations Choice parking spaces Impressive titles Preferred lunch hours Own secretary Cellular phone, fax machine

Intrinsic rewards

4.3.2

Distributing Rewards in Organisations


All rms are interested in the effective distribution of extrinsic rewards. Various guidelines for distributing rewards have been developed by rms. The common reasons that companies use to distribute direct compensation are shown below.

Performance
Assessing the performance or absence of performance occupies numerous people in any organisation. When rewards are allocated on this basis, then performance becomes a motivator. The discussion on the design of performance appraisal systems focused exclusively on this important relationship.

Effort
In the interest of minimising turnover and hiring costs, rms frequently decide to reward effort. This is often done to prevent new employees from experiencing job dissatisfaction. Frequently managers reward effort in the hope that effort and potential will eventually be followed by actual performance. This is a nonperformance-contingent basis for allocating rewards and it does not do much good to enhance performance! If the practice is widespread, high performers experience reduced satisfaction with pay because they believe the rm undervalues their proven abilities to produce.

Seniority
Length of service is used to group employees for the purpose of making human resource decisions about such matters as amount of fringe benets, eligibility for job change and transfer and redundancy. When seniority becomes a substitute for performance in the allocation of rewards, managers soon learn that
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it is encouraging tenacity versus performance and achievement. This of course eliminates perceived equity for high performers. They leave the rm in due course and the ranks of the mediocre performers increase. Downsizing and re-engineering changes in organisations are undermining the signicance of seniority as a basis for distributing rewards. Since rms are using more contract workers and temporary workers who may be employed only as long as it takes to complete a project, seniority is rapidly fading as a basis for pay rises and incentive distributions. Weakened labour unions whose workers return to work without forcing concessions on managements also reduce the role of seniority in compensation decisions. These threats to seniority-based reward systems will not abate because large, global companies can easily shift production away from facilities that are experiencing strikes to those facilities that are not.

Equality
This policy of compensation means that employees at given organisational levels receive the same base pay and pay rises. Such arrangements are common in partnerships where the managing partners agree to equal salaries. To some extent, companies that value highly collaboration and co-operation also extol the virtues of equality in compensation decisions. The belief is that giving everyone the same pay rise will cause employees to support and advance teamwork. School systems frequently adopt across-the-board pay rises for these reasons.

Power and Inuence


Groups or individuals are able to increase their share of rewards at the expense of other groups or individuals. This basis for rewards is closely related to seniority and it is a focal concern to unions which wish to preserve their economic capacity to inuence employers decisions. Most often, managements develop a reward policy which blends the reasons noted above. This will lead to severe conicts in reward policies which employees quickly notice. How do rms determine the value of their jobs? The most organised way to develop an effective reward system is to develop a job classication scheme to rank jobs against each other based on compensatable factors. These factors, noted below, help determine starting salaries, pay grades and the number of levels in given pay grades. 1 Skill requirements are the types of training and educational background an employee needs, to be technically qualied for a position. A chartered public accountant needs a special certication indicating that he has successfully completed so many hours of technical training. Mental requirements are the intellectual and emotional demands of a job. They include problem-solving skills; decision-making aptitude; and the ability to respond under extreme pressure. Physical requirements include health, strength, stamina, height and weight. Although some of these requirements have been dropped for certain jobs, many job classications still contain physical specications.
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Responsibility refers to the jobs impact on the organisation. It can be measured by the number of people supervised, size of budgets, and value of equipment managed. Working conditions are those environmental factors which affect work performance. Temperature, noise, lighting, vibration and humidity are examples of this factor.

A typical job classication system rates the jobs in a cluster of jobs on the compensatable factors. Points for each factor might be assigned by a panel of expert judges. The points would be accumulated for each job and then totalled. These totals for jobs can then be used to rank order the jobs in the company. Once this is done, the rm has an objective basis for distributing rewards based on the demands of the job. This system gives the rm a partial basis for determining wage and salary rates through compensation surveys. Similar rms can share salary data which can lead to pay brackets which are market-determined. Many complications can upset a salary or pay-bracketing system. Being laid off through downsizing and deteriorating economic conditions may cause people to accept jobs well below the bottom of established pay brackets. Likewise, labour shortages and/or enhanced skill requirements due to technological progress may force starting salaries above the tops of established brackets in high growth industries. 4.3.3

Employees Perceptions of Pay Rises


When researchers address the reasons why rms give pay rises, they nd that employees have divergent beliefs about the bases for pay rises. Table 4.7 sheds light on employee beliefs about the reasons for pay rises. The numbers under each column represent how the individuals designated in the name/rank column ordered their organisations reasons for giving pay rises. Executives believe their compensation is based on company prots and potential for prots (stock market performance). The two categories of salaried workers focus on area (salary) surveys, company performance, and cost-of-living adjustments as primary bases for pay rises. Hourly employees disagree about the inuence of unions depending on whether or not they belong to a union (note the nearly reversed ranking by the two groups). These last two groups of employees believe that company performance and nancial prospects have little to do with the reasons for their pay rises. The greatest variability in beliefs about pay rises occurs with few exceptions (see, for example, the hourly non-union view of worker productivity) at the extremes of job level. Company executives rank items in nearly opposite order from the rankings assigned by hourly-paid union employees. Top executives focus on external gauges of company success while union employees focus on bargained contracts and union demands. In all cases, employee productivity fails to be number one. Even though executives say their compensation is based on company performance, this is seldom the case.7 Research indicates that prots, market share, cost effectiveness, and company productivity are seldom used as a basis for determining the pay rises of executives.

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Table 4.7

How employees rank reasons for pay rises in their rms


Top management 4 1 2 6 5 3 7 9 10 8
** Paid for overtime.

Factors believed to cause pay rises Worker productivity Companys prots Companys potential prots Fairness of pay among employee groups Pay increases by top industry competitors Salary surveys Difculty in lling position Union agreements Union demands Cost-of-living index
* Not paid for overtime.

Exempt salaried* 7 2 3 5 6 1 8 10 9 4

Nonexempt salaried** 5 3 4 6 8 1 7 10 9 3

Hourly non-union 3 5 4 6 7 1 10 8 9 2

Hourly union 9 7 5 8 4 6 10 2 1 3

Source: Adapted from D. A. Weeks, 1997. Compensating Employees: Lessons of the 1990s, Report No. 310: New York: The Conference Board.

4.4

Components of Executive Compensation


Executives make up about three percent of any work-force. Because the effectiveness of executives is measured by the rising market valuations of the companies that they head, executive pay systems are designed to be highly competitive. These pay schemes are complex and structured to ensure that highly effective executives are retained and motivated to achieve higher share prices for their companies. Most experts on executive compensation agree that executive compensation packages are not based on internal job evaluations like those that apply to lower level employees. Instead, these pay packages reect industry practices and the compensation programmes of rival rms that are pursuing similar competitive strategies. Fairly stable differences in executive compensation exist among top executives across industries. Table 4.8 shows the relationship between pay and executive position across six industries. It shows that, with the exception of the pay level for the second highest-paid executive in the construction industry, a pattern of uniformity exists among the industries in terms of executive pay. This gives support to the argument that boards of directors do look at executive pay practices within the industry and among industries to make decisions about high-level executive compensation. There are four basic components of executive compensation: 1) base salary, 2) benets, 3) long-term incentives and 4) annual bonus.8 Base salary is most often determined by a compensation committee at the directorate level. The compensation committee reviews executive salary data for rms of comparable size both inside and outside the industry to arrive at an amount for executives base salaries.

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Table 4.8

Comparing the numbers in 2000: Executive pay in selected industries


Retail Manufacturing 1.0 .70 Commercial Construction banking 1.0 .70 1.0 .70 Gas & Electric 1.0 .65 Finance & Insurance 1.0 .70

CEOs salary Chief operating ofcer (second in command Chief nancial ofcer (third in command

1.0 .70

.60

.55

.60

.60

.55

.56

Annual bonuses are designed to motivate executives to maximise net income and the majority of industries and their member rms use them. When annual bonuses are not used, one or more of the following conditions are usually present: 1) the company exhibits tight control of stock ownership (such as a rm owned by its employees ESOP); 2) the corporation is a not-for-prot (hospital, charitable foundation) or 3) the industry and its rms are closely regulated (power generation).8 For instance, in the US nancial industry, CEOs earned bonuses in 1995 that were 255 percent of their base pay. Their counterparts in public power generation utilities earned bonuses that were only 38 percent of annual base pay.9 The third component of executive compensation is long-term incentives. By far the most popular feature of this aspect of executive compensation is the incentive stock option (ISO). The executive is granted the right to purchase a set number of shares of company stock at a stipulated price over a specied period of time. The incentive to the executive is to maximise the value of the rms shares so that exercising the option yields a substantial prot in the form of a capital gain. An effect of ISOs is to increase executive stock ownership. In America, by 1995, executive stock ownership had swelled to reach a worth of eight times annual base salary; up from ve times annual base salary two years earlier.10 . The issue for shareholders in this dramatic rise is whether or not a rm has a higher market value if its top executives have substantial personal wealth tied up in company stock. Towers Perrin, a benets consulting company, found that in 1995 higher-performing rms (median sales of $6bn) have higher median CEO stock ownership levels, at 10 times annual base pay. Medium- and lower-performing companies had CEO ownership at eight and six times base annual pay, respectively.10 The fourth component of executive compensation is executive benets. Executives typically receive higher benets because they are tied to income level. So, executives receive higher contributions to their life insurance, disability insurance and pensions. Many executives are also relieved of deductibles (co-payments) for health care costs.

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4.4.1

What Are the Current Trends in Executive Compensation?


Trend 1: Strengthening the link between executive compensation and the market value of rms. Many investor groups and experts in executive compensation point to the weak link between executive salaries and long-term company market value. Some of the more common reasons given by the experts for this weak connection are summarised below. 1 Corporate ofcers encourage their boards to support corporate diversication to spread business cycle risk over a portfolio of company subsidiaries. While the corporation may be no more protable once its diversied, the executives are paid more because the size of the company is a much better predictor of executive compensation than is its protability. Compensation committees made up of board members conclude that we cannot pay our CEO less than his peers in the industry. Therefore, pay for all senior managers tends to rise despite company performance or the performance of the companys stock. Shareholders have been far too willing to view executive salaries as a legitimate drain on earnings. This view is rapidly changing due to new disclosure requirements which make the levels of executive compensation much more obvious and understandable to investors. Protability is a good predictor of executive compensation only when the executive owns the business. The political features of rms break the link between performance and reward for executives. The executives who are most adroit politically (and not necessarily in terms of performance) receive the most compensation.7 An example of this is the corporate board that is composed of company insiders and a few outside members who are cronies of the CEO. These conditions lead to board decisions that simply rubber stamp the CEOs proposals for changes in executive compensation.

4 5

Trend 2: Executive compensation rises much faster than employee wages. According to the Wall Street Journals 1999 analysis of executive compensation, the heads of 30 major US corporations received compensation that was 212 times higher than the pay of the average American employee.11 In 1965 the multiple was 44. In its review of the proxy statements of 350 large American rms, William Mercer, Inc., a salary and benets consulting rm, found that the median salary for CEOs reached $1.432m, up from $1.294m in 1994. That is a gain of 11.4 percent for the period. At the same time, US wages and benets climbed 2.9 percent, the smallest gain in 14 years. US middle managers did not fare much better. Their wages grew a modest 4.2 percent, the smallest gain since 1977. Cited as an example of excessive executive compensation is the pay package received by Robert E. Allen, the former CEO of AT&T. In 1996 he received a $1.5m bonus and a tenfold increase in stock options even though the giant corporation barely broke even after a restructuring charge of $5.4bn. That charge included the cost of laying off over 40 000 workers. At the other end of the AT&T compensation continuum was Peggy McMullen.11 Between 1990 and 1996, she
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had to take pay cuts to stay with the company. As a $15-an-hour equipment operator, she could not afford to replace her 17 year-old car and her bonus was a T-shirt, a tote bag and a weeks free lunches at her AT&T plant in Pennsylvania. After considering her stagnant wages in relation to Mr. Allens compensation, she remarked, He should not have got his bonus. Trend 3: CEO pay rises much faster than the pay of the second-in-command. A Fortune study of 500 US companies in the 90s found that the pay of CEOs rose an average of 237 percent. In the same companies, the average compensation of chief operating ofcers rose a more modest 88 percent.12 Executive compensation analysts suggest that this trend coupled with the tendency of corporate boards to look outside the company for new CEOs has made No. 2 executives much more willing to jump ship than to wait around for the CEO to retire.12 Trend 4: Pay gaps between American and British executives narrow. Jan Leschley, the CEO of SmithKline Beecham earned 13.12m in 1995 according to the Financial Times compensation analysis of Britains top 100 companies.13 Matching pay trends in the USA, median annual compensation for top British CEOs rose a modest 2.7 percent in 1995 to 400 000 from 389 477 in 1994. However, for the same period, their median total compensation rose to 956 856 from 547 416 in 1994; a gain of nearly 75 percent. Much like their American counterparts their rising compensation occurred because it is strongly connected to the market value of their rms. Long-term incentive plans typically grant stock options to executives that require the share price to rise above a given level within a designated time period to have value. If the overall stock market is on the rise, as it has been for most of 1995 and 1996 in America and Britain, executives who hold large numbers of options stand to receive a substantial windfall as the share price increasingly exceeds their options xed price. In Britain, CEO compensation has risen over the 1m level. This has happened despite Cedric Browns (CEO of British Gas PLC) public whipping over his total compensation of 493 000 in 1994. At that time Britons complained about his pay level (in terms of company performance) and it started a government inquiry into executive pay. Likewise, when WPP Group announced a new pay package for its CEO, Martin Sorrell, its major UK shareholders blasted the plan, which would have paid him as much as 25.7m over a ve-year period based on a rising company share price.13 For 2000, the median pay for all CEOs on the FT100 should easily exceed the 1m level. Continued strong economic conditions in the UK virtually ensure it. Throughout Europe social and economic conditions are not as favourable as they are in the UK for executive compensation. In Germany public outrage can trigger government restrictions on executive pay that include limiting the number of stock options that can be included in an executive pay package and using high tax rates to limit executive pay in the form of bonuses. The Italian government has used pension reforms to block how much money executives can contribute to retirement plans. The effect of these trends was to create a widening gap between American and British CEO pay levels and the pay levels for European CEOs who run companies with annual sales greater than $500m (330m).13 The 1999 breakdown in pay for these CEOs was: 1) USA: $3.45m, 2) Britain: $1.434m, 3) Germany: $837 000, 4) France: $795 000 and 5) Italy: $548 000.
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Trend 5: More emphasis on the rms net income. Corporate boards are placing more emphasis on the rms earnings, which accents the executives annual bonus versus his annual base salary. This change indicates the importance that stockholders attach to earnings per share and the stock price-to-earnings ratio (PE ratio). Stockholders believe that their interests are best served by executive pay programmes that make an ever-greater proportion of executive pay dependent on the rms rising net income. Table 4.9 shows this effect in America over time.
Table 4.9 Elements of executive pay in America: 19882001
Proportion of compensation 1988 Annual salary Annual bonus Long-term incentive .4 .2 .4 1994 .4 .3 .3 1999 .2 .3 .5 2000 .2 .3 .5

In the twenty-ve years covered by the table, the annual salary component of compensation for the top three executives proled in Table 4.9 has declined by a remarkable 67 percent. During the same time period, the annual bonus for executives has stayed relatively at percentage-wise. Of importance is the recent rise in long-term incentives as a proportion of executive pay since 1994 (216 percent). The rise indicates that by the late 1990s executives and shareholders seemed to prefer to emphasise the long term maximisation of the rms market capitalisations. Trend 6: Preventing ISO plans from diluting stock value. Shareholders and boards of directors have become alert to the problem of declining share values as a consequence of giving too much stock to CEOs and other employees. In the USA, 30 percent of large companies now have ownership guidelines for executives who receive stock as compensation. Examples of such guidelines include: 1) executives must buy stock when the price goes down, 2) executives must sell stock when it reaches a threshold value; 3) they must hold stock when dramatic uctuations in value occur and 4) a non-complete call-back provision which prevents a CEO from selling his shares until a pre-determined time after leaving the rm (prevents disgruntled CEOs from nancing a start-up competitor with the prots from selling the stock of his previous employer).14 4.4.2

What Has Been the Effect of Downsizing and Delayering on Company-wide Compensation Plans?
As companies manipulate features of the employment relationship to increase their competitive advantage, they try to keep a lid on compensation costs without de-motivating the work-force. The most common and effective method to manage compensation costs is the continued reduction in the size of merit increases awarded to employees. Nearly 25 percent of American rms surveyed by the Coopers and Lybrand accounting rm indicate that they held merit increases to below four percent for 19971999.15 The survey found that reductions in merit increases were contemplated by: 1) 25 percent of large rms with more

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than 1500 workers; 2) 18 percent of mid-sized rms with 5001499 employees and 3) 19 percent of small rms with fewer than 500 employees. The companion trend advocated by rms in each category is the widening use of pay-forperformance. Reduction of merit increases and greater reliance on pay-for-performance (bonuses) across companies and industries has the effect of slowing the growth in costs of benets programmes. Since pay-for-performance is a component of the annual bonus for employees, these payments do not drive up the companys contributions to their employees pension plans. If employees fail to meet goals in the following year, the annual bonus disappears, unlike merit pay increases which become a permanent component of base pay. Thus, the pay-forperformance trend will continue in rms having restructured and downsized. Uncoupling merit pay and cost of living (COLs) increases is also on the rise as a compensation scheme in delayered and downsized rms. Service companies with many clerks and ofce workers realise that compensation costs can be reduced by moving them from pay increases based on rises in the cost of living to merit-based pay increases. This creates an opportunity for the rms to pay effective employees more than their peers who perform poorly.15 By uncoupling merit pay and COL increases, a company makes clearer to employees the connection between job performance and pay. Delayered and downsized rms are also exhibiting more reliance on pay-forperformance. Annual bonuses are making their way down the chain of command. Increasingly, managers and employees in delayered and downsized rms are participating in bonus programmes. In such systems, managers, employees, and their self-directed teams receive smaller increases in base pay in exchange for heftier bonuses that are tied to specic performance goals. If the goals are achieved, programme participants reap substantial increases in direct compensation. The programmes, and their clear goal focus, are often used to replace prot-sharing programmes that have poor line-of-sight. Firms using pay-forperformance usually guarantee to employees that their total annual compensation cannot fall below a oor level. Increases in pay are closely tied to the achievement of pre-established goals in the rms strategy plan. Firms recognise that the broader use of the annual bonus makes the rms compensation strategy a stronger contributor to sustainable competitive advantage. Delayered and downsized rms rely more on part-time employees and temporary workers. Many companies report that they are able to avoid payment of benets and better match their work-force requirements to business conditions. In America, this approach is more highly favoured by rms with less than 500 employees which represents about 95 percent of all employers. At rst glance it may appear that the temporary employee is at a substantial disadvantage in this circumstance. However, many rms report that they only use temporary employees for low-pay, high-turnover positions or to get through periods of high seasonal demand. Furthermore, after six months, many temporary positions are converted to full-time slots. Thus, companies use this practice to reduce recruiting, selection and training costs. The temporary worker of course realises that this is occurring so he may be highly motivated to add value quickly in the hope that the position will go permanent.
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4.5

A Comparison of Company Pay Practices


Firms are constantly experimenting with various pay systems. While some of these approaches rest on solid motivational ground and research, others are quite untested in these terms. We begin our discussion of these systems by starting with newer pay systems which are backed by research conclusions. We will end the section with a brief look at very new and untested pay systems which are drawing the attention of researchers and managers.

Cafeteria-Style Fringe Benets


Such systems allow employees to select a package of fringe benets designed for their individual needs. Also called exible benets packages, these programmes are designed to match the demographic characteristics of a rms work force. In the plan, management places upper limits on how much the organisation is willing to spend on fringe benets. Some employees take all of the fringes in cash while others purchase specialised medical coverage and other benets consistent with their needs.

Lump-Sum Pay Systems


Such plans allow employees to decide how they receive their pay during the coming year. Plans range from weekly pay cheques to one large cheque at the beginning of the year. The lump sum is treated as an advance which the employee earns throughout the year with his labour. If an employee leaves the job before year end (and has received a lump sum payment), the unearned portion must be paid back to the employer. The lump-sum programme does generate administrative problems and it is no system for rms with cash ow problems. However, such plans do give employees greater exibility for making salary investment decisions.

Skill-Based Compensation
Such plans reward employees for learning new skills. They provide pay rises and bonuses for the number of new skills employees can master. This form of compensation leads to a work force with greater skill levels and interchangeability. Some rms have adopted this approach while preserving merit-based rewards which recognise achievement on the job. These systems can lead to the creation of more challenging work which expands the available intrinsic rewards. Skill-based compensation is playing a more important role in rms that are using self-managed teams to perform work. Teams only become highly successful and cost effective if team members are thoroughly cross-trained. To encourage the rapid acquisition of cross-member job skills by employees in self-directed teams, rms often use one-time bonuses to reward employees who rapidly acquire the skills necessary to build a fully cross-trained self-directed work team.

Accumulating Time Off


The time-off feature is attractive to most employees. The concept is built into most holiday programmes which use a formula to determine days off with pay based on seniority. A variation of this programme would be a time-off reward
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based on levels of job performance. Employees are allowed to accumulate time-off credits. These credits can be turned in for time off with pay. Such programmes can be applied without loss of product or service quantity or quality.16

The All-Salaried Team


In many rms, executives are paid salaries while non-managers receive hourly wages. By paying all employees a salary, the executives hope to improve loyalty, commitment and self-esteem in the work force. Teamwork and cohesiveness are promoted by the practice of paying everyone a salary. This pay system does eliminate some annoyances for employees. For instance, time clocks can be eliminated and status symbols become less apparent in the organisation. However, such pay systems may, over time, cause a de-emphasis in innovation and creativity which are primarily individual-based behaviours. This scheme reects our earlier discussion of the effects of across-the-board pay rises. Because the all-salaried team concept tends to reinforce teamwork and co-operation, some employees who wish to get ahead by out-performing their colleagues may be put off by a pay system that tends to ignore individual contributions.

Open-Salary Information
Pay secrecy can obscure the actual relationships between performance and rewards. This effect was noted in Module 3 in our discussion of the managerial implications of equity theory. If reasons for pay rises are poorly understood, employees are likely to believe the pay system produces unfair results. Such reactions are generally known as perceptions of distributive injustice. In making judgments about his pay in relation to others under conditions of pay secrecy, the employee often underestimates his own pay relative to co-workers while they often overestimate their efforts relative to co-workers. Further, they overestimate the pay of their superiors and underestimate their rewards. Pay secrecy exaggerates pay perceptions and creates the condition of chronic, perceived distributive injustice. Managers may not want to make individual pay decisions public, but open salary information can increase the motivation benets of pay. Open salary information usually involves publishing 1) ranges for pay rises, 2) the number of pay grades, 3) organisational guidelines on the meaning of performance levels, and 4) policies on bonuses and fringe benets. Thus, opensalary information aligns employees perceptions of pay fairness with accepted relationships between performance and rewards. When managers are more forthcoming about pay rises and the methods used to determine them, they can greatly improve employees perceptions of procedural justice. This expression refers to employees beliefs about the fairness of the methods that are used to allocate rewards to employees and managers. When these methods are performance-based, widely publicised and well-understood by employees, their perceptions of procedural justice generally rise. Further, the periodic use of job analyses and salary surveys demonstrates to employees that the company is serious about maintaining objective methods to ensure fairness in pay decisions in relation to the value of the job in the organisation. It should be noted that perceptions of procedural and distributive justice apply to all
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human resources decision making systems. Hiring, selection, training, promotion, performance appraisal and termination practices are all subject to these perceptions of employees. Table 4.10 summarises the pay systems discussed. Some problems and strengths associated with each pay practice are summarised in the table.
Table 4.10
Reward practice Cafeteria-style fringe benets

Examining reward practices in rms


Employee perspective Creates balance between family needs and benets package Implementation issues Installation costs and administration are increasingly outsourced to other providers Likely to be abandoned during business downturns. Can upset shareholders

Lump-sum pay

Nice to receive a large bonus, but it may not be clear to the employee what he or she did to earn it A good incentive for learning new job-related skills. It shows that the rm values a skilled and cross-trained work force

Skill-based compensation

Works best if skill gains are measurable, documented and veried. Do not tie this compensation to external educational or management training programme achievement Strengthens organisational commitment and loyalty. More difcult to implement in self-directed teams Easier to implement as union inuence declines. Validity of the team appraisal system must be high. Can reinforce 360-degree PA Computer-based and outsourced control system make implementation easy. Requires stable pay brackets and market-based, fair starting salaries

Accumulating time off

Helps balance family, work, child and elder care demands on employees

The all-salaried team

A workable plan if team performance is fairly measured and teams are empowered

Open-salary information

Greater perceived pay equity and job satisfaction with work and with supervision

4.5.1

Making Intelligent Choices about Company Pay Plans


Trying to decide what type of pay plan will produce the greatest levels of employee performance and motivation is a tough job. Several research studies have tried to answer this question by looking at the pay plans that corporations use. One such study asked employers about the types of pay plans they were using and their level of satisfaction with those plans.17 By far the most popular of the more creative pay plans are found in skill-based compensation. In some industries, rates of use of this plan approach 90 percent.18 Also quite popular are gain sharing plans, small-work group incentives, all-salaried work force and accumulating time off with pay. Regardless of the plan or plans selected,

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certain major guidelines should be followed in the administration of any creative pay plan in an organisation.18 These recommendations help a company create a competitive advantage that is based on a highly motivated work-force. 1 Does the plan capture the attention of the employees? The ideal situation is one that employees discuss and have early success with experiments in more effective compensation. Do employees understand the elements of the plan? Employees should be able to explain to new employees how the plan works and how it affects their earning power. Does the plan improve communication? An effective pay plan should encourage greater understanding of company mission, goals, and performance measures among employees. Does the plan make payments to employees when it should? Incentives should be paid promptly when employees achieve pre-established performance levels and they should be withheld when results are substandard. Is the company performing better as a result of the plan? The company should see improvements in its strategic and nancial performance. Thus, market share should improve and costs should be under more rm control.

Any pay or incentive plan which meets these ve tests should be developed and spread throughout the rm. While this may not always be possible due to differences among company units and pressing resource constraints, there are still productive guidelines which can be followed to improve the performance and effectiveness of the company incentive plan. These guidelines are shown below.18 1 Tie incentives in the reward system as closely as possible to actual performance on the job. Simply put, this means that employees can clearly see the relationship between their performance on the job and the rewards that they value. This property is often called line-of-sight because employees are condent that valued rewards will quickly follow performance. Lineof-sight is therefore closely aligned with the principle of instrumentality in expectancy theory. Also, the principle of line-of-sight implies that employees understand their units strategic goals. And, some of their compensation is based on the units success at achieving those goals. This puts a portion of employees pay at risk. This practice therefore uses the company pay plan as a tool to enhance competitive advantage. When a portion of employees pay is tied to goal accomplishment, it strongly focuses their attention on goals and the methods used to achieve them. To the extent possible, the incentive system and benets programmes should be adjusted for individual differences among employees in the work force. Flexible benets programs are a step in the right direction because they adjust the mix of fringe benets to meet the needs of employee groups in the work force. Flextime, parental leave, child care and elder care programmes and educational benets are new examples of benets which are greatly valued by employees and they greatly appreciate the opportunity to congure their work benets in a system which matches their personal needs.
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Incentive programmes should match the type of work performed by the employees and the structure of their rm. If a company uses extensively small work groups which make their own decisions about production and work group affairs, the pay system should reect the importance of group decision-making and collaboration. A gainsharing program would be appropriate in such circumstances. This is another example of customising the reward system to take account of other organisational characteristics that are closely related to competitive advantage. The pay system should be consistent with the culture of the rm. For instance, if a company has succeeded by designing work that is performed by individuals who are paid according to the rules of a piece rate pay system, then it would be a mistake to dismantle the system and replace it with a team-based reward system. Any incentive system should be monitored over time to ensure that employees are being paid at the prevailing salary levels for their work, that they are being fairly treated and the programme is being properly administered. This principle establishes the importance to the company of performing periodic salary surveys. Such efforts ensure that new employees are hired at the proper entry-level salaries and that seasoned veterans are fairly compensated. Such efforts uphold the perception of pay equity in the minds of employees. Likewise, fair treatment and programme administration ensure that employees come to expect procedural justice in their pay and benets packages. This means that employees believe that the organisations practices in the pay and benets areas are realistic, uniformly applied and subject to review if an employee questions pay or benets outcomes.

4.6

Individual and Group-Based Reward Systems


Our focus thus far has been on the properties of individual-based reward systems. There are many instances, however, when company goals depend on teamwork and collaborative employee effort. Group-based reward systems encourage teamwork and collaborative work activity. Managers must oversee the workings of the group-based reward system to ensure that the group aspects of performance are equitably rewarded. In this section we will consider two types of group-based reward systems: 1) cost-savings plans, and 2) prot-sharing plans.

What Are Group-Based Reward Systems?


Group-based reward systems are overlaid on individual-based reward systems. The group-based portion has specic group performance behaviours which are linked to rewards received by work groups. Members of the groups covered by such pay systems usually receive bonuses which are linked to the specic aspects of group-based performance. The size of the bonuses is usually a function of job level, seniority, and job difculty. Companies which develop such systems usually label them as cost-savings or prot-sharing programmes.

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4.6.1

Cost-Savings Plans
The rst systematic cost-savings, group-based reward system was the Scanlon Plan, developed in 1937. This plan tries to reduce labour costs below a historic base level. Groups are motivated by bonuses, which are contingent on reducing the costs of factors of production below established base rates. The Scanlon Plan also promotes a work climate with better labour management co-operation and improved group-based innovation and problem solving. Let us consider an example:
Historically, labour costs at Townsend Ltd. have been 50 per cent of output value. Last month, the value of total output was 2m, and labour costs were 900 000 or 10 per cent below the 50 per cent base rate. Under the Scanlon Plan, the 100 000 savings would be put in an incentive fund, some of which (perhaps 30 per cent) would be retained as a reserve (to cover those future months when labour costs go above 50 per cent). Another 25 per cent of the savings might be set aside for the company, and the remaining 45 per cent (45 000) would be earmarked as a bonus for labour.

Scanlon Plans are called gainsharing plans because the gains associated with cost savings are shared between the owners of the company and labour. Gainsharing programmes can be powerful motivational systems if they are coupled with managed innovation in the rm. Many variations of the Scanlon Plan set up committees which are interlocked across company levels. One type of committee is called a production committee and it is composed of supervisors and their subordinates. A company may have several hundred production committees which focus on nding ways to improve productivity in their areas of work responsibility. The productivity suggestions made by these committees are then reviewed by a screening committee composed of managers, higher-level executives, and skilled labourers. If suggestions which produce cost savings or productivity improvements are implemented, all affected work groups receive bonuses adding up to some fraction of the savings generated for a specic period of time. Usually the bonus is 25-50 per cent of the savings made during the rst year of the innovation. Gainsharing programmes are extremely powerful tools for lowering costs and building innovation into the company at the level at which the work is done. An additional benet of these programmes is increased employee satisfaction and lowered turnover. There are some important points to consider before a gainsharing programme is introduced. These are briey noted below. 1 Gainsharing programmes work best when a dependable history of labour costs exists in the rm. If an organisation has good accounting data on production and labour costs, then it is possible to establish the formulae which determine when bonuses have been earned through cost savings. Seasonal product demand makes gainsharing programme establishment more difcult since base production rates will vary because of the seasonality. The market may have to absorb additional output if the reduction in costs leads to an expansion of output.
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The company should have a history of labourmanagement co-operation. Dependable labour and production formulae which determine bonuses are always based on trust between labour and management. The programmes are easy to establish in production units with between 30 and 500 employees. Larger production units may require a network of gainsharing plans which are joined through a common accounting system. Top management must be committed to the concept of productivity enhancement and be willing to develop an employee education programme which thoroughly trains all participating employees in the operation of the system.

4.6.2

Strengthening Competitive Advantage by Using Team-based Rewards


News announcements and analyses of corporate successes stress the importance of adopting service-driven strategies that are linked to excellent product development and customer service to sustain competitive advantage. Often these initiatives unfold along with changes such as delayering, downsizing, concurrent product development and re-engineering. These popular improvement strategies share a common dependence on the the creation of effective self-directed teams to perform work in rms that have lowered their administrative overhead. These changes have led executives and consultants to consider the best way to merge the self-directed team concept with: 1) superior customer service; 2) enhanced employee empowerment; 3) TQM and reduced cycle time; 4) employee skill building and cross training; and 5) features of work-force diversity. A critical factor for executives who are wrestling with these sometimes opposing forces is to design and administer an effective reward system in the self-directed team work environment. This segment takes up this issue. The Crucial Role of Team-based Incentives in Organisations. Levels of team member motivation, job performance and job satisfaction change dramatically when executives decide to make changes in the rms competitive strategy. Managers who are inclined to think of their reward systems in strategic terms often agree that a strong psychological contract with employees can be a signicant contributor to sustained competitive advantage. According to Ed Lawler, an expert in organisational behaviour, a well-designed team-based reward system can strengthen competitive advantage in six ways.19 1 Attraction and retention. Those rms that offer excellent incentives attract and hold the best people and their employees report high levels of job satisfaction and a willingness to remain with the company (lowered turnover). Motivation and performance. If employees report that incentives are meaningful and they are given in a timely fashion, then rms nd that their employees are more motivated and effective on the job. If employees report that the incentives are attractive and timely in relation to their performance, then they also report having higher instrumentalities and expectancies. Timely and attractive incentives increase employees beliefs that they can perform well and they become more optimistic that a high level of effort can lead to excellent performance.
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Skill development. If rewards are tied to cross-training and skill-building, team members will acquire the needed skills and the companys workforce will be more adaptable and exible. Increasingly, companies pursuing competitive advantage based on customised service perform wall-to-wall employee training. In spite of the difculties of precisely measuring necessary skill levels, rms pursuing this strategy claim that skill development and training are indispensable in their battles for market share and customer satisfaction. Organisational culture. Linking incentives to key company values can create a source of competitive advantage that is hard for rivals to copy. Incentives are strongly related to motivation, performance and job satisfaction and they are a big part of organisational culture since they suggest which forms of performance are valued in the rm. The reinforcement and denition of structure. Employees agree that the incentives for those at the top and the bottom of chain of command differ in variety, length of deferral and size. Since delayering has become so common across industries, more companies are using stock options and forms of pay-at-risk to motivate self-directed teams. Cost. Incentives can account for up to 50 percent of the cost of goods sold. In service-driven rms, this percentage can go much higher. Incentive system costs should reect the companys strategic and competitive successes. The pay-at-risk concept reects this principle because bonuses for individuals and their teams are a function of their level of achievement of strategic goals. The more they exceed pre-established targets, the bigger their bonuses or stock options.

4.6.3

The Rucker Plan: an Incentive System that Works in the Self-Directed Team Environment
Improvements in competitive advantage can certainly be achieved by paying close attention to reward systems design in the six areas noted. The trouble is, these six outcomes may have unique implications for rms that rely heavily on self-directed teams. For instance, these questions apply to the design of a reward system in a team-driven rm. 1 2 3 4 How can the value added to output by self-directed teams be measured? How can a clear pathway between a teams performance and its rewards be created? How should a rm reward employees and departments that provide support and service to self-directed teams? How can team involvement in systems improvements be ensured?

While there are no perfect answers to these questions, there are many examples of effectively designed reward systems that hold promise for cost reduction in delayered rms which rely on self-directed teams. A program called the Rucker Plan of group incentives can be used by rms.20 Sharing a philosophical base with the Scanlon Plan (see above), the Rucker Plan can be easily modied to cover self-directed teams.
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In the Rucker Plan, the measurement of productivity is called the value added which is the difference between the sales income from goods produced and the cost of the materials, supplies, and outside services consumed in the production and delivery of that output. Payroll costs are all employment costs paid to, because of, or on behalf of, the employee group measured. The procedures noted below are often followed to establish a Rucker Plan. 1 Identify a base period that provides data that will be valid and useful for establishing standards. The base period should be free of special circumstances such as large charges to earnings, problems with product liability, disputes with suppliers or distributors, etc. The base period should be a valid and reliable indicator of typical performance. Generate the following data using the base period standards. (a) Sales value of production (SVP) (b) Cost of materials, supplies, service, etc. (COM) (c) Cost of labour (COL) Using these data, establish the following standards. (a) Value added (VA) = SVP COM (b) Labour contribution to VA (LCVA) = COL / VA (c) Economic productivity index (EPI) = 1.00 / LCVA (d) Expected value of production (EVP) = EPI COL (for the bonus period)

For example: a corporation determined that the following values (in millions of pounds) 1 2 3 4 5 6 SVP = 25m COM = 11m VA = 14m COL = 6m LCVA = 6 / 14 = .4286 EPI = 1.00 / .4286 = 2.333 For the bonus period in question, the following business data were generated
SVP = 2.8 COM = 1.3 VA = 1.5 COL = .6

AVP (actual value of production) = SVP (COM + COL) = 2.8 (1.3 + .6) = .9 EVP = .6 2.333 = 1.398 Savings or loss = EVP AVP = 1.398 .9 = .498 or 498 000

Labour contribution to value added is .4286. The money placed in a bonus pool for self-directed teams is 498 000 .4286 = 213 443. In a Rucker Plan, 75 percent of the bonus is paid monthly to employees and the remaining 25 percent is held in an escrow account until years end. This reserve provides a cushion for periods when self-directed teams fail to meet the standard. After a year-end audit, all reserve funds are distributed to employees.21 Some of the benets of the Rucker Plan are noted below. Compare them to the benets and characteristics of the Scanlon Plan as they were described above.
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The Rucker Plan conforms to current economic thinking that stresses the measurement of prot in terms of the value added by factors of production (the extent to which the return to capital exceeds the cost of capital). The Rucker Plan determines labours contribution to economic surplus. Once a companys employees understand and accept the Rucker Plan they will have ideas for raising labours value added. The Rucker Plan stresses the use of problem-solving at the team level which ts well with the use of empowerment in delayered and downsized rms. The Rucker Plan is less rigid than the Scanlon Plan in its requirements for employee participation (The Scanlon Plan requires the use of a screening committee and production committees). The rm that uses the Rucker Plan is more free to develop a customised system of team-based participation to generate value-added suggestions. The lower level of hierarchical control in a Rucker Plan (no screening or production committees as in the Scanlon Plan) can be an advantage because cycle time is shortened for evaluating and installing suggestions for improvement.

Why Do Self-Directed Teams have an Incentive to be More Productive if They Participate in a Rucker Plan?
Rucker Plan teams have a strong incentive to increase their productivity because they have line-of-sight for several prominent plan features. Teams can raise the sales value of output by improving product designs and process effectiveness (fewer defects and fewer warranty claims). They can use concurrent product development to synchronise marketing, production, nancial control, product engineering and R&D to shorten product development cycles. When teams use these systems they can push the rm ahead of its rivals in the battle for market share resulting in higher prot margins and lower unit costs. These benets raise the sales value of output for a rm using the Rucker Plan faster than a rival which does not adopt a system of team-based incentives. The rms cost of materials (COM in the Rucker Plan) can be inuenced by self-directed teams. All expenditures on materials, supplies and outside services are subject to review and control. The cost control contributions made by specialists in purchasing, distribution, warehousing, inventory control, and accounts control (payables and receivables) all raise the economic value added. The rm therefore competes more effectively for greater market share through lowered prices and superior product designs and services. Using a Rucker Plan creates the team based incentives to encourage and nurture such improvements. The Rucker Plan creates excellent line-of-sight which is a basic feature of any effective team-based incentive system. When it is present, teams and their members can see how their efforts and performance are tied to incentives. Teams can see exactly how they add value to the rms goods and services. Line-ofsight is just as important as ensuring that incentive system standards are fair and dependable and that self-directed teams have the authority to create and install improvements which raise the sales value of output or lower the costs of goods sold.

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4.6.4

Design and Timing Issues for the Installation of a Rucker Plan in a Delayered Firm Using Self-directed Teams
A major competitiveness theme is that the delayering and downsizing do not sustain competitive advantage. More often than not, these are stop-gap remedies for the accumulated effects of bad management decisions that have eroded the rms returns to capital. The installation of a Rucker Plan is a serious move by management to make the incentive system a major feature of the rms renewed competitive advantage. To be successful, a Rucker Plan needs to be established in a rm that values its work-force and practises empowerment. The immediate effects of downsizing and delayering may traumatise a companys work-force in several signicant ways and postpone or foil entirely the introduction of such a plan. Delayering and downsizing decrease employees job security and erode their work-based social support systems. Heightened economic insecurity and increased workloads can dramatically raise the level of job stress experienced by employees (see Module 2). Table 4.11 shows some of the effects of downsizing and delayering throughout a company.
Table 4.11 Consequences of downsizing and delayering
Team/employee consequence More responsibility for work process control Feature consequence Fewer candidates for senior management positions, less systems know how Work-force with low morale and commitment. Undone projects, drop in customer satisfaction Short term problems in system integration and lower customer satisfaction

Delayering and company downsizing Reduction in number of middle managers

Changes in job rankings (value of the job to the rm)

Employees must: 1) accept lower pay; 2) re-applyfor a position 3) consider or accept a job transfer Job termination with modest severance package. Wider span of control for remaining managers Longer work hours and pressure to raise output with constant or declining costs Successive downsizing schemes result in chronic work overload and job stress. Repeated reorganisation triggers burnout

Automation and computerisation of routine jobs

Reduced slack resources throughout rm

Lowered ability to ramp up production and service

Management becomes addicted to cost reduction band aids instead of the strategic repositioning of the rm

Declines in customer satisfaction may lead to lowered marketshare. Co-ordination problems reduce the rate of product improvements

Table 4.11 captures the destruction of numerous hygiene factors caused by downsizing and delayering. Hygiene factors are a major part of Herzbergs
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Two-Factor theory of motivation and job satisfaction (see modules 2 and 5). Downsizing and delayering disrupt the attainment of the lower-order need satisfaction by affected employees and managers. This triggers rapid rises in job dissatisfaction among them. Job stress, job burnout, low morale, economic and job insecurity, depression and feelings of worthlessness become chronic symptoms of employees exposed to repeated bouts of downsizing and delayering. During and after these episodes, pay levels are often frozen and company work policies become restrictive. Despite the introduction of employee empowerment programmes and the creation of self-directed teams, there is a period of declining work-force productivity that occurs as the effects of downsizing and delayering spread. These transitional conditions are extremely unfavourable for the promotion and installation of group-based incentive systems like the Rucker Plan. If a rm has downsized and delayered, the following conditions should be met before a Rucker or gainsharing plan is installed. 1 2 3 4 5 6 The rm has returned to protability and no future wage freezes are planned; The management team is stable; Self-directed teams are working and members have completed training in TQM, process control, and team building (Module 9); The company is not being positioned for sale or spinoff; Outsourcing of non-essential functions has been completed; The rm is using service-driven and market-based measures of customer satisfaction.

From these recommendations you would be right if you concluded that installing a Rucker Plan is an end-stage activity in a rms effort to build a new and sustainable source of competitive advantage. Figure 4.5 below traces a typical turn-around scenario which can lead to installing a Rucker Plan. An ideal situation for installing a gainsharing programme is in a greeneld or start-up operation. If a company decides to add to its production capacity by building a new facility, it has a unique opportunity to make a Rucker Plan a basic feature of its employment relationship. All personnel and operating decisions can be guided by the use of self-directed teams, employee empowerment, some measure of employment security, a lean organisational structure and a servicedriven business model. The wrenching effects of downsizing and delayering are avoided and the work-force never experiences the chronic decits in hygiene factors noted in Table 4.11. Building a Rucker Plan into a new facility or operation requires much more planning. It may ensure the creation of a strong organisational culture (see Module 9) that ts the service-driven basis for competitive advantage suggested in Figure 4.5.

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Phase I. Remedies for high cost structure up to two years to complete Financial and market share goals are unmet (the management team selects a strong remedy for a languishing share price, slow product development and introduction, and dissatisfied customers) Downsizing and delayering plans lower the cost structure of the business (severe decline in hygiene factors and work force morale, some unwanted turnover among high-skill employees)

Phase II. New strategic direction another year or so Company announces new customerdriven strategy to raise market share and create a lean company structure to control costs (employees are bundled into work teams and are trained in customer service, TQM and teamwork skills)

Outsource non-critical activities (human resources processes such as payroll administration, recruitment, benefits control, tele-marketing and other noncore sales functions)

Phase III. Cementing a new basis for competitive advantage

Installation of new practices in a responsive firm that improves customer service based on market-based performance measures. Self-directed teams deliver front-line service

Rising share price, improved market share and lower unit costs

Begin developing and installing the Rucker Plan

Complete installation of Rucker Plan and pilot test policies

Figure 4.5

How the Rucker Plan ts in a plan to strengthen competitive advantage in the rm

4.6.5

Prot-Sharing Plans
The rationale for the prot-sharing approach is that all employees contribute to the success of the rm, so all should share in the increased prots. The popularity of prot-sharing plans varies in direct proportion to the health of the economy. When sales are strong and costs are stable, organisations do well nancially. These conditions create executive interest in prot sharing. Such programmes may be short-lived when inventory builds, sales atten, costs rise, and prots fall. The sense of partnership between management and labour has prompted numerous rms to adopt such plans, and many boast of their success with prot-sharing. Little research has, however, been done to validate these claims. One programme, that of the Lincoln Electric Company, has a well-documented pattern of success with prot-sharing. Let us examine this.

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The Lincoln Electric Company was founded in 1896, and is the largest manufacturer of electrodes and arc welding equipment in the United States. The 2000 company employees share approximately 80 per cent of the company profits each year. The formal prot-sharing plan was introduced in 1934 and has operated continuously ever since. Bonuses are determined by the following factors: 1) overall company prots, 2) supervisor merit ratings, and 3) cost savings suggestions. The company places special emphasis on hiring employees who are intelligent and have competed in athletics. Management encourages competition for higher positions and the rm has a strict policy of promotion from within. Through a company-wide network, employees sit on committees designed to solve production problems and to control costs. A Suggestion System Board reviews suggestions once a week. The Lincoln Electric Company headquarters is a spartan building, which has ofces with furnishings which are functional rather than symbols of an executives rank in the company. All employees park their cars in a common lot and they eat in a common cafeteria. Newly hired engineers work on the assemblyline for six months so that they fully understand all aspects of production. The company has an interesting system to ensure product quality. All production employees mark the components they produce or assemble with their initials and work area. If a welding unit is found to be defective, the purchaser ships it back to Lincoln and the employee or employees responsible for the defective components x it in their own time. This means that while they are repairing the defective unit, they cannot earn incentive bonuses for production output above established base rates. This programme results in a unit failure rate of less than one half of one per cent each year. Company protability is enhanced by this programme because the employees who build components and assemble the products become their own quality-control inspectors. Indeed, there is a built-in incentive to build the units correctly the rst time. Many rms have successfully overlaid gainsharing or prot-sharing plans on their compensation systems. These rms have also reaped benets in the areas of labourmanagement relations, employee job satisfaction, and levels of employee innovation. In every case, organisations which have been successful with such plans have strong organisational cultures which place employees at the centre of organisational concern. The use of incentives is always widespread and motivational systems rely heavily on individual employee accountability. Work climates evolve which highlight the importance of achievement and company loyalty among employees. As a result, turnover and absenteeism are usually low. While all of these things are tangible benets of prot-sharing and gainsharing plans, such pay systems require constant maintenance and high commitment from managers and employees alike.

Summary Points
Performance appraisal systems monitor progress towards meeting organisational goals, communicate performance expectations to employees, and create informed data for making human resource decisions.
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Validity and reliability are the two most important properties of a performance appraisal system. Performance appraisal content and empirical validity are the two measures which are most important to organisations. Reliability is generally a function of the number of dimensions in a performance appraisal system, uniform administration procedures and the level of understanding and training of managers who use the system. Reliability can be enhanced by using multiple raters to judge the performance of employees. Threats to performance appraisal system reliability include personal bias, halo effect, recency error, similar-to-me error, forcing the rating, central tendency, leniency error and strictness. The system of graphic rating scales is the most popular assessment tool. This system overcomes some of the limitations of the absolute standard method. BARS systems are designed with the help of employees, and can generate useful behavioural data which employees perceive as relevant to successful job performance. BARS systems are more expensive to design, but they can be extremely useful for jobs with specic behavioural requirements. As job clusters multiply, additional BARS systems may have to be built. Goal-setting theory supports MBO. MBO works best when it is participative, when ample formal and informal feedback is provided to employees, and when provisions for goal revision are built in to the system. When creating goals for employees, the SMART principle should prevail. Goals should be specic, measurable, achievable, resource-based and time-based. MBO systems fail without sustained top management support. They must also be anchored to routine managerial activities, personal development, training, and departmental needs. Rewards are classied as extrinsic or intrinsic. Intrinsic rewards occur as the work unfolds, and employees experience them as challenge, personal growth, work meaningfulness and work signicance. Extrinsic rewards are environmentally based and they can be further classied as direct, indirect or non-nancial compensation. Extrinsic rewards are usually the subject of published organisational policies. Extrinsic rewards can be distributed to employees based on their: 1) performance, 2) effort, 3) seniority, or 4) difculty of replacement. Organisations often adopt pay policies which reect concern for equality or the power of certain groups. Pay systems should be built on the basis of a job analysis which ranks jobs based on the extent of their value adding factors. New pay practices include cafeteria-style fringe benets, lump-sum pay, skill-based compensation, accumulating time off, the all-salaried team and open-salary information. Any changes in pay systems should be evaluated in terms of their effects on employee perceptions of procedural and distributive justice. Procedural justice refers to pay practices that are fair and subject to review and distributive justice refers to pay outcomes (in relation to inputs) that are judged as fair and reasonable by the employees who receive the rewards.
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Group-based reward systems can improve productivity when labour and management view themselves in a performance partnership. The Scanlon and Rucker Plans are cost savings or gainsharing programmes and the Lincoln Electric plan is a prot-sharing plan. New guidelines for altering pay systems stress: 1) matching the pay system to the organisations strategic goals so that competitive advantage is created or extended; 2) adjusting the pay plan to reect the extent of diversity in the work force and 3) ensuring that the pay system ts with other rm characteristics that are strongly related to the companys sources of competitive advantage. Over time, as companies become less responsive in their mature, low-growth or declining industries, their cost structures rise. These conditions cause managers to ignore or overlook the revitalising effects on strategic competitive advantage of group-based incentives. Often times, it is not until employees have been empowered and self-directed teams are in place that problems with team motivation crop up. At that point, managers try to use group-based rewards to strengthen competitive advantage. Delayered rms cannot expect to sustain improvements in service quality nor keep highly trained personnel unless they adopt group-based incentives. As a basis for excellent service delivery, group-based incentives have better line-of-sight than company-wide ISO plans. This is true because the performance standards that support a Rucker or Scanlon Plan for motivation are more strongly related to employees service improvement efforts and creativity. On the other hand, ISO plans depend on a rising share price to enrich (motivate) participating employees. Share price is to a great extent inuenced by stock market conditions and the prevailing economic environment. The trend to make employees pay dependent on the performance of the company and their abilities to meet its goals (pay-at-risk) is being accelerated by the penetration of ISO plans to lower-level employees across companies and their industries. ISO plans were once only common in under-capitalised start-ups with too-few employees. Now, large rms have seen the light and they are fueling this widening trend not only for the proven motivational outcomes in the plans but also because the plans create sizable tax advantages. The best way to motivate self-directed teams in a delayered rm is by making group-based rewards contingent on the groups performance. To a considerable extent, such plans reinforce the pay-at-risk trend because the bonuses are not available unless productivity and service are improved by employees in a cost effective way. From a macro-economic perspective, group-based rewards boost the disposable income of employees. However, to be earned, employees must rst measurably improve their productivity or add value to the services that they deliver. Such incentive plans are not inherently inationary because the rm rst earns rising revenues through a growing market share before it pays out group-based bonuses. The bonuses are not promised nor guaranteed in the future to employees. Thus, in an
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economy with many delayered rms we see rising productivity and rates of increase in sales that exceed the rate of growth in wages over time. These are exactly the conditions that have prevailed in the United States since early 1995.

Review Questions
True/False Questions
4.1 Organisations typically do not gather performance appraisal data to evaluate progress in achieving organisational goals. T or F? 4.2 Validity refers to the stability of performance appraisal results over time. T or F? 4.3 Standardising the administration of performance appraisal will improve the systems reliability. T or F? 4.4 Recency error affects performance appraisal system reliability. T or F? 4.5 Employees would naturally be most concerned about the content validity of the performance appraisal system. T or F? 4.6 One outcome of a systematic job analysis is job descriptions for employees. T or F? 4.7 Absolute standards spread employees out along a set of numerical performance appraisal scales. T or F? 4.8 BARS systems are developed through management input only. T or F? 4.9 BARS systems help managers identify the employee traits most associated with performance. T or F? 4.10 MBO rests on principles of expectancy theory. T or F? 4.11 Employee development goals are always secondary to company goals in MBO. T or F? 4.12 Goals generally sustain the intensity of employee effort if they are easy and feedback is irregular. T or F? 4.13 Goals in MBO systems are set by the least senior employees and ltered upwards to top management. T or F? 4.14 Extrinsic rewards include recognition and status symbols. T or F? 4.15 One type of intrinsic reward is non-nancial compensation. T or F? 4.16 Separation of extrinsic rewards and intrinsic rewards helps managers gain benets from goal-setting. T or F?

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4.17 The most useful basis for the administration of rewards is a combination of seniority and effort. T or F? 4.18 Compensatable factors are useful for determining performance dimensions in appraisal systems. T or F? 4.19 Pay secrecy inuences perceptions about the reasons organisations give pay rises. T or F? 4.20 Skill-based compensation can lead to a more exible work-force. T or F? 4.21 Employees covered by a Scanlon Plan could receive bonus cheques during periods of declining sales. T or F? 4.22 A Scanlon Plan would be easy to install in a unionised company. T or F? 4.23 Seasonal product demand would inuence a prot-sharing programme. T or F? 4.24 Group-based incentive programmes work in the long run because they emphasise intrinsic rewards over extrinsic rewards. T or F? 4.25 Reduction in the number of job classications in a rm would have to occur prior to the design and installation of a successful group-based incentive system. T or F? 4.26 The successful installation of a group-based incentive system would eliminate the need for periodic salary surveys. T or F? 4.27 If a rm covers all employees by an individual stock ownership plan (ISOP) and the rm enjoys a rising share price, the number of shares outstanding will stay the same. T or F? 4.28 The use of contract workers (temporary employees) by a rm employing a Rucker Plan should have no effect on levels of employee motivation for personnel covered by the plan. T or F? 4.29 Employees expect that their good performance will lead to organisational goal attainment and in turn, their individual needs and goals will be met or satised. T or F?

Multiple Choice Questions


4.30 Which of the following choices does not represent a use for performance appraisals? A B C D E Evaluation of employee work behaviour. Making promotion and other reward decisions. Ascertaining staff development needs. Making termination and demotion decisions. Selection of likely candidates for a job from an applicant pool.

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4.31 Two managers evaluate the same employees performance using the same system and rating items but obtain different results. Which of the following choices applies to this appraisal system? A B C D E unreliable. biased. invalid. insufcient. inaccurate.

4.32 Which of the following forms of performance feedback is most likely to improve employees performance? A B C D E The feedback is not recorded in some way. The feedback is constructive and specic. The feedback is threatening and coercive. The feedback is put into writing. The feedback precludes discussion or evaluation by the subordinate.

4.33 Which of the following choices does not apply to a behaviour anchored rating scale system? A B C D E Uses specic behavioural statements which are related to core performance areas in the job. Uses bipolar forced rating scale items. Has a clear denition of the performance dimension measured. Uses input from employees in the system design process. Emphasises job behaviours versus job attitudes.

4.34 Which of the following choices is not a feature of good practice in goal setting? A B C D E More than 10 in number. Challenging. Related to personal development. Goals are feedback-linked. Difcult.

4.35 Which of the following choices is not a strength of group-based and participatory reward systems? A B C D E Performance feedback can be channelled to individuals and to their groups. Work group members become more competitive with each other. Peer recognition. Member commitment and performance increase. Team members can be identied and prepared for leadership roles.

4.36 Which of the following choices represents why extrinsic rewards should be separated from intrinsic rewards? A B Extrinsic rewards are more important than intrinsic rewards. Employees value them differently and they are inuenced by job context and job content factors.

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C D E

Employees do not believe that they have more control over intrinsic rewards than they do over extrinsic rewards. Firms try harder to inuence and control intrinsic rewards than they do extrinsic rewards. None of the above.

4.37 Which of the following choices is a typical reason for giving pay raises in rms? A B C D E Performance and effort. Seniority or tenure on the job. Equal treatment for groupings of employees. The power and inuence of groups in the organisation. All of the above.

4.38 Which of the following choices represents a goal of a well designed company pay practice? A B C D E Integrate improved productivity and quality of work life issues. Provide rewards to the most senior employees. Inuence the number of and availability of extrinsic rewards only. Generate data which can then be used in human resources decisions. Involve employees in as many pay decisions as possible.

4.39 Which of the following choices would improve cost control and product quality through alterations in the reward system in a rm? A B C D E Shorten the period between bonuses even if the size of the gainsharing bonus declines substantially. Anchor gainsharing bonuses to tangible improvements in productivity and service quality delivered by self-directed teams. Firmly connect the gainsharing bonuses to the rms strategic goals. Make all changes in the incentive system based on the results of salary surveys done in the industry. None of the above.

4.40 Rosalie works for a manufacturer of hard drives. She is paid $15 an hour for assembling 30 hard drives. She is paid $.50 for each hard drive she produces over the rst 30. Which choice below represents the compensation system being used? A B C D E Piecework. Pay-at-risk. Commission. Rucker Plan. Individual Merit Plan.

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Short Essay Questions


4.1 Describe how halo effect, recency error and similarity error threaten effective performance appraisal practices. 4.2 What are the reasons for conducting a job analysis? 4.3 What are the major dimensions of the goal-setting process which enable managers to succeed in this process? 4.4 What is the value of trying to classify rewards as extrinsic and intrinsic? 4.5 What mistakes do organisations make in administering rewards? 4.6 Contrast a gainsharing and a prot-sharing plan. What are the key elements which must be considered when installing a gainsharing programme? 4.7 What are some advantages to creating and installing a Rucker Plan in a company as opposed to using a Scanlon Plan? 4.8 What are the typical organisational consequences of delayering and downsizing?

Case Study 4.1: Performance Appraisal at Work


Synergistics Ltd is a large corporation which manages sports facilities and indoor convention facilities in Europe and the United States. The company is an autonomous division of a large international hotel conglomerate. Synergistics has recently taken over the management contract for a major sports facility in London. The facility specialises in a variety of sporting events such as soccer, tennis, gymnastics, and ice-skating competition. In addition, the company plans to make the facility more attractive to major product-oriented conventions for multinational companies doing business in Europe. The previous company managing the facility had a performance appraisal system which was trait-based. Both employees of the facility and managers from Synergistics believed that the system was inadequate and a new one should be designed to be based on more objective criteria. Redesign of the performance appraisal system was started by consultants who organised a steering committee of employees who were deeply interested in changing the system. The composition of the steering committee ranged from senior managers to employees who were responsible for sports eld and convention preparations. Nine employees made up the steering committee. This group revised all of the job descriptions for the fty employees to be covered by the new appraisal system. As a part of this task, employees were interviewed in small groups to gather their opinions about work dimensions which could be directly observed and assessed across all relevant jobs involving the facility. In this way, the following dimensions were developed:
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Acceptance of responsibility. Productivity orientation. Working with others. Following safety procedures. Applying job knowledge. Planning time and work.

With the help of supervisors, the steering committee next developed at least six behaviours to support each of the work dimensions. A numerical rating scale was developed and approved by employees. The steering committee and the consultants produced a training manual to teach all supervisors how to use the new performance appraisal system. In one-day training sessions, supervisors were taught: 1) how to recognise appraisal errors, 2) how to conduct feedback sessions properly, 3) how to set objectives in the context of performance appraisal, and 4) how to handle employee disagreements about performance ratings. The performance appraisal system forms and administration procedures were then pilot-tested to determine their validity and reliability respectively. The new system has been in place since 1985 and has been well received by employees and managers. Several managers have been promoted to higher level positions, and two senior managers have taken positions managing facilities for the company in other major cities. The facility employees believe that the new appraisal system represents their job activities much more accurately. They also believe that the information provided to them during the feedback sessions is more meaningful and job-related than the information they received from the old trait-based system. Supervisors are also pleased with the behaviour-oriented system. Most nd the new approach to be more accurate. Furthermore, they state that they are more willing to keep accurate records in their employee appraisal work because subordinates are now more willing to act on the feedback they receive. 1 Why is it important that employees help to design a new performance appraisal system? 2 What other work did the steering committee perform besides helping to design the new performance appraisal system?

Case Study 4.2: A Swedish-American Joint Venture

By 1984, General Electrics Mobile Communications Business was in trouble. General Electrics CEO Jack Welch directed John Trani, then general manager of GE Mobile to x the Lynchburg, Virginia division or close it. In 1984, following a predictable cost cutting scheme, Trani cut the work-force by 700 positions and he froze the pay of salaried and hourly employees. Recognising that a * Source: Excerpted from B. Filipczak, (1993) Ericsson General Electric: The Evolution of Empowerment,
Training, September, 217. Reprinted with permission of Training. Copyright 1993. Lakewood Publications, Minneapolis, MN. All rights reserved. Not for resale.

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layoff and cost cutting were only short-run moves, he fretted over ways to raise performance to simultaneously regain a portion of the subsidiarys competitive advantage. Using a consultant named Tim Ross, who was a specialist in groupbased reward systems, Trani authorised the Winshare programme to improve GE Mobile Communications. According to Ross, now director of Ross Gainsharing Institute in Chapel Hill, North Carolina, there are three ways to congure a gainsharing programme. First, a programme can stress the gainsharing bonus which is the cash received by employees when the company or division exceeds a pre-established profitability goal. Such a programme need not stress employee involvement or a managed suggestion system. The second form of gainsharing also stresses the bonus, but includes some form of employee involvement. The third conguration for gainsharing represents a fundamental change in how a company relates to its work-force. It contains extensive employee involvement in the areas of productivity enhancement and cost control. This option opens up management control systems in such a way that employees become involved in cost savings decisions. At the Lynchburg plant, top managers were reluctant to adopt the employee involvement portion of the gainsharing programme. Ross maintained that he had to prod managers and executives into adopting the more substantial third gainsharing option. The gainsharing part of the programme created a quarterly bonus for employees based on the subsidiarys performance. If prots rose above a given level, the employees shared in the prots based on a pre-established formula developed by management. The employee-involvement portion of the programme was based on the idea that production line employees had the most rst-hand knowledge about the utility of cost improvement suggestions. Since the average tenure for production personnel was 22 years, this assumption was reasonable. Reluctantly, managers agreed that production personnel were certainly qualied to make quality improvement and cost reduction suggestions. Soon, a system was created which gave production personnel the opportunity to make suggestions to improve production, reduce waste, streamline processes, improve vendor relations, and simplify jobs. The Winshare programme was unique in its urgency to adopt quickly useful suggestions made by production personnel. Rather than a traditional suggestion system which pumped suggestions into the blackhole management hierarchy, employee teams called Win Teams were given the power and the budgets to implement the ideas themselves. With voluntary membership, the Win Teams quickly grew in number. By the late 80s, 50 teams were controlling budgets for production improvements which had grown from a modest $250 to over $6000 per team. Led by an elected employee, each team has the authority to discuss, modify and accept ideas. Further, without management approval, teams could implement any idea that they decided was feasible. Managers and other exempt employees (staff specialists) could belong to Win Teams, but their contributions were conned to research and facilitating interunit collaboration which may be necessary to ensure the success of a production improvement suggestion. Only the production Win Team and its leader can authorise nal approval to implement an idea.
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What started out as a suggestion system with a twist has evolved into a serious employee empowerment programme which has altered the fundamental management control system in the subsidiary. The Winshare programme has become a new and important part of the companys culture. Due to the companys re-emphasis on its core business (i.e., making mobile radios), the Winshare programme and earlier cost cutting schemes, the subsidiary returned to protability in 1986. Ericsson, a Swedish maker of mobile communications equipment was attracted to GE Mobile Communications because of its increased competitiveness and its rapid return to protability under Tranis programmes. Making Jack Welch an offer that he couldnt refuse, he sold 60 percent of GE Mobile to Ericsson and the new joint venture was renamed Ericsson GE. The benet to Ericsson was a signicant entry to the lucrative US market because the GE name on its radios and cellular phones would create strong recognition for its products in the USA The now-highly protable joint venture had sales of $1.1bn in 1992 and the Lynchburg plant employs over 2000 employees. Apparently employee involvement and identication with the company has not slipped in spite of GEs recent sale of another 20 percent of its position in Ericsson GE to Ericsson. Production line employees take their jobs seriously and they express great condence in their ability to compete with aggressive companies such as Motorola. Jimmy Howerton, an associate on the production line sums up the attitude of the Ericsson GE Lynchburg employees: IT doesnt matter what name is on the gate because this is my company. 1 What factors seem to account for the success of the Winshare programme at Ericsson GE? 2 What principles of effective reward system management seem to be at work in the Lynchburg facility? 3 Discuss the impact that gainsharing bonuses have on Ericsson GE employee motivation and performance. What principles of effective reward system management seem to be at work in the Lynchburg facility? 4 Based on this example, what are ve or six ways that managers can improve cost control and product quality through alterations in reward systems?

References
1 2 3 4 5 Luther, A. and Teel, K. (1977) Performance Appraisal: A Survey of Current Practices, Personnel Journal (May): 2457. Locke, E. (1968) Toward a Theory of Task Motivation and Incentives, Organizational Behavior and Human Performance: 15789. Drucker, P. (1954) The Practice of Management. New York: Harper & Row. Herzberg, F. (1966) Work and the Nature of Man, Cleveland, OH: World Publishing. Daniel, T. and Esser, J. (1980) Intrinsic Motivation as Inuenced by Rewards, Task Interest, and Task Structure, Journal of Applied Psychology: 56673.

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Fisher, C. (1978) The Effects of Personal Control, Competence, and Extrinsic Reward System on Intrinsic Motivation, Organizational Behavior and Human Performance: 258 73. Ungson, G. and Steers, R. (1984) Motivation and Politics in Executive Compensation, Academy of Management Review: 31323. Milkovich, G. and Newman, J. (1990) Compensation, 3rd edn. Homewood, IL: BPI/Irwin, 530534. Vaitkus, L. (1999) (Ed.), IOMAs Report on Salary Surveys, 2. Towers-Perrin, Annual Study of US CEO Compensation Practices, 1995. Lubin, J. (1996) The Great Divide, Wall Street Journal (April 11): R1, R4, all rights reserved. Hausman, T. (1996) Seconds Behind, Wall Street Journal (April 11): R4, all rights reserved. Lynn, M. (1996) SmithKline Boss tops overpaid list, Sunday Times, Section 2: 1, 45. Vaitkus, L., op. cit., 3. Ibid, 4. Hammer, W. and Hammer, E. (1976) Behavior Modication and the Bottom Line, Organizational Dynamics (Fall): 321. Greenhaus, J. (1988) Here Come Richer Pay Plans, Fortune, (19 December): 508. Perry, N., Black, R. and Black, J. (1994) Organizational Behavior, 5th edn. New York: Harper Collins, 22830 Lawler, Edward, III (1987) The Design of Effective Reward Systems, in W. Lorsch (Ed.), Handbook of Organizational Behavior, Englewood Cliffs, NJ: Prentice Hall, 255271. Heyel, Carl (Ed.), The Encyclopedia of Management, 2nd edn. New York: Van Nostrand Reinhold, 1973, 895900. Henderson, R. (1989) Compensation Management, 5th edn. Englewood Cliffs, NJ: Prentice Hall, 363364.

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Module 5

Job Design and Employee Reactions to Work


Contents
5.1 5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.2 5.2.1 5.2.2 5.3 5.3.1 5.3.2 5.3.3 5.3.4 5.3.5 Understanding Job Design How Jobs Were Designed before QWL Is Scientic Management Declining as a Job Design Philosophy? Horizontal Increases: The Roles of Job Enlargement, Job Rotation and Cross-Training Job Design and Herzbergs Two-Factor Theory The Psychology of EmployeeJob Interactions Making Use of Job Design for Individual Employees Job Design Principles Assessing Managers Interests in Job Design The Team Approach to Job Design How Managers Design Self-Directed Teams Companies which Have Used the Self-Managed Work Team Concept Merging Self-Directed Team and Empowerment Concepts Employee Empowerment Spreads Participative Decision-Making in the Organisation Limits to Participation in Organisations 5/2 5/2 5/4 5/4 5/4 5/6 5/9 5/9 5/11 5/13 5/14 5/15 5/17 5/19 5/22 5/23 5/24 5/27 5/29

Summary Points Review Questions Case Study 5.1: Altons Experiment with Changes in Job Range and Depth Case Study 5.2: Building Cross-Cultural Work Teams

Learning Objectives
By the end of this module you will be able to:
Organisational Behaviour

Explain why levels of employee motivation and performance are related to how jobs are designed. Describe the difference between jobs which full higher-order needs and those which do not. Explain the approaches for job design at the individual employee level. Explain why managers continue to be interested in the effects of job design. Correctly apply rules of job design.
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Trace the link between job design, employee participation and reduction of job stress. Discuss how employee personality interacts with the way jobs are designed. Diagnose the conditions which may make employee participation effective. Describe new developments in team-based employee participation.

5.1

Understanding Job Design


Job design is the linking of specic task behaviours to jobs. It is followed by the application of work techniques, equipment and job control procedures to the job and its activities. In recent years social pressures and employee dissatisfaction with traditional methods for designing task behaviours and jobs have prompted organisations to adopt new designs which improve the quality of work life for employees. The concept of quality of work life (QWL) refers to the extent to which employees are able to satisfy important personal needs through their work experiences.1 QWL programmes also focus on improving the performance of employees. This can be achieved through managements efforts to construct more meaningful jobs which enhance job involvement and motivation. In essence, QWL programmes try to integrate employee needs with organisational goals. QWL programmes are important but they are not the primary focus of organisational improvement programmes. However, there may be signicant implications for QWL in company programmes concerned with selfdirected teams, downsizing, re-engineering and delayering the company. QWL programmes are still important programmes in companies and their industries. Since 1990, QWL programmes have come under closer management scrutiny. They are no longer designed and implemented simply to raise levels of employee satisfaction. Their effects are judged much more in terms of organisational payoffs such as improving a competitive advantage like product innovation, lowered warranty claims and improved customer service before, during and after purchase. This is the point: QWL programmes are valuable, but they must show a noticeable, positive effect on the bottom line as well as meet the higher-order needs of employees!

5.1.1

How Jobs Were Designed before QWL


Traditionally, managers used the principles of scientic management to simplify and standardise task activities for workers. Using its principles, managers break down work into elements which are analysed by number and the time necessary to complete them. The elements are reassembled into a job that is the one best way to accomplish the work function while minimising wasted time, employee fatigue, training costs and materials costs. Jobs designed in this way have a limited number of tasks and each is made to be so simple that the employee need not think about his work actions. This approach to the work design tried to ensure the maximum productivity of labour so that the corporation could achieve maximum economic efciency. The primary tools of the scientic management approach to job design were time and motion studies, differential piece-rate pay systems and the scientic selection of workers who possessed traits and abilities

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that closely matched the requirements of the simplied jobs in the scientic management scheme. The effects of scientic management on employees and the design of work systems are noted below. 1 Limited social interaction. Due to speed requirements, noise and arrangements of equipment, workers may nd it hard to talk or interact during work. Low skill requirements. When jobs are designed through scientic management they are specialised to keep training costs low. Machine pacing. The level of output is adjusted by altering machine rates rather than changing employee activities. Job activity repetition. The same tasks are performed over and over during the work shift. Many jobs may require performance of an operation up to as many as 2000 times per day. Task specialisation. All jobs have only a few steps and partially completed products are moved from one production step to the next. Low employee creativity and ingenuity. Jobs based on scientic management use only a limited portion of the employees capacities Tools and methods are pre-specied. Efciency experts determine the best way to accomplish work so that efciency and production are maximised.2

2 3 4

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While scientic management has led to the development of the modern-day production methods, its implementation can create profound work adjustment problems for employees. Many organisations have work systems which use its principles. Such organisations become over-dependent on work rules and standard production rates at the expense of job control by employees. As organisations and their employees drift apart over the issues of job satisfaction, product quality and labour costs, absenteeism, customer complaints, product and service defects may all increase while efciency decreases. Scientic management often creates physical work arrangements which leave employees feeling isolated and cut off from their co-workers. Craftsmanship, pride in the nished product and product quality can all be sacriced for job specialisation and productivity. Employee work alienation caused by downsizing and re-engineering has become so commonplace that managements are using features of QWL programmes to shore up employee job satisfaction. Frequently the features of QWL show up in company programmes such as use of self-managed teams, employee empowerment and Scanlon-like plans. As job satisfaction declined under the restrictive work systems created by the application of scientic management, managers observed declines in job involvement, company loyalty, product and service quality and productivity. At the same time, grievance rates rose, union activity broadened to address QWL issues and managers responded in some instances by tightening controls and increasing the number of supervisors on production oors. These changes induced further worker alienation and management continued to apply scientic management principles to regain efciency and control over employees and the work rules which governed their behaviour on the job. The vicious circle described above has largely been broken in companies that have adopted TQM programmes and self-directed teams. The
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relationship between these programmes and QWL will be explored throughout this module. 5.1.2

Is Scientic Management Declining as a Job Design Philosophy?


With time, managers have realised that job designs which rely solely on scientic management will not sustain the growth of the organisation nor will such designs create challenging work for todays highly mobile knowledge workers. When applied in a simplistic and universal way, the approach leads to undesirable organisational and employee outcomes. Work-forces have changed demographically in the last 30 years and have different expectations about the meaning of work. Work systems designers must now emphasise the balance between employees higher-order needs and the requirements of the technical subsystem to produce high quality goods at competitive prices. Therefore, scientic management is no longer viewed as a universally applicable method for rationalising all production systems. It still has its advocates and its benets. However, as the model of efciency based on manufacturing principles has given way to measures of customer satisfaction, job design methods have shifted from the simplicity of scientic management to the complexity of self-directed teams that make substantive decisions about products and processes.

5.1.3

Horizontal Increases: The Roles of Job Enlargement, Job Rotation and Cross-Training
Job enlargement is a method of job design that increases the number of work activities in a job to decrease the extent of boredom and over-specialisation experienced by the employee. Job rotation advances job enlargement by exposing workers to a variety of specialised jobs over time. These two variations of job design are based on the idea that scientically designed jobs may be boring because they lack variety due to their over-specialised nature. Therefore, if jobs have more variety, employees will be more stimulated, interested and motivated by their work. When the principles of enlargement and rotation are applied, variety in work is increased by adding to the number of work activities performed by the employee or by shifting the employee through different jobs over time. Cross-training is a variation of job enlargement because employees are trained in different specialised work activities. All three activities horizontally enlarge jobs because they expand the number and variety of tasks and jobs that the employee can perform.

5.1.4

Job Design and Herzbergs Two-Factor Theory


The frontal assault on scientic management job design systems has been led by Frederick Herzberg.3 His theory of job design is referred to as the two-factor theory of job motivation and it is sometimes referred to as job enrichment. Job enrichment proposes that jobs should include motivating factors. Herzberg contended that two separate sets of factors inuence levels of job dissatisfaction and job satisfaction (and motivation). In his studies, he found that employees are motivated by work when the motivating factors of challenge, responsibility, pride

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in work, recognition and opportunities for personal growth (i.e., promotions) are abundant and attainable. Herzberg goes on to say that the absence of the motivators leads to a loss of employee initiative, increased work apathy and the cessation of employee creativity. However, this does not imply that employees are dissatised by their work. Herzberg says that employees are simply not motivated because they have no reason to form positive work expectations. Because the motivators are associated with the content of work, they are often labelled as intrinsic factors or satisers. (See Module 2.) Serious erosion in job satisfaction is possible if the motivators are absent and hygienes or extrinsic factors are scarce. Hygienes are those conditions which must exist in the context of work to maintain a condition of no dissatisfaction. They include: salary, job security, working conditions, status, company procedures, quality of supervision and the quality of interpersonal relations with superiors, peers and subordinates. Herzbergs work stimulated organisational efforts to improve job designs over the simplied and specialised designs created by the use of scientic management. Herzberg has advanced a number of principles of job design which are briey noted in Table 5.1.
Table 5.1
Principles 1 2 Give employees as much control over the mechanisms of task completion as possible. Hold employees accountable for their performance. Within limits, let employees set their own work pace. Design jobs so employees experience accomplishment. Design jobs so employees learn new skills and work procedures.

Herzbergs principles of job design


Examples A manager allows repairmen to order parts and maintain inventories. A manager conducts semi-annual, formal feedback sessions with subordinates concerning goal achievements. The company installs a exible hours work policy. A manager gives employees the authority to handle customer complaints personally. A company offers a seminar to teach managers approaches to quality control.

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Herzberg argues that reducing hygiene factors is unproductive if a rm needs increased motivation, performance and job satisfaction. Managers must maintain an appropriate level of hygiene while improving the motivating aspects of the job. Let us look at an example of a job with a deteriorating design.
Adrian is a supervisor in a department which processes accounts receivable transactions and maintains an up-to-the minute record of the purchase history of all the rms clients. For the last ve years Adrian has seen his responsibilities grow to include management briengs on the ageing of accounts receivable, overseeing the computerisation of the data entry process, and formal authority for making promotion and salary recommendations. Recently his company was acquired by a larger rm. The rms management issued a set of policy guidelines which stated that the ageing of accounts receivable would be taken over by the accounting division and all promotion and salary recommendations would now be handled by the human resources and personnel divisions.

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It is clear that Adrian has lost much of his managerial discretion. While hygienes remain intact for him, the motivators have been removed. The range and depth of Adrians job have been curtailed.4 Job range refers to the number of tasks an employee performs. Job depth is the amount of discretion which a person has to select various job procedures to accomplish work. Figure 5.1 shows how various jobs might be characterised relative to these two dimensions.

HIGH Machine maintenance man Department head Hospital nurse Chemical plant supervisor JOB RANGE Assembly-line worker Medical records clerk Rubbish collector LOW LOW

Chief of surgery Chief executive officer Prime minister Director of a research laboratory Professor Judge Computer technician Civil engineer

JOB DEPTH

HIGH

Figure 5.1

Job depth and job range

Criticisms of Herzbergs theory.


Herzbergs work broke new ground for addressing job design problems. However, criticisms of his work surfaced in reported research.5 The theory was questioned on methodological and psychological grounds. For instance, researchers questioned Herzbergs use of the critical incident method which he used to ask respondents to describe those factors that they connected to being either satised or dissatised with their jobs. Researchers note that humans tend to blame external factors when they experience dissatisfaction and they give themselves credit (cite internal or personal factors) when they experience job satisfaction. In terms of the psychological characteristics of his theory, researchers have complained that it is based on a theory of work motivation that is too simple. Herzberg believed that only certain jobs should be enriched and that many workers preferred simple jobs. He believed that management should make all decisions about job enrichment and that those employees who will have enriched jobs should not participate in the process of enriching the jobs. In many ways, Herzbergs prescriptions undermine current trends in organisations to greater employee participation and empowerment. The unanswered questions about Herzbergs theory encouraged research aimed at providing a fuller picture of the nature of the interaction between employees and their jobs. 5.1.5

The Psychology of EmployeeJob Interactions


The growth in interest in studying the psychology of employeejob interactions is directly related to the fact that job design cannot be properly achieved by

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using only technical data produced by the results of scientic management. The psychological content of the job has been shown to be instrumental in determining employee reactions to work. Job content refers to the subjective aspects of the job and the social setting in which it is performed (as perceived by the job-holder). The subjective and objective qualities of a job must be distinguished to have a full understanding of how they affect employees.4 It is now accepted that perceptions of job content precede job performance. Employees make conclusions about the presence or absence of job content factors prior to attaining some performance level. It then follows that managers can inuence job performance by changing job content.

The Components of Job Content


Widespread agreement now exists for six job content factors which have been labelled as core job dimensions (see Figure 5.2).6 Table 5.2 provides the denitions of each core job dimension. Skill variety, task identity and task signicance are examples of job range. Autonomy and feedback represent job depth while social opportunities represent the employees perceptions of interpersonal relations in work. From Figure 5.2 it is apparent that the job content factors determine the critical psychological states.

CORE JOB DIMENSIONS (JOB CONTENT FACTORS) Skill variety Task identity Task significance Social opportunities Autonomy

CRITICAL PSYCHOLOGICAL STATES

PERSONAL AND WORK OUTCOMES

Experienced meaningfulness of work

High internal work motivation High quality performance

Experienced responsibility for work outcomes Knowledge of results of work activities


Growth Need Strength

High job satisfaction

Feedback

Low absenteeism and turnover

Figure 5.2

The job characteristics model

Critical Psychological States


Skill variety, task identity, task signicance and social opportunities inuence the experienced meaningfulness of work, which means having a job that has a signicant impact on the individual, his co-workers, his employer and others. Autonomy determines experienced responsibility for work outcomes while feedback creates knowledge of results of work activities. These two conditions
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Table 5.2

Job content factors

Skill variety: The extent to which the job requires a number of different skills, talents and abilities to accomplish task activities. Jobs which require both technical and interpersonal skills possess high skill variety (lawyer, social worker, etc.). Task identity: The degree to which the job requires doing a complete task from beginning to end and experiencing a visible and identiable outcome (e.g., being responsible for all steps of product assembly). Task signicance: The degree to which the job has a substantial and lasting inuence on the lives of employees and other people, both in the immediate organisation and in society. Autonomy: The degree to which the job gives the employee personal freedom and discretion to control work activities and schedules. Feedback from the work itself: The degree to which the job itself provides direct and complete information on the effectiveness of employee work behaviour. Social opportunities: The extent to which the job allows the employee to have social contact with friends and requires interaction with others to complete the work.

combine to create opportunities to satisfy higher-order needs (personal growth, advancement, recognition, challenge etc.). Feedback from the work itself determines knowledge of results, which is dened as receiving information about the quality of ones work as the task unfolds. The critical psychological states are employee reactions to the job content factors. They represent the employees readiness to become physically and mentally involved in his work. When all of the states occur for employees, they prefer to do a good job and are disappointed when they are not successful at various task activities. When all three states are operating, employees are guided by their personal standards of performance excellence and they are fully involved in their jobs. The model in Figure 5.2 indicates that the employees growth need strength has a moderating inuence on the relationship between the employees job and his experienced work outcomes (and those valued by the organisation). This individual quality refers to a cluster of higher-order needs including 1) achievement, 2) power, 3) independence and 4) personal control. It inuences the basic relationships in the model.

How Does Growth Need Strength Work for Employees?


Consider an employee with high growth need strength (a person who is highly motivated by challenging work and who prefers to make independent job decisions which can lead to advancement) whose job has low growth potential. He will exhibit low internal work motivation, erratic or low performance, job dissatisfaction and perhaps absenteeism (see Figure 5.2). This individuals job is a denite candidate for job design because the employees orientation to achievement and challenge makes changing the core job dimensions highly worth while. In effect, the job has little intellectual content. An employee may possess low growth need strength and his job may be impoverished in core job dimension terms. This situation would preclude job redesign because the employee is probably not interested in satisfying growth needs at work. He has probably found some way to satisfy these needs outside the work setting. This situation is really an example of a poor employee selection system and a poor job design system.
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The above discussion indicates the importance of individual differences in job design. Employees with low growth need strength do not prefer jobs with extensive job content factors. Job design expenditures will achieve equivocal results under this condition. Job design is effective with workers having high growth need strength working at jobs with few job content factors.

5.2

Making Use of Job Design for Individual Employees


Job design practices consistent with the job characteristics model provide opportunities for employees to satisfy their higher-order needs. For employees who prefer challenge and meaningful goals in their work, it is extremely important for them to full their growth needs through the proper design of their jobs. The job characteristics model has advantages over Herzbergs two factor theory because it is a more valid way of describing how employees interact psychologically with their jobs. Second, it pinpoints job content factors which may be in need of change. Finally, it shows how new job designs can lead to improvements in employee motivation, job satisfaction, performance and other valued organisational outcomes.

5.2.1

Job Design Principles


Basic job design principles can improve employee motivation and performance through horizontal job loading. Job range can be expanded by applying job rotation, job enlargement and cross-training to the work of employees. As noted earlier, these three job design principles require the employee to handle more job activities, perhaps at different times, related to a core work activity. Expanding an employees job range by using job rotation may decrease his boredom on the job. Job rotation may not result in sustained improvements in employee motivation and job satisfaction if the activities involved in rotation are highly similar. For example, restaurant employees may not be much more motivated in the long run whether they are given the opportunity to wait on tables, clean toilets or wash dishes. Job enlargement may be a more effective job design principle because it changes the nature of work by trying to eliminate the over-specialisation created by scientic management. Jobs are expanded to include those tasks related to the core work activity performed by an employee. Instead of being rotated from one task to another, the employees are given jobs with greater task identity. An example of job enlargement could be the replacement of machine control of work pace with employee-determined work pacing. Job enlargement makes greater demands on employees than job rotation. It frequently requires employees to acquire new skills as tasks are added to expand the basic nature of jobs. In many respects, employees must be willing to accept more responsibility. Cross-training practices called skill-based learning, where employees can earn bonuses and rises when they acquire new work skills, can make employees more versatile. Such programmes do increase the expertise of the work-force. However, they also create pressures on the pay system.

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After 30 years of experience in job design, a number of dependable principles have emerged for improving organisational and individual outcomes of job designs. The most sustained improvements from job design seem to emerge from principles loosely described as vertical job-loading. This expression refers to those changes which inuence the planning and doing components of work. When an employee experiences more control, autonomy, challenge and direct responsibility over work outcomes, then the job has been vertically loaded or expanded. This could also be called increasing job depth. Vertical loading methods for increasing job depth are noted below. 1 Employees should be provided with direct feedback on their performance. Jobs should be designed so that employees can be their own quality control inspectors. Formal performance reviews should be scheduled and informal feedback should be frequent. Employees should be given an opportunity to learn new skills. The employees need to have an opportunity to expand their work aptitudes and competencies. Employees should be able to inuence the scheduling of work. An example is a extime programme that requires all employees to work the core hours of 10 a.m. to 2 p.m. However, based on individual needs, they can vary work arrival and departure times as long as they work the required number of hours each week. Each job should be given some unique qualities which differentiate it from other jobs. This means the job should t the personality of its holder. Employees should have control over job resources. For repairmen, this may mean letting them service their own equipment or maintain their own parts inventories. Personal accountability should be increased. This means employees should be held accountable for the outcomes they achieve at work.

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While all of these changes can greatly improve motivation, job satisfaction and performance of employees, they also require managers to better delegate authority. For instance, a job design programme may necessitate the elimination of time clocks, the installation of a extime system and the delegation of authority for reordering inventory components. In the sales situation, salesmen may be given responsibility for handling customer returns up to a given monetary level. These changes may make managers quite uncomfortable at rst. In addition, managers must be willing to assign quality control activities to employees.

Other Approaches to Job Design


There are other approaches to job design. These invoke some of the principles of job design noted above. Some of these trends are described below. Four-Day Work Week.Many organisations allow employees to work four 10hour days to create a three-day weekend. While some productivity gains can occur in these programmes, the more frequent effects include higher accident rates and employee fatigue partly because many employees who work under this arrangement are able to add a second job to supplement their incomes.
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Job-Sharing.In job-sharing, two employees ll one job. The concept allows mothers to work as they raise their families. Shared jobs often result in less boredom and less fatigue. In addition, the organisation often gains greater output from two employees sharing a job than from a single employee lling the position. The organisation also may benet from lower fringe benets costs, although the administration of fringe benets plans can become slightly more complex when job-sharing is widespread. Telecommuting. In telecommuting, work is performed with computers by employees in their homes. In the United States over two million people currently perform their jobs in this fashion. Telecommuting is a joint effort of the employee and the organisation to create a better t between the employees personal needs and the organisations task demands. By the year 2000 this number is expected to rise to 10 million.7 While employees enjoy having the choice of telecommuting, they note that there are some problems in it. For instance, home-based workers note that they lose the regular contact with other employees in the ofce setting. Some workers fear that they may lose promotion opportunities and that their salary rises may be less than those of their ofce-based colleagues. From the organisations viewpoint, telecommuting may encourage employees to slack off. To the extent that these issues are resolved, telecommuting will become more common because it does signicantly reduce for the organisation the costs of supporting an employee. Flextime. In extime, employees determine when they arrive at work and when they leave. Employees in extime systems typically work a set of core hours each day, perhaps 10 a.m. to 2 p.m., and they must work a specic number of hours each week. Beyond that, they are free to set their arrival and departure times based on their personal needs and the work requirements of their departments. The benets claimed for extime are numerous. Organisations using the system state that they have lower absenteeism, increased productivity, reduced overtime expenses, greater employee job satisfaction and fewer episodes of trafc congestion at work facilities. Employees do respond favourably to extime because it is, in a sense, a form of vertical job loading. Employees are given control of a major job decision, namely when they come to and when they leave work. Flextime works well for jobs that are manufacturing based and do not require extensive customer interaction. It is not a viable option in service organisations that need to have employees at predetermined service locations prepared to greet customers or to handle their requests. 5.2.2

Assessing Managers Interests in Job Design


The dual goals of improved organisational effectiveness and satisfaction of employee needs ensure managers continued interest in new approaches to job design. More competition, increased use of technology, improvement in job design methods, better understanding of the implementation process and greater dependability of results of job design programmes are all inuencing managers to try job design in their organisations. Hackman offers four reasons why the interest in job design will continue to grow: 1 Work design alters the relationship between people and their jobs. The
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job depth quality of job design expands the number of available intrinsic rewards. Job design directly changes behaviour since it focuses on what employees do instead of what they feel (emotions). This sort of change is more durable. Job design offers opportunities for initiating other changes. A successful job design effort encourages more exible employee attitudes and employees can become more innovative in their work. Job design helps organisations better satisfy employee needs. Scientic management job designs curtail opportunities to satisfy higher-order needs. Improved feedback on performance and greater acceptance of responsibility raise employees achievement aspirations.

What Problems Can Occur in Job Design Programmes?


If job design were easy, all organisations would have their own functioning programmes. A variety of obstacles can stand in the way of successful job design innovations. Common obstacles are noted below: 1 Technology. Many jobs cannot be designed to eliminate the effects of machine pacing and repetitive work. The economic savings of assembly-line job designs may be so great that the organisation can be protable even with employee job dissatisfaction and high turnover. Programme start-up and maintenance costs. The full costs of sustaining a job design programme can force an organisation not to initiate or to end its job design programme. Frequently job design is introduced when the company is doing well and prots are robust due to expanding sales. When storm clouds gather on either of these horizons, the rst organisational casualty is often the job design programme. Downsizing and re-engineering programmes designed to reduce costs may quickly undo the benets of a job design effort. The failure to consider employee preferences. A job design programme can fail because it does not account for the needs of employees. In particular, programmes designed and implemented by management without signicant employee input are quite susceptible to failure due to low employee commitment. This danger has actually declined in importance during the past 10 years. This is true because TQM, employee empowerment and self-directed team programmes use principles of job redesign. Their overall programme goals may differ, but the methods of job enrichment and job redesign are evident in these programmes. Managerial and union resistance. Managers must delegate authority in a number of ways to make a job design programme work. This requirement may compromise the autonomy of some managers: therefore they will resist job changes which focus on altering the job depth of their subordinates. Further, unions may be reluctant to endorse job design for economic and union solidarity reasons.8 This form of resistance has also declined substantially during the past 10 years. Job insecurity caused by downsizing and restructuring have lowered both forms of resistance. Additionally, the globalisation
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of production assets has made it easier for managements to shift production to subsidiaries that have little labour unrest from those facilities that may be undergoing labour turmoil.

5.3

The Team Approach to Job Design


Autonomous work groups represent a team approach to job design. This approach ows from socio-technical systems theory which represents a systematic effort to recongure the way organisations integrate employees and the technologies they use to accomplish work. The general framework for sociotechnical systems theory was developed and advanced by the Tavistock Institute of Human Relations in London. The socio-technical systems theory is composed of two elements: the social element represents the social and interpersonal aspects of task group behaviour at work and the technical element refers to the operational, equipment and technical/mechanical processes used by task groups to get their work done. Thus, socio-technical systems theory integrates two opposing forces in the design of work: 1) the scientic management and productivity emphasis on specialisation and 2) the human needs and interpersonal relations aspects of the behavioural sciences concerned with human development in the workplace.9 Researchers at Tavistock conducted studies which laid the groundwork for the autonomous work team concepts which would be adopted later by industry in Europe and America. Trist and Bamforth studied the effects of technological change in British coal-mining operations.10 Before the technology of coal-mining was changed, miners worked in teams having considerable autonomy to establish work-pacing and social interaction. The introduction of mechanical methods for gathering coal focused on task specialisation and inexible work routines and led to the break-up of the tightly knit teams of miners. The technological innovation was designed to enhance productivity. It was a failure because the work design failed to account for the miners needs for sustained social interaction in their work. This study and others conducted by Tavistock staff experts led to the conclusion that the technical and social work systems are so interdependent that work designs must be built which account for their interplay. The basic building block in such designs is the autonomous work group which has the qualities noted below. 1 The group is assigned a whole task, in which the mission of the group is sufciently identiable and signicant that members nd the work of the group meaningful. Each worker in the group possesses a number of the skills required for completion of the group task, and so the exibility of the group in carrying out the task is increased. When individuals do not have a robust repertoire of skills initially, procedures are developed to encourage cross-training among members. The group is given autonomy to make decisions about the methods by which the work is carried out, the scheduling of various activities, the
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assignment of different individuals to different tasks and, sometimes, the selection of new group members. Compensation is based on the performance of the group as a whole rather than on the contributions of individual group members.11

Several qualities can emerge in functioning autonomous work groups. First, they may be cohesive because members have a high frequency of interaction in their work arrangements. Cohesiveness may also be fostered because autonomous work groups are given the responsibility to select new members and train them in work methods.9 The cross-training of members is usually accomplished with greater effectiveness by the autonomous work group than by the organisation at large because members are simply closer to the tasks performed. These groups realise that interchangeability of members is a key to sustained productivity. Members of such groups may also acquire group managerial skills more quickly since autonomous work groups may have rotating leadership positions. Closely related to the productivity issue is the emergence of performance expectations in autonomous groups which resemble organisational performance requirements more closely. Since rewards, bonuses and pay rises are contingent on group performance, members come to value interdependence and collaboration in their work. They quickly learn that these are the work behaviours which make the group more successful in meeting its product quantity and quality challenges. 5.3.1

How Managers Design Self-Directed Teams


In the 1990s, the autonomous work group concepts based on socio-technical systems theory have been transformed to the self-directed team initiative. Selfdirected teams are formal work groups made up of members who are jointly responsible for ensuring that the team accomplishes its goals and who lead themselves. Managements can follow some well-accepted principles for designing self-directed work teams. These principles are based on extensive research in the areas of socio-technical systems theory and widespread use of self-directed teams in both service and manufacturing organisations. Typically, the companies interested in setting up self-directed teams must consider the following: 1) creation of high performance norms, 2) minimising or channelling group conict to useful ends, 3) creating satisfying interpersonal relations and 4) integrating characteristics of the technical work system into the structure of the group. The following prescriptions have been offered by Hackman for designing selfdirected teams. 1 2 The team should be relatively small (820 members) so that group membership may be psychologically meaningful. Team-centred interventions such as sensitivity training should be avoided because such efforts may alter group climate and reduce task effectiveness. In other words, if teams are to receive training, it should be in work skill areas or cross-training. The pay system should be structured so that individual pay is determined by team performance.
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4 5

The role of the supervisor should be changed from vertical liaison with higher management to horizontal integrator of other work teams. The team should be given the authority to plan, organise and control a dened piece of work and be responsible for both the quality and quantity of its performance. This is an expanding job range and job depth for the team.9

5.3.2

Companies which Have Used the Self-Managed Work Team Concept


Due to the popularity of self-directed work teams, organisations are coining new names for their team-based efforts to organise work. They are called selfmanaged teams, semi-autonomous work groups, empowered teams or crossfunctional teams. The integrating principles among them is that they are a permanent part of the organisations structure and their members have substantial responsibilities for a variety of team management and team work process decisions. In sum, the teams assume responsibilities formerly handled by supervisors and middle managers. Their new responsibilities include: training and development, quality control, performance evaluation, personnel interviewing and selection for possible hiring, work scheduling and control and discipline. A mature self-managed team could be expected to perform the following tasks. Members will: 1 2 3 4 5 Evaluate each others performance, using peer appraisals. Cross-train each other until all members are familiar and competent to perform all related jobs assigned to the team. Schedule work and assignments within the team, which could be based on extime or four-day 40-hour work arrangements. Divide work assignments to t the needs of team members. Monitor team performance, make corrective changes in work processes and equipment utilisation and report the results of these activities to higher management. Apply TQM principles and service quality improvement activities to all phases of the teams work.

The principles noted above have been applied to the work arrangements at New United Motor Manufacturing (NUMMI) which is a joint venture between Toyota and General Motors in GMs Freemont, California plant. After being shut down due to labour problems in 1982, it re-opened as the joint venture in 1984 and it initiated operations which were heavily dependent on the self-managed team concept. Prior to its 1982 closure, the plant had developed a reputation for having high levels of absenteeism, alcohol and drug abuse among workers, and very poor productivity and product quality. Re-opening in 1984 with over 60 per cent of the original employees, the plant also had a diverse work-force made up of 26 per cent Hispanics, 20 per cent blacks and 15 per cent females. After joint evaluation by management and United Auto Workers Union (UAW) ofcials, 2200 new employees were added. Union conditions attached to reopening the plant required the joint venture to offer compelling reasons for rejecting a candidate and that an arbitration process be established to handle
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disputes over selection. The NUMMI system has many organisational and work features which support the self-managed team concept: 1 Employees are carefully screened and selected after a three-day assessment process which includes individual and team interviews, exams and problem simulations. A four-day orientation programme for new employees includes team concepts as well as principles of cross-training. New employees sign a contract which species the principle of job security. Examples of status such as management-only dining rooms and parking facilities were removed. Top management advanced the principles of trust and respect through the mechanism of self-managed teams. A suggestion system with a rapid feedback system was installed and 95 per cent of all suggestions are accepted in some form. Jobs were integrated to eliminate excessive job specialisation and to facilitate repairs and product quality. Recognition and nancial incentives for successful suggestions were team based and meaningful. Wage compression in self-managed teams allowed team leaders to earn only $0.40 more per hour than team members. Plant management shared with self-managed teams information about plant performance, product quality and plant safety. A philosophy of integrated manufacturing which utilised standardised work, just-in-time inventory management, preventative maintenance performed by self-managed teams and job-centred quality control.12

2 3 4 5 6 7 8 9 10 11

Once these 11 principles were installed at NUMMI, the performance comparisons of the new system and the pre-1982 system were remarkable. Absenteeism fell from 25 per cent to 4 per cent. Worker complaints fell from 50007000 during a pre-1982 three-year contract period to just 100 in an 18-month period after 1987. By 1991, the rate of employee participation in the suggestion system had topped 85 per cent. Most importantly, quality and productivity levels had risen dramatically. For instance, a Consumer Reports reliability survey found that the NUMMI facility produced cars with a reliability coefcient 37 per cent higher than comparable GM plants. Car owner surveys also found that NUMMI autos were about 10 per cent more reliable. Finally, hourly paid workers and salaried workers at NUMMI were on average 48.5 per cent more productive than their counterparts at other comparable GM plants.12 According to Massachusetts Institute of Technology (MIT) researchers, NUMMI had succeeded in creating a lean production system.12 The success of the NUMMI facility and other efforts to build team-based work systems in companies have helped spark interest in the current re-engineering tidal wave which is sweeping through organisations in the manufacturing and service sectors. Researchers have identied several elements of lean production systems which rely on team-based work systems. They are shown below.
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1 2 3 4 5 6 7 8 9

Elimination of buffers or inventory, including extra workers. Quality and efciency are seen as positively related, with quality preeminent. Emphasis on ability to change quickly from one product to another. Multi-skilled workers with a good understanding of the production process. Higher level of training. Commitment to retain highly trained workers. Compensation that is partly contingent on corporate, plant and/or individual performance. Reduction of status barriers. High-commitment work practices.12

Experts on lean production systems and organisational re-engineering concluded that the NUMMI system transfers the maximum number of tasks and responsibilities to those workers actually adding value to the car on the line. This, in turn, creates teamwork among line workers and a simple but comprehensive information display system that makes it possible for everyone in the plant to respond quickly to problems and to understand the plants overall situation. Workers respond only when there exists some sense of reciprocal obligation, a sense that management actually values skilled workers, will make sacrices to retain them and is willing to delegate responsibility to them.12 5.3.3

Merging Self-Directed Team and Empowerment Concepts


The nine principles of re-engineered, lean production systems are suggested in Figure 5.3. It shows that basic responsibilities for controlling self-directed team work activities have moved from the traditional supervisor and middle manager to the team. As Figure 5.3 shows, the need for rst-line supervision diminishes because the self-managed team absorbs most of the activities formerly performed by department heads, supervisors, foremen etc. Major job re-engineering efforts to create lean production systems have helped move forward the process of employee empowerment. In this process organisations share decision-making power with employees to make decisions of higher quality in less time. Employees receive more authority and, with time, they can gain skills, competence and self-condence in their work. Quite often, empowerment occurs in the context of self-directed team work designs. The organisational foundations for employee empowerment and self-managed teams can be found in Likerts System 4 organisation (see Table 5.3). This organisational design provides the rationale for work-force empowerment because it lays the groundwork for a participative, supportive work environment which is essential to the development of a team-based work design. Second, organisations which adopt a System 4 design have often just installed new production methods and technology and they nd that such innovations create pressure to overturn old work systems based on specialisation and principles of scientic management. Old, inefcient job designs based on limited employee decision-making are simply swept away because they do not match new technologies. Further, any company can adopt new technologies to attempt to create a new source of competitive

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advantage. Most of these efforts will fail fairly quickly if they are not supported by the use of employee empowerment and self-directed teams.

Centralised, traditional hierarchical control systems Executive Middle manager Supervisor Supervisor

Decentralised, empowerment-based Systems 4 control structure Executive Middle manager Team Team leader

plan and schedule work assign jobs and tasks manage customer relations train and develop workers evaluate performance screen applicants discipline, hire and fire perform quality control

Work unit

Self-directed team

Figure 5.3

Self-directed teams are replacements for a traditional control structure

Preconditions for Worker Empowerment


Team-based work systems are the only logical choice for organisations that adapt lean production systems and re-engineered work designs. Yet, such improvements may fail if employees do not meet three prerequisites for empowerment.13 The rst is the capability to become psychologically involved in participative activities. In cultures which value hierarchically based authority systems, innovative organisations which seek the advantages of an empowered work-force will be challenged to convince employees that participation is both acceptable and desirable. The second prerequisite is that employees must have the motivation to act autonomously. People who are internalisers are more likely to use sources of internal motivation to guide their work decisions while externalisers are much more likely to approach supervisors for guidance on work-related decisions. A paradox is apparent here. Autonomy and initiative (internal locus of control) are building blocks for empowerment, but an internalisers motives for such actions may undermine his teams decision philosophy and work design. Thus, in highly effective self-managed teams there is always a dynamic tension between the autonomous members needs for individuality and the teams needs for co-operation, compliance and consensus. Such teams are effective because they have found the proper balance in developing the identity of members and subordinating members identities to the collective will of the team. The third
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prerequisite to empowerment is the capacity to see the relevance of participation for ones own well-being. Often, this requires that team members take a long view of the development of personal prociencies and job skills. Members of empowered self-directed teams need to believe that the organisation is committed to them and their well-being. The two most powerful expressions of the commitment of organisations to their employees are found in their guarantees of job security and their use of team-based reward systems such as prot-sharing or gainsharing. 5.3.4

Employee Empowerment Spreads Participative Decision-Making in the Organisation


In many ways, participation in decision-making by employees is a core element of job design. Participation is the active involvement of employees in making decisions about issues affecting them on the job. From the individual employees standpoint, participation has three important features: 1 Psychological involvement. When employees are involved in making workrelated decisions, they are often absorbed in what they are doing. They are activated mentally and stimulated by the challenges inherent in their work. Work excellence cannot be achieved by only physical involvement in work. Work can be accomplished with only physical involvement, but employees will not be mentally interested in what they are doing. There is also a huge difference between psychological involvement and looking busy. Employees who are engaged in the latter behaviour are not satisfying their higher-order needs through work. Looking busy is a behaviour designed to fend off the attention of supervisors. It is a form of avoidance behaviour intended to help employees escape their superiors attention. Motivation to contribute. Participation encourages employees to make personal contributions to their organisations. When the organisations social system meets the employees belonging needs, and the technical work system presents him with challenging and meaningful work, the conditions are right for creating the motivation to contribute. Another way of saying this is: intrinsic rewards help employees internalise the motivation to contribute. When employees are instructed to participate, managers get uninspired compliance. Employees acquiesce to pressure from managers who insist that they be involved in decision-making. It then follows that employees experience low commitment and acceptance of organisational goals. Compliance is a one-way passive response from employees. Participation is a two-way process which links the various levels of the organisations hierarchy together. When motivation to contribute is widespread, employees create ideas and push them up the hierarchy. Acceptance of authority. When employees experience the greater control through participation, they become more willing to accept delegated authority. Often they come to expect that more authority is delegated to them. When employees can decide how to get work done, they have more ownership of their jobs. When acceptance of authority is embedded in an emphasis on teamwork, employees come to depend on their team members more. This
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increases collaboration and greater innovation and provides employees with a wider base for need satisfaction. Therefore, acceptance of authority can contribute to teamwork. This principle operates clearly in fully functioning self-directed teams.

The Qualities of an Organisation which Uses Participation Effectively


The qualities can be best identied by articulating the differences between Likerts System 1 and System 4 organisations.14 A System 1 organisation is one that ignores the importance of teamwork in organisational effectiveness. The System 4 organisation places teamwork at the core of organisational design. Table 5.3 contrasts the differences between these two forms of organisation.
Table 5.3 Contrasting the participative and non-participative organisation
The participative organisation (System 4) has: Leadership that instils condence and trust. Superiors and subordinates freely discuss problems. Motivational systems which tap the full hierarchy of needs and their related rewards. Communication which ows in all directions with clarity and accuracy. Subordinates who are highly involved in goal-setting. Decision-making which occurs at all levels. Control processes which are dispersed and emphasise self-control. Performance standards which are ambitious and pursued with energy.

The non-participative organisation (System 1) has: 1 Leadership which does not value or instil condence and trust. Superiors and subordinates do not solicit each others opinions. Motivation systems which operate only on lower-order needs. Motivation may be based on threats of job loss. Communication which only ows downward and it is subject to distortion and inaccuracies. Subordinates who are not involved in goal-setting. Decision-making which is concentrated at the top of the organisation. Control processes which are centralised. Performance standards which are low and pursued passively.

4 5 6 7

Considerations for Managers who Wish to Use Participation and Empowerment Effectively
Managers must be willing to meet certain organisational and personal prerequisites before they try to democratise their organisation. Let us consider some of these prerequisites. 1 Employees must be trained to be effective members of empowered, selfdirected teams. Clearly, empowerment and self-directed teams cannot be installed under emergency or crisis conditions. Managers must believe in, and practise the principles evident in the System 4 organisation. This necessitates a profound shift in the managers job. He moves from being a source for decisions to being a coach for self-directed teams and an integrator of self-directed team activities.
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Managers must rmly believe that employees have or that they can develop a high growth need strength. This belief is central to successful empowerment programmes. Employees must view participation as a central feature of their orientation to work and professional development. If participation is an intrusion, then employees will experience participative work activities as distracting. Employees must have the ability to attack problems which are best solved through participative means. The skills necessary for effective participation are different from those intellectual and conceptual skills that are required for solving technical issues. Employees should receive training in both areas of problem-solving. Employees must use common organisational terminology when they are given the task of solving problems participatively. In some respects, extensive departmentalisation (the grouping of similar tasks together) in an organisation undermines participation. Managers and employees must accept the fact that programmes of empowerment, self-directed teams and introduction of new technologies are all facets of creating and sustaining competitive advantage. The failure of organisations to renew themselves through these processes can only lead to declining protability (less competitive companies) and increasing economic insecurity for workers.

Alternatives to a Fully Empowered, Participative Organisation


Several organisational variations can be installed which do not require an organisation to be totally participative. The Scanlon Plan is a system which sets up a series of interlocking employee committees for: 1) reviewing work procedures, 2) evaluating suggestions for improving productivity and cutting costs and 3) involving employees in production decision-making. (See Module 4, section 4.4.1.) A Scanlon Plan allocates group-based bonuses to employees who are able to exceed a historical standard for product output, total labour hours, materials usage etc. The standard is based on production information and it should be stable and widely understood by employees and managers. The work groups covered by such a programme participate in a bonus system which also reserves some money for productivity gains for periods when the work group is unable to exceed the historical standard. Also, a portion of the gains are set aside for the company. In most programmes, the employees receive at least 50 per cent of the money from the accrued savings. The Scanlon Plan also depends on productivity improvement suggestions from employees. These suggestions originate in production committees which are composed of supervisors and their employees. Scanlon Plans call for a screening committee which evaluates suggestions requiring large amounts of money for implementation. The screening committee is composed of managers and employees. Benets of Scanlon Plans include greater employee participation, wider acceptance of changes in work procedures, increased output and efciency and better worker-management relations.

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5.3.5

Limits to Participation in Organisations


Organisational arrangements and control systems can make the use of empowerment, self-directed teams and participation expensive and time consuming to install. Some organisations may have good reasons for avoiding these innovations. Some of the logic of this avoidance is summarised below. 1 The industry in which the rm is located has high entry barriers and its customers are very loyal to the industrys rms and their products. This circumstance could be strengthened if the industry enjoys government protection in the form of tariffs. 2 Global competitors tend to overlook the industry because it is too small, or the rms in it have excellent product and process protection through trade marks, patents and licences. 3 Worker productivity gains can still be achieved without greatly increasing capital intensity. 4 The organisation already has lean stafng systems. This means that the organisation has few management layers. 5 Employees jobs are specialised and their work is controlled by standard rules and regulations. 6 Organisations may not have employees of sufcient ability to solve problems through participation. If they are allowed to participate in decision-making and they produce inferior solutions, they then have more job stress. 7 Some employees may have insufciently strong growth need strength; therefore they are inclined to avoid participation at work. Only employees with high growth need strength can be expected to respond positively to increased job depth (empowerment and participation). 8 Heavily unionised organisations may nd it very difcult to redesign jobs in such a way that self-directed teams, empowerment and participation are successful. In 1995, General Motors had to give in to the autoworkers union because they refused to accept the companys plan to outsource more parts production work. The union argued that this decision took jobs away from union members and its 140 000 members walked off the job. GM lost $50 million per day in net prots during the 13-day strike. The success of the strike was a strong blow to the companys plans to lower costs by shifting production work to vendors. 9 Installation of participation and empowerment is often accompanied by layoffs of lower and middle managers. While the lay-offs may reduce costs, they may also deplete the organisations managerial resources. If a company enjoys robust demand for its goods and services, it may have trouble lling new management positions from inside the organisation. 10 Organisations may start participation and empowerment only to lose their way because the process of change becomes an end in itself rather than a means to improve performance, productivity and quality. This means-ends inversion is possible in organisations that install new systems which are not rmly linked to a well-articulated strategic plan.

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In summary, participation, empowerment and self-directed teams are key methods for increasing competitive advantage through more effective employment management practices. These innovations rest on the System 4 organisational pattern and the changes necessary to support self-directed teams. Organisations can increase their competitive advantage by adjusting their workforce practices based on the principles of participation, empowerment and selfdirected teams.

Summary Points
QWL (quality of work life) programmes have become more common in industry and they represent organisational efforts to help employees satisfy important personal needs through their work experiences. Scientic management is the traditional approach to job design which breaks jobs down into their elements and recombines the core elements to create the most efcient job design. It always results in more specialised and simplied jobs. It is often associated with employee alienation, turnover, absenteeism and lowered production quality. Herzbergs two-factor theory proposes that the absence of hygiene leads to job dissatisfaction while the presence of motivators leads to job satisfaction, motivation and performance, if hygienes are present. While Herzbergs theory has been criticised on research grounds, it was the rst signicant departure from scientic management as a method for job design. Job range refers to the number of tasks performed by an employee, while job depth is the amount of discretion the employee has to select various job procedures to accomplish work. When these two principles are applied to job design, they are referred to as horizontal and vertical job loading respectively. Employee perceptions of job content factors (Herzbergs motivators) are believed to precede job performance. Therefore, managers must be alert to opportunities to enhance the motivating potential of jobs. Job content factors are skill variety, task identity, task signicance, social opportunities, autonomy and feedback. Employee growth need strength is an individual difference composed of achievement, interest in work, challenge, desire for independence and personal control over work. It is a moderating factor which must be considered prior to attempting changes in job design. Job rotation increases levels of employee skills by moving them from one job to a related one for a given period of time. Job enlargement expands task identity by adding related tasks to the employees core work activity. Managers may resist efforts to change job designs because they are unwilling to delegate authority. Self-directed teams are organisational arrangements which integrate the technical and social aspects of group work. Countless companies are adopting this type of job design to exploit new forms of competitive advantage based on improvements in the design of work.
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Empowerment is the sharing of decision-making power by the organisation with its employees. It is commonly found in companies that support participation and exhibit features of System 4 organisations. Participation is composed of three elements: 1) psychological and physical job involvement, 2) motivation to contribute and 3) acceptance of responsibility. System 4 organisations use participation and empowerment in job designs to raise individual and work team effectiveness. Managers who wish to use participation more effectively must value participation and also must give employees the opportunity to become accustomed to the behaviours required by participation. The Scanlon Plan is a form of managed participation which focuses employees attention on receiving group-based rewards for achieving productivity gains.

Review Questions
True/False Questions
5.1 Scientic management recognises the importance of individual differences in job design. T or F? 5.2 QWL refers to an organisational philosophy about the importance of satisfying employees lower-order needs at work. T or F? 5.3 Task specialisation is generally reduced when scientic management is used as the basis for job design. T or F? 5.4 Herzbergs hygiene factors contribute to long-run job satisfaction, motivation and performance. T or F? 5.5 Job depth is signicantly inuenced by adding to a jobs content. T or F? 5.6 Job range can be positively inuenced by job rotation. T or F? 5.7 Generally, employees decide on a given level of performance before they evaluate their levels of experienced job content. T or F? 5.8 Employee growth need strength is an integral part of Herzbergs two-factor theory. T or F? 5.9 A job with poor job content factors occupied by an employee with high growth need strength could be redesigned successfully. T or F? 5.10 Critical psychological states refer to permanent features of the employees personality. T or F? 5.11 Providing employees with more job-related feedback will increase their experienced job responsibility. T or F?

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5.12 Flextime is not the same as a four-day, 40-hour work week. T or F? 5.13 Job design changes are most successful if they focus on behaviour rather than employee emotions. T or F? 5.14 Self-directed teams integrate the technical and social aspects of work. T or F? 5.15 Job range changes very little for members of a self-directed team. T or F? 5.16 Generally there is no upper limit on the number of self-directed teams set up in an organisation. T or F? 5.17 The Scanlon Plan is a form of group-based prot-sharing. T or F? 5.18 Scientic management may be used more often in a System 1 organisation than in a System 4 organisation. T or F? 5.19 High internal organisational differentiation between departments is a barrier to widespread employee empowerment. T or F?

Multiple Choice Questions


5.20 All A B C D E of the following are principles of scientic management except: time and motion studies. decision-making responsibility assigned to empowered teams. piece-rate pay or individual incentive systems. simplication of work and training requirements. using job-based performance skills to select job applicants.

5.21 A weakness of scientic management is that: A it underestimates the signicance of worker ingenuity and work creativity. B it gives too much authority to employees who may not be ready to handle it. C it doesnt pay enough attention to the problem of employee pay. D it only works in factory settings. E it over-emphasises employee training and development. 5.22 Assembly-line jobs: A tend to be non-repetitive. B require minimal mental attention. C require the employee to set the pace of work. D impose high skill requirements on employees. E entail signicant training and development costs. 5.23 Job A B C D E enrichment is most closely associated with: Taylors scientic management. McClellands socially acquired needs. Herzbergs two-factor theory. Maslows need hierarchy. Vrooms expectancy theory of motivation.

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5.24 When an insurance claims processing clerk is given the responsibility and signature authority to handle certain types of claims work, her job has been: A B C D E enlarged. enriched. horizontally loaded. simplied. re-engineered.

5.25 The degree to which an employees job requires completing a whole task or a related sequence of tasks is called: A B C D E autonomy. skill variety. task identity. feedback from the work itself. task signicance.

5.26 Enlarging a job is most closely related to which of the following job content factors? A B C D E skill variety. autonomy. task identity. task signicance. feedback from the job itself.

5.27 The key moderating concept in the job characteristics model is: A B C D E need for achievement. locus of control. growth need strength. job involvement. emotionality.

5.28 Which of the following is typically not a cause of problems in job redesign efforts? A B C D E Targeting employee skill deciencies for improvement through training and development. Rapid changes in technology. Failure to consider employee needs in the redesign effort. Failure to consult with union membership prior to starting the redesign programme. Redesign programme cutbacks caused by falling revenues.

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Short Essay Questions


5.1 What are the reasons for failure in job designs based on scientic management? Outline four elements which would correct some of the problems associated with job designs based on scientic management. 5.2 Why is it important to consider individual differences in job design programmes? 5.3 What are some of the forces which are shaping organisational efforts to improve QWL for employees? 5.4 In what ways does extime inuence job depth? How might a extime system improve organisationemployee relations?

Case Study 5.1: Altons Experiment with Changes in Job Range and Depth
Alton Ltd. installs and services computer equipment in wholesaling businesses. Alton owns the equipment, and through a leasing arrangement, maintains the equipment for its customers. The rm has 300 eld repairmen who install and service equipment. These individuals are all graduates of Altons technical training programme. Lately, the repairmen have been complaining about many features of their job. The director of eld services is concerned because the average number of monthly calls made by repairmen has been steadily dropping. Turnover has also increased and several key customers have cancelled leases in favour of new arrangements with Altons competitors. A job design expert was retained by Alton to study the problems in the design of the repairmens job. The director of eld services told the expert that Altons repairmen are the best in the industry because they undergo 40 hours of training each year to update them on the latest repair techniques. After some prompting, he did have several observations about the repairmen. These are noted below. 1 2 3 4 5 6 The company assigns each repairman weekend duty once every two months. Frequently the repairmen will not show up for weekend calls. The salary level, fringe benets and vacation benets for repairmen are consistent with the industry. The repairmen get along quite well although most of their work is done alone. Instructors in the companys training programme have noted that repairmen are describing their jobs in increasingly negative terms. Customer dissatisfaction with some leasing and servicing contracts has been growing. The company is experiencing a decline in the number of applications to the training school.

* Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations. St. Paul, MN: West
Publishing.

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The job design expert decided to interview some repairmen. He talked with 50 employees from all of the eld territories. A summary of their comments follows. We cant order parts. Management does the ordering, and its often too infrequent and the parts come too late. We arent able to carry non-routine parts. Management prefers to specialorder these parts which further delays us in making repairs. We have to go through management when we encounter a repair problem and we cannot contact engineering directly. Management xes our work schedules and determines the sequence of our customer calls. All customer complaints must be routed through the sales manager. This delays our response further. Management determines the maintenance schedule for our vans and equipment. Often these schedules do not match our equipment needs and the schedules become outdated as we get new repair equipment.

The repairmen had other important reactions to the job. They enjoyed the training seminars because they were able to learn new repair methods. Most said they found their work to be challenging and full of variety. Yet many expressed frustration over their inability to provide timely customer service. They felt some of the companys work rules prevented them from delivering the best service and they felt this reected badly on them as individual employees. They felt satised with employee benets and the pay system. Many repairmen indicated that they were looking for employment elsewhere. The job design expert organised a series of meetings attended in each instance by two supervisors and four repairmen. These job expert groups were challenged to come up with job changes for the repairman position. After each group generated its list, it was asked to screen the suggestions for feasibility, specicity and applicability to the repairman job. Ten of these meetings were conducted in the London territory. Below is a partial list of the suggestions created by the groups. 1 2 3 4 Repairmen should have full authority to order routine and non-routine parts. Repairmen should go directly to engineering for technical assistance. Repairmen should handle their own vehicle and equipment maintenance up to 500 in annual repair costs. They should design their own territory coverage and be able to work from their homes. Each repairman would have an electronic signalling device which would keep him in touch with his territory ofce. Repairmen should process customer accounts up to 1000 in repair work. They should maintain their own quality control reports. They should help select new applicants and take turns at instructing in the annual training seminars.
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Based on these suggestions, the expert implemented his plan for improved job design. Fifty repairmen and their supervisors from the London territory were selected to participate in a small pilot programme. In this programme, work attitudes (job satisfaction, job involvement), performance, job motivation, absenteeism, customer satisfaction, job response times and vehicle maintenance costs were all monitored. All seven of the suggested job changes were made in the jobs of the London repairmen. Similar measurements were made for 50 repairmen in Birmingham and Liverpool. However, no job changes were implemented in their jobs. After eight months, the measurements noted above were retaken for repairmen in the three territories. The job design expert and the director for eld services had good reason to be pleased. Little change was noted for the repairmen in Liverpool and Birmingham. However, the London repairmen showed signicant progress in several key areas. These are summarised below. 1 2 3 4 Absenteeism had dropped by 10 per cent. Job satisfaction and job involvement were up 25 per cent. Vehicle maintenance costs had not risen during the period, and repairmen reported less lost vehicle time. Job response times had improved by eight per cent and customer satisfaction with service calls was up 18 per cent. Customer complaints showed a drop of 27 per cent. 1 Why were the repairmen so dissatised with their jobs? 2 Does the growth need strength of the repairmen play a role in the experts job design programme? 3 Did employee participation play an important role in the success of the Alton job design programme?

Case Study 5.2: Building Cross-Cultural Work Teams


Brussels. Anyone can talk about cultural differences. Fons Trompenaars tries to make his students feel them. To do that, the Dutch leader of workshops on multicultural management teaches his students (mostly executives) to play a game invented by one of his colleagues, L. P. Burg. The object: building towers made of paper. Mr Trompenaars, a 39-year-old former Royal Dutch Shell executive, divides a group of several dozen Swedish managers into two groups. Four are designated as international experts in building paper towers. Everyone else becomes a native of a make-believe village called Derdia. Your culture loves towers but doesnt know how to build them, Mr Trompenaars tells the Derdians. Its a bit like the British car industry. * Source: B. Hagerty, Learning to Turn the Other Shoulder, Wall Street Journal, 14 June, 1993, B1, B3. Reprinted
by permission of Wall Street Journal 1993, Dow Jones & Company, Inc. All Rights Reserved Worldwide.

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The experts are sent out of the room to learn to make paper towers and prepare to pass that skill on to Derdia. Meanwhile, Mr Trompenaars initiates the Swedes into strange customs of Derdia. Derdian greetings involve kissing one another on the shoulder. Holding out a hand to someone means Please go away. If they disagree, Derdians say Yes and nod their heads vigorously. Whats more, Derdian women have a taboo against using paper or scissors in the presence of men, while men would never use a pencil or a ruler in front of women. The Swedes, reserved a moment ago, throw themselves into the task of acting like Derdians. They merrily tap one another, kiss shoulders and bray Yessssss! Soon, two experts are allowed back into the room for a brief study of Derdian culture. The Derdians ock to the experts and gleefully kiss their shoulders. The experts turn red. They seem lost already. Would you please sit? asks Hans Olav Friberg, a young expert who, back in Sweden, works for a company that makes ooring. Yesssss! the Derdians say in a chorus. But they dont sit down. Who is in charge here?, Mr Friberg inquires. Yesssss!, the Derdians reply. Mr Friberg leaves the room to confer with his fellow experts. They didnt understand us he tells them. But fellow expert Kakan Kalmerno isnt about to be deterred by strange habits. He is taking charge. As he briskly practises making a paper tower, Mr Kalmerno says rmly to the other experts: The target is to have them produce a tower. The four experts carry paper and other supplies to the adjoining room, now known as Derdia. They begin to explain the process to the Derdians very slowly, as if speaking to small children. When one of the Derdians shows he understands the workings of scissors, Mr Kalmerno exclaims Good boy! Although Mr Kalmerno works hard at making himself clear, the Derdians customs and taboos obstruct progress. The men wont use rulers as long as women are around but dont explain this behaviour to the experts. The answer to every question seems to be yes. At the end of 30 minutes, no tower has been constructed. The game is over, now comes the self-criticism. They treated us like idiots, protests one of the Derdians. The lessons are clear, but Mr Trompenaars drives them home: If you dont gure out the basics of a foreign culture, you will not get much accomplished. And if your biases lead you to think of foreign ways as childish, the foreigners may respond by acting childish. Still, Mr Kalmerno, the take charge expert, thinks his team was on the right track. If wed had another hour, he says, I think we would have had 15 towers built. 1 What advice would you give to the tower experts to make them more effective at teaching the Derdians to construct towers made from paper? 2 How have many foreign businesses working in other countries dealt with the culture problems illustrated in this exercise?
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References
1 2 3 4 5 Smith, D. K. (1975) The Functions of Work. New York: Omega Publishing: 38393. Walker, C. and Guest, R. (1952) The Man on the Assembly-Line. Cambridge, MA: Harvard University Press. Herzberg, F., Mauser, B. and Snyderman, B. (1959) The Motivation to Work, 2nd edn. New York: Wiley. Ivancevich, J. and Matteson, T. (1987) Organizational Behavior and Management. Plano, TX: BPI. Dunnette, M., Campbell, J. and Hakel, M. (1973) Factors Contributing to Job Dissatisfaction in Six Occupational Groups, Organizational Behavior and Human Performance: 23551. Hackman, J. R. and Oldham, G. (1976) Motivation Through the Design of Work: A Test of a Theory, Organizational Behavior and Human Performance: 25079. Hamilton, C. (1987) Telecommuting, Personnel Journal (April): 91101. Ivancevich, J. and Glueck, W. (1983) Foundations of Personnel, 3rd edn. Plano, TX: BPI. Grifn, R. (1982) Task Design: An Integrative Approach. Glenview, IL: ScottForesman. Trist, E. and Bamforth, K. (1951) Some Social and Psychological Consequences of the Long-Wall Method of Coal Getting, Human Relations: 338. Hackman, J. (1977) Work Design in Hackman, J. R. and Suttle, J. L. (eds.), Improving Life at Work: Behavioral Science Approaches to Organization Change. Santa Monica, CA: Goodyear. Pfeffer, J. (1994) Competitive Advantage Through People. Cambridge, MA: Harvard Business School Press, 6976. How Does Service Drive the Service Company?, (1991) Harvard Business Review (NovemberDecember): 14658. Likert, R. (1961) New Patterns of Management. New York: McGraw-Hill, 6, 103.

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Contents
6.1 6.1.1 6.1.2 6.2 6.2.1 6.2.2 6.2.3 6.3 6.3.1 6.4 6.4.1 6.4.2 6.4.3 6.5 6.5.1 6.5.2 6.6 6.7 6.7.1 6.7.2 Describing Work Groups and their Characteristics Types of Groups in Organisations Why Individuals Are Attracted to and Join Groups Work Group Composition, Cohesiveness and Norms Cohesiveness: The Social Adhesive in Work Groups What Managers Need to Know about Work Group Norms Groupthink: When Work Groups Expect too much Conformity Signicant Aspects of Work Group Structure Guidelines for the Management of Work Group Size From Statics to Dynamics: Work Group Development and Decision-Making Understanding Stages of Work Group Development Work Group Risk-Taking and Creativity Brainstorming, Nominal and Delphi Decision-Making in Groups Practical Guidelines for Managing Groups Managing Intergroup Behaviour and Performance Laggards in Groups: Spotting and Correcting Social Loang Decision-Making in Teams: Deciding on the Extent of Participation Work Groups in Competition and Conict Two Organisational Views on Conict in Groups Managing Conict within and between Groups 6/2 6/3 6/5 6/6 6/7 6/9 6/11 6/12 6/15 6/15 6/16 6/18 6/18 6/21 6/23 6/25 6/26 6/28 6/29 6/29 6/31 6/34 6/38 6/40

Summary Points Review Questions Case Study 6.1: Assessing Work Group Creativity Case Study 6.2: Team Productivity at A. E. Leesons Ltd.

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Learning Objectives
By the end of this module you will be able to: Differentiate clearly the types of work groups existing in organisations. Describe the factors that encourage individuals to join organisations and work groups. Explain the organisational importance of work group cohesiveness. Describe the relationship between work group cohesiveness, work group performance, and the intervening impact of organisational goals and work group norms. Recognise the symptoms of groupthink and take corrective actions to minimise its effects on group decision-making. Explain each stage of group development, and the managerial problems unique to each one. Recognise the problems that curtail group creativity. Diagnose the role of participation in work group decision-making. Suggest practical guidelines for making work group decision-making more creative and efcient. Recognise the symptoms of social loafers and select the best corrective actions for them. Adopt a useful managerial strategy for handling intergroup relationships. Diagnose conict between groups and suggest approaches for handling conict.

6.1

Describing Work Groups and their Characteristics


Effective task groups are elusive phenomena in most managers minds. Most of us have work experiences which reinforce stereotypes of time ineffectiveness, petty bickering among members and uninspired ideas which leave members with a distaste for group-based work in their organisations. However, as we saw in Module 5, the work-force management practices of participation, empowerment and self-directed teams continue to spread throughout companies and their industries. The powerful drivers of deregulation, increased global competition, dramatic improvements in the technologies of communication and production and the search for cost reductions force organisations to search for improvements in competitive advantage that are rooted in work-force management practices. Increasingly, the strategic and nancial success of companies is tied to the ability of work teams to deliver more new products to the market with everrising quality in customer service. Organisations try to harness multiple systems and information streams to support improvements in these two areas. Most top managements correctly realise that the complexity of these information streams and the organisational systems to process them will be only as good as the companys self-directed work teams. For these reasons organisational group dynamics, group characteristics and group decision-making are critical issues for all managers. We begin our study of groups by considering what they are and in what forms we nd them in organisations.

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6.1.1

Types of Groups in Organisations


As organisational tasks become more complex and urgent, managers must nd new ways to develop communication and co-ordination within and between work groups. The managers complete range of organisational skills is challenged by the need to sustain fully functioning work groups. As implied above, product development lead times are shortening (as are product life-cycles), and markets are being segmented in ways which require instant response to new, low-cost competitors trying to penetrate those segments. These challenges are often met by work groups whose task is to keep the organisation exible and responsive to increasingly demanding customers.

What Is a Group within the Organisation?


A work group is dened as two or more employees who 1) interact with each other, 2) perceive themselves as sharing several common interests or goals and 3) come together or are brought together to accomplish a meaningful organisational activity.1 In most organisations, employees are assigned to formal work teams which must be productive in some organisationally meaningful way. When a formal assignment mechanism allocates employees to various work groups, the employees are said to belong to formal groups. These groups have the specic characteristics of 1) two or more members, 2) prescribed interaction patterns, 3) purpose(s) stated in meaningful organisational terms and 4) members who are aware of the formal groups existence and their involvement in it.2 Such work groups can be either task groups (which may or may not be self-directed teams) which work together on a series of related activities or command groups which exercise authority within the organisation. An example of a task group that is a self-directed team is the work team which assembles car emission systems at Volvos Kalmar plant. An example of a command group is the board of directors for any public corporation. Members of a board of directors may be grouped into sub-committees that have responsibilities to oversee particular company functions, while each board member is responsible for representing shareholder interests.

Are all Organisational Groups Formal Groups?


Informal groups are constantly being created in organisations. An informal group is a group of employees who come together voluntarily for a common purpose, which may or may not be work related. Informal groups satisfy their members needs for social contact and inclusion and needs which may not always be satised by membership in formal work groups. Managers do not always encourage informal group formation because they believe such groups may develop goals which are not consistent with organisational goals. For example, an informal group may agitate for safer working conditions. They may even threaten management with public exposure of unsafe working conditions. Thus, informal groups can function as whistle-blowers about organisational work systems which may be unsafe. In a different fashion, employees may restrict output among members of an informal group to frustrate management in setting higher production standards. In this way, obstreperous informal groups can create change in organisational practices.
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Organisations can also experience problems with informal employee groups, since management may be too quick to attack informal groups, rather than examine ineffective management practices such as scheduling and planning of work or controlling the rate of ow of materials through production units. When such conditions persist, management resistance to informal groups increases and informal groups with goals counter to organisational goals emerge in the organisation. Under these conditions employees may experience greater satisfaction with their informal group membership, but such problems also trigger greater polarisation of positions taken by labour and management. To the extent that organisational work systems allow for regular satisfaction of individual needs, informal group goals will often parallel and reinforce the goals of the organisation. For this to happen, employees who are members of informal groups must experience procedural and distributive justice in such company systems as performance appraisal, reward and job design systems.

Project Teams and Effective Organisations


Many very successful organisations use project teams to generate solutions for important organisational problems.3 Several rms have developed cultures of excellence based on project team work. The general characteristics of such systems are noted below. 1 2 The life span of the typical project team is kept short. Texas Instruments sets up teams with life spans of less than four months. Membership is always voluntary. Members always retain their functional department membership responsibilities so they must perceive the projects to be interesting and motivating. If they are dull and meaningless, no volunteers will come forth. The project team is pulled together quickly without a formal selection process. Employees with expertise and interest in the project are drawn in while the problem is fresh and important. Follow-up is swift in that immediate links with higher management are forged at the time the project team is organised. Upper managements task is to nd business applications for the project teams work. Support staff is not assigned to the project team. This prevents it from becoming ossied in bureaucratic procedures. In most cases, team members should develop expertise in gaining organisational support for expanding team activities. Communication and project documentation are informal in that the project teams focus is not allowed to shift from problem characteristics to the teams organisational procedures. Thus, project teams do not leave wide paper trails in their organisational wakes.

Not all organisations value project teams, but strong evidence continues to accumulate which attests to their successes in more quickly creating product and service breakthroughs. Smaller companies recognise that project teams are nothing more than a return to the way a business operates during its developmental stage. All new businesses start off as project teams because employees must be willing to attack at once any problem that arises that might threaten
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the existence of the rm during its start-up. Thus, entrepreneurs should try to operate their edgling businesses like project teams. Interestingly, as companies ourish, the lessons learned through project team successes are forgotten. Large successful rms, by using the project team concept, have learned to re-create some of the urgency of the small, entrepreneur-run business. 6.1.2

Why Individuals Are Attracted to and Join Groups


The central aspect of joining groups and organisations is the individuals belief that membership creates a pathway to the satisfaction of important needs. It then follows that the more individual needs group membership satises, the more important the group will be. Table 6.1 lists the main factors which make individuals want to join groups.
Table 6.1
Factors 1 Interpersonal attraction a. Proximity b. Physical attraction Clerks in a mailroom form an informal T.G.I.F. club (Thank God Its Friday). Young engineers join an expensive health club in the hope of meeting attractive people of the opposite sex. Students who believe the university should have more intramural sports form a protest group. Chief executive ofcers of banks are asked to sit on the boards of other banks. Female Indian engineers form a career interest group to discuss employment problems experienced by minorities. Employees with athletic ability organise a corporate sailing team. Employees organise a darts club to compete in a tournament. Employees organise a fund drive to raise cash for AIDS research.

Factors causing group formation


Workplace example

c. Attitude similarity d. Economic and social similarity e. Race and gender similarity

f. Perceived ability of others 2 3 Activities of the group Goals of the group

Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations. St. Paul, MN: West.

Interpersonal attraction is dened as a set of factors which lead to the conclusion that members share similar and highly desirable characteristics. For instance, employees who share work areas are likely to form friendships through sustained contact created by proximity. When an individual exemplies the physical characteristics of beauty or handsomeness in a given culture, individuals are attracted to and seek association with him or her.1 Similarity of attitudes, values and beliefs also attracts individuals to certain groups. An individuals efforts to gain employment with a given investment bank are often driven by the belief that his personal values will be endorsed by the work culture of the bank in question. Likewise, an engineer may pursue a job with a design rm because he thinks his high work standards will be
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matched by other engineers in the rm. Membership in fraternal and social organisations operates on this principle. Similarity of economic status, social status, race and gender give meaning to the expression Birds of a feather ock together. This adage demonstrates the powerful pull of exclusive clubs and social organisations. If a group projects exclusivity as an image, individuals with the appropriate characteristics in the areas noted above will be strongly attracted to reference groups. Individuals who want to gain membership in a given reference group begin to practise the accepted behaviours of the reference group well before their membership is solicited because they nd self-satisfaction in practising member behaviour. This is a common trait among members of reference groups based on economic, social, race or gender factors. Perceived ability of others encourages people to seek out others who have a record of problem-solving success in areas of current group activity.4 In many work situations, problem-solving ability often supersedes other forms of attraction because members believe group-based rewards are more obtainable in groups made up of people with proven problem-solving skills. Group activities and goals are two interrelated reasons for group attractiveness.1 Group activities and goals function to help attract members who nd the groups activities and goals to be intrinsically motivating. Participation in activities which lead to desirable goals, such as voluntary work at hospitals or working with youngsters learning to read, is often enough to sustain group membership and attract new members.

6.2

Work Group Composition, Cohesiveness and Norms


We often describe our membership in groups as being involving and interesting on the one hand, or alienating and barren on the other. These human reactions to membership experience are based on similarities and differences among members. This phenomenon is known as group composition, which is dened as the degree of similarity or difference among members of a group. The composition of a group may be homogeneous or heterogeneous with respect to member traits. Homogeneous groups have members with similar qualities in several areas (values, work experience, intelligence, gender and education). Heterogeneous groups have members who differ in given characteristics. Most managers conclude that groups do a better job when employees work with others who are like themselves. Studies, however, conclude the opposite and support the value of heterogeneity as the prime supporter of high-quality group decision-making.5 Heterogeneity seems to have two effects: 1) it creates more conict and 2) it increases a groups potential problem-solving capacity.1 When groups have members who vary on numerous qualities, they are less susceptible to their members biases and they can sustain effective group processes that ensure the thorough analysis of decision alternatives.

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6.2.1

Cohesiveness: The Social Adhesive in Work Groups


An important result of group composition is cohesiveness. It is usually dened as a multifaceted concept composed of: 1) attraction to the group, including resistance to leaving it, 2) high morale exhibited by members and 3) strong co-ordination of member effort.1 Table 6.2 compares the features of a highly cohesive group with the features of a group lacking cohesiveness.
Table 6.2 Features of cohesive and incohesive work groups
An incohesive work group tends to Perform poorly regardless of its or the organisations goals Have members who are indifferent to group effort and goals Have high lateness and absenteeism Have members who are indifferent to the successes and failures of the group Have members who are indifferent to group membership Seek transfer Remain unchanged in terms of member characteristics

A cohesive work group tends to Perform well if its goals conform to organisational goals Have energetic members who are motivated by the groups goals Have less absenteeism Have members who celebrate the groups success and lament its failures Have members who value highly group membership Resist transfer Become homogeneous over time

Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations St. Paul, MN: West.

Can Managers Inuence the Causes of Cohesiveness?


Managers can raise cohesiveness by controlling work group composition. The manager must match a groups task to the characteristics of employees who will make up the work group. The more seamless the match between member qualications and task demands, the more likely that members mutual interests in the task will create cohesiveness and maintain members motivation to perform well. The work groups size is also a factor in cohesiveness and performance. Generally, the larger a work group the greater its potential for interpersonal conict and disagreement which detract from task accomplishment. Time constraints, the importance of members acceptance of the groups decision and task co-ordination needs are factors favouring small rather than large task groups. If the task at hand must proceed from information-gathering through discussing alternatives to making a decision, and the above conditions apply, a smaller work group will be more successful and cohesive than a larger work group. Managers can also inuence the clarity of group goals and activities. Members generally nd their work groups to be more attractive if they perceive greater task clarity and if they are convinced that the work group knows where it is headed. By clarifying work activities and setting reasonable performance goals, managers can encourage attitude similarity and group-based condence concerning the likelihood of task success. Managers also must institutionalise the role of disturbance handler in heterogeneous groups which have capacities for high performance but also for interpersonal conict. The disturbance handler can facilitate agreement and move the
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work group beyond the negative effects created by personality-based conict. Similarly, the manager needs to establish ground rules for handling interpersonal conict in heterogeneous groups with potential for strong performance. Cohesiveness and performance can also be inuenced by managers who create the group perception of a common enemy. As long as the external threat is perceived by the group as being manageable and members believe the group has various strategies for meeting competition, then cohesiveness may rise and pull group performance along with it. If the threat of external pressure is too great, cohesion may break down and the attitude of every man for himself may prevail. Finally, managers can inuence cohesiveness and work group performance by carefully timing positive feedback about work group performance successes. The feedback should emphasise group-based rather than member-based work successes. Closely related to this idea is that managers must reserve some rewards which are given strictly for work group-based performance successes. This does not mean that individual rewards should be given less emphasis in group work. Instead, it means that managers must develop and use a two-tiered reward system to bring forth both high individual task performance and high work group performance. Managers must recognise that cohesiveness has important effects on work group members abilities to satisfy their personal needs. Generally, cohesive groups have a history of satisfying members needs in the important areas of inclusion, stress and personal anxiety reduction and self-esteem. While these outcomes are important to work group members, their presence does not ensure that the group will be high performing in organisationally meaningful ways.

Relationship between Cohesiveness and Performance


Three conditions inuence whether or not work groups will be high performers in areas valued by the organisation: 1) the level of work group cohesiveness, 2) the performance goals set by the group and 3) the degree of agreement between group performance goals and organisational performance goals.6 Figure 6.1 illustrates the relationship among these factors.

Extent of Agreement between Group and Organisational Goals Low High Group Performance Low Low Cohesiveness High 2. Low group performance 3. High group performance High

1. Low to moderate group performance

Figure 6.1

Cohesiveness, goals and work group performance

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When work groups are cohesive and their performance goals are clear, high and they match organisational performance goals, work group cohesiveness is strongly related to the performance of the group. On the other hand, work groups can be cohesive and have performance goals which do not align with those of the organisation. Here, the group will be cohesive and perform poorly against organisational standards. Consider the following example:
Employees in the customer order department took great pride in their departments ability to ship orders within 24 hours of receipt. The rm maintained its ordering process on a manual card system which was accessed by highly trained employees at a centralised location in the rm. The company was very proud of the units low error rates and high customer satisfaction. Due to increased work-loads and a company-wide effort to computerise operations, data-processing experts were asked to install an electronic, decentralised data-processing system which they hoped would speed up order processing, shipping and in turn help manage accounts receivables more aggressively. Managers and employees in the ordering department resisted the new system. They refused to aid in systems analysis and conversion. Further, they argued that anyone with the proper access code would be able to meddle in customer accounts. The level of resistance became so high that company management abandoned their plan to computerise customer ordering in spite of the fact that all competitors had successfully converted to electronic systems. Employees in the department were outraged that company management was trying to change the rules in the middle of the game. High departmental cohesiveness coupled with extreme variance between departmental goals and company goals for systems automation created a conict which the department eventually won. The company backed down to restore order and realign departmental and company performance goals. Had the rm not done this, cohesiveness in the department would have remained high, but its performance on organisational goals would have been quite low.

6.2.2

What Managers Need to Know about Work Group Norms


Work groups have norms for controlling members behaviour. Norms are the groups standards for members behaviour. Norms exist in any work group and exhibit several common properties. 1 Norms streamline and summarise the inuence process to make the work group more efcient at policing member behaviour. If a strong norm about performance exists, group members will quickly censure members behaviour that does not conform to the norm. Norms apply to member behaviour and not to their thoughts. This means a group member can privately disagree with the groups course of action and still be a member in good standing if he continues to support the group through his behaviour. Behaviour counts; thoughts do not. Norms develop for those behaviours which inuence levels of member effort and group goals. These two areas are at the core of any work groups existence and it follows that the work group will have explicit meaning for norms which symbolise effort levels and group goals.
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Norms develop over time and they are resistant to change. This property of norms ensures they will remain intact even as group membership changes. Indeed, they must remain intact so senior group members can teach new group members the ropes. The transmission of norms to succeeding generations of new group members often becomes ritualised and the process itself becomes the tradition or heritage of the work group. The continuation of these customs is comforting to older group members and intimidating to new probationary members who seek inclusion in the group. These ritualised practices may be norms to specic work groups, but in the wider organisational analysis they are important symbols of organisational culture. Some members have more right to deviate from work group norms than other members do. Usually, the higher the persons stature in a group, the more rights he has to deviate from norms especially if he professes to have the best interests of the group in mind.7

By now you have recognised that the work groups system of norms creates the basis for conformity, or the conscious adjustment of behaviour to the groups norms. In the simplest terms, members exhibit the compliance motive to gain rewards from the group and to escape punishment. Managers can control compliance and ensure the development of healthy norms in work groups.
Table 6.3
1 2 3 4 5 6 7 8 9 10 11 12

Managerial principles for controlling work group norms and member conformity

Create a desire to remain in the group. Cohesiveness is an important benet valued by members, so acknowledge employee expressions of esprit de corps. Show how high standards for group achievement meet individual needs and trigger rewards at the group level. Specify the importance of giving up individual gains in favour of group success. The manager must be a role model for this. Seize opportunities to show the small difference between members personal preferences and what the group asks of its members. Carefully dene how members contributions help the group achieve its goals. Give members a say in creating norms about effort levels and performance standards. Develop a simple and accepted system for recording and publicising work group success in core performance areas. Develop valued rewards to motivate members who meet or exceed team performance standards. Forge a link between team goals and personal accomplishments. If creativity is necessary to ensure team success, temporarily suspend norms to encourage member innovation. Make it clear that there are serious negative consequence for non-compliance with core performance norms. Do not expel members who deviate from norms if: 1) they have a history of helping the group, 2) they are high status members and 3) the group has a history of helping rather than isolating deviants. Do not allow work groups to become too isolated so that they ignore the companys need for co-ordination.

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Source: Adapted from A. Zander, 1982. Making Groups Effective. San Francisco: Jossey-Bass.

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As you study Table 6.3, ask yourself if you practise these management rules for developing productive work groups with sound norms. 6.2.3

Groupthink: When Work Groups Expect too much Conformity


If cohesiveness is extremely high, members of the work group voluntarily adapt their behaviours to the groups norms. If a work groups critical thinking process is suspended because of high cohesiveness and conformity, groupthink is present.

The Indicators of Groupthink which Managers Should Recognise


When groupthink is present, members are much more concerned with solidarity and fellowship than with the quality of decisions. Work groups experiencing groupthink usually exhibit some or all of the symptoms noted below. 1 2 3 The illusion of invulnerability. Members conclude that success can be achieved easily even in the face of unfavourable odds. Collective rationalisation. The group believes it cannot fail because members are oblivious to indicators which could spell trouble. Mindguards. Much like celebrities who have bodyguards, groups have self-appointed guards who sift through and eliminate unwanted negative external information. Thus the group insulates itself from disagreeable or uncomfortable external information. Belief in the inherent morality of the group. The group may conclude wrongly that its decision is moral and upright, and justied on morality alone. Negative stereotyping of the opposition. The group in question may characterise the opposition as dull, stupid, confused or cowardly. Direct pressure applied to dissenters. If a member disagrees with the groups course of action, considerable pressure is applied by mindguards to bring him back in line. Self-censorship. Here group members may doubt the soundness of the groups decision, but they opt for silence rather than rock the boat by expressing an unpopular idea. Illusion of unanimity. Each member mistakes the silence of other members as their agreement with the groups course of action.8

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Scholars have attributed many governmental ascos to the existence of groupthink in high-level policy-making groups.8 Modern examples of this phenomenon would include the American decisions to invade Cubas Bay of Pigs and to continue the Vietnam War during the Johnson administration. The disastrous decision to launch the Challenger space shuttle in 1986 would also qualify as an example of groupthink. More recently, the British governments decision to claim that mad cow disease could not cause a similar condition in humans was probably rooted in groupthink. You may recognise the symptoms of groupthink in groups to which you belong. While there are no certain methods for eliminating it, there are some
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safeguards which can be followed to minimise its impact. These safeguards reect the importance of the group leaders role and his inuence on groupthink. 1 The leader must assign the role of critical evaluator to members on a rotating basis. Additionally, he must allow his position in group decisions to be criticised. Inuential members should not pre-specify solutions or methods for reaching solutions. Thus, idea generation should be separated from idea evaluation. The leader might have subgroups arrive at their own decisions separately before polling the entire group on its decision. At intervals, outside experts might provide guidance to the group. When competitive organisations are the focus of group decision-making, sessions should be devoted to exploration of warning signals and possible forms of retaliation. A second chance meeting should be held after the group has selected its ofcial position or made its decision. The purpose of this meeting is to provide a forum for expressing doubts which may have occurred to members.9

3 4 5

The suggestions for addressing groupthink noted above attempt to reduce the impact of inuential work group members on the groups decision processes. Groupthink is often caused by leaders who are simultaneously autocratic and charismatic. Such leaders may have strong preferences for a particular outcome and you are sure to nd groupthink where they exist. Many signicant economic, political and military decisions have probably been made through decision processes riddled by groupthink. Nonetheless, they have been good decisions which have stood the test of time. In many ways, time urgency may have forced political and military leaders to put pressure on their task and command groups to render quick decisions. One can imagine the immense pressures for conformity in these pressing situations. When extraordinary circumstances confront extraordinary leaders, groupthink may be inevitable and necessary to avert a crisis.

6.3

Signicant Aspects of Work Group Structure


Being a member of at least several groups, you probably recognise that they seem to differ from one another. We have already noted that groups differ in terms of their reasons for existing (formal or informal groups) and their life spans (permanent versus project). Also, members vary as to their reasons for joining or being attracted to particular work groups. While these organisational and interpersonal characteristics of work groups are important, there is another category of work group characteristics which inuence the texture of work groups. It is referred to as group structure and is dened as the arrangement of roles or positions within the group. For our purposes, roles and positions are interchangeable. We shall take a look at some of the common properties of work group structure.

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Positional status refers to the rank of a position in a work group. It usually expresses the amount of responsibility for setting policies, settling disputes, representing the group in other organisational matters and formulating goals and work methods. Positional status is usually consistent with the placement of the position in the work groups hierarchy of authority. Positional status differs from personal status which is the rank, standing or prestige of the individual in the work group. Positional and personal status are often reected in formal status symbols allocated by the organisation. Table 6.4 shows some formal status symbols in organisations.
Table 6.4 Examples of personal and position status in rms
Director Chief Executive Ofcer Treasurer Senior Engineering Fellow Formal work relationships Managing partner Attache to the president Special assistant to the chief researcher Pay and perquisites Expense account Travel benets (rst class or corporate jet) Reserved dining room and parking priviledges Country club/health club memberships Control of work schedule Work space amenities Personal work schedule Day versus night work Large ofce with library and replace Windows overlooking a pleasant view Private secretary to screen visitors

Symbols of rank and position (titles)

Group size relates to a number of important individual and group-level outcomes. As a work group increases in size, the range of abilities, talents and aptitudes of members for task accomplishment increases. Larger groups provide more opportunities for individuals to meet interesting colleagues yet also provide more opportunities for anonymity and dispersion of personal responsibility for group decisions. More specic effects of work group size are noted below. Group size and participation. As group size increases, the opportunity for face-to-face contact and the duration of the contact both decrease. Thus, the time for member participation decreases as work group size increases. Increases in size are likely to inhibit many members who are reluctant to voice their opinions in large groups. Because of this, the implicit assumption of equal participation does not hold as work groups grow larger. Group size and internal conict. As work group size increases, members often exhibit 1) less agreement, 2) more dislike for each other, 3) less tension and 4) greater release of tension.10 While opportunities for friendship formation increase in larger work groups, the amount of time devoted to sustaining these friendships also increases. As organisations grow, they must nd ways to preserve the benets of small work group membership for employees. If they are
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not successful in this, turnover and absenteeism will grow because employees will be frustrated in satisfying their needs for belongingness and inclusion. Selfdirected teams are important innovations which preserve the benets of small work group membership. Group size and performance. The question of ideal work group size is not an idle one. How big should the design group be in engineering? How many chemists should work on the polymer project? If we consider the nature of process losses in work groups, along with group size and performance, we can make some informed judgements about ideal work group size. Figure 6.2 introduces the concepts you need to understand the relationship between work group size and performance.
Potential performance

Group performance

Actual performance

Process losses Mean actual performance per member 2 3 4 5 6 7 8 9 10 11

Number of members

Figure 6.2

Group size, performance and process losses

The gure shows that the groups potential performance increases with group size. Potential performance is dened as that level of performance which could be achieved under ideal conditions as a result of the combined skills, abilities and experiences of work group members. Naturally, as group size increases, it is more likely that a given member will possess the qualities necessary to solve problems confronting the group. Process losses are any obstacles to achieving potential performance for a group. Examples of process losses would include groupthink, interpersonal conict and membership turnover. Actual performance is the difference between potential performance and process losses experienced in a work group. Potential performance increases at a decreasing rate with respect to group size. Process losses do the opposite, and total actual performance increases at a decreasing rate relative to group size. While all of these effects are occurring relative to group size, mean actual performance per group member decreases with size increases. This is sensible since co-ordination becomes more complicated as does the work groups structure. Also, more of each members time (in large groups) may be siphoned off to solve or address process losses. You will encounter the principle of declining average member performance with increasing group size when we discuss the concept of social loang (see section 6.5.2).
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6.3.1

Guidelines for the Management of Work Group Size


Fortunately, research results and practical management experience agree on matters concerning work group size.11 These observations are offered: Middle-sized groups (5 to 11 members) tend to make more accurate decisions than groups outside that size range. Small groups (2 to 5 members) are better able to achieve consensus than large groups. Larger groups (11 or more members) generate more ideas, but as size increases beyond 20 members, the number of ideas relative to the number of members (mean actual performance per member in Figure 6.2) decreases. Groups of 4 to 5 members foster greater member satisfaction than middlesized or large groups. Very small groups (2 to 3 members) can make members very anxious about their high performance visibility.

6.4

From Statics to Dynamics: Work Group Development and Decision-Making


Work group behaviour is easier to understand if the stages of group development are isolated and analysed. Being able to recognise a work groups stage of development will allow you to adjust your managerial actions to encourage further development of the group or to hold it in a particular stage longer if necessary. Figure 6.3 shows a simple model of group development.12 Consider the general properties of this model.

Stage 1 Test and Orientation


(FORMING)

Stage 2 Conflict and Organisation


(STORMING)

Stage 3 Cohesion and Information exchange


(NORMING)

Stage 4 Interdependece and Problem-solving


(PERFORMING)

MAJOR ISSUES FOR EACH STAGE FORMING: Composition of the group Smoothing entry into the group for all members Creating purpose and a sense of urgency Development of rules for handling conflict Filling the leadership position (which may be empty) Preventing groupthink and other process losses Managing high cohesiveness Sustaining a task focus Expanding the task focus Maintaining norms as membership changes

STORMING: NORMING:

PERFORMING:

Figure 6.3

Stages of work group development

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6.4.1

Understanding Stages of Work Group Development


Work groups move through the stages at different speeds. Some groups reach stage 4 more quickly because members have considerable work group experience and they understand the organisations expectations for group performance. Second, the boundaries between the stages are not always clear and each stage will last until its major issues are resolved. Third, a work group can nd itself moving backwards. This is true for stage 4 groups with new members or with a task which has changed in some way. We shall examine each stage in turn.

Forming
Forming is the group phase-in, during which members move from a personal focus to a group focus. Members wrestle with 1) identifying the behaviours most important to the group, 2) assessing the skills, abilities and experiences of members, 3) discussing the goals and motives of members and 4) assessing the degree of commitment and involvement of members to the group. Members test each others assumptions about hard work and co-operation. This claries members expectations for specic positions (roles) in the group. In many cases (especially for project groups), this stage may have leadership turbulence. Several people may aspire to group leadership before a permanent leader is selected.

Storming
Interpersonal conict emerges in stage 2. Members may become more assertive in their opinions about the groups purposes, methods and norms because they are accumulating more knowledge about the work group. Member dissatisfaction with the current leader may surface and the leader may be replaced. These disagreements are stage 2 process losses and they are necessary to create a basis for trust and collaboration. If the work group is unable to develop member behaviours to support trust and collaboration, members will conclude that they can satisfy their personal needs more effectively on their own rather than through group membership. This may create turnover and absenteeism in the work group. These outcomes are consistent with a failure to emerge from stage 2. Such failures mean groups do not become productive and both the organisation and the employees are hurt. The organisation suffers because resources were wasted in constructing a group which did not become productive. Employees are hurt because they are less likely to see future work group membership as a pathway to the satisfaction of important personal needs.

Norming
As interpersonal conict subsides and the work groups normative structure emerges, it enters stage 3. In it, members are thoroughly aware of their involvement and commitment to the group. They believe the benets of membership outweigh its costs. The leadership position is established and stable, and the group has a hierarchy of roles (structure) with expectations attached to each. Harmony and agreement are characteristics of a stage 3 work group. The outcomes may be so pervasive that groupthink occurs. Since members value their positions and membership highly, an external threat may trigger strong feelings
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of solidarity. If the work group has good information transfer across its boundary, and it is thoroughly tied in to the organisations hierarchy and information ows, then groupthink probably will not occur since the groups leader is not following a course leading to high insularity.

Performing
If a work group succeeds in reaching stage 4, then actual performance is close to potential performance because the group is minimising its process losses. Stage 4 work groups exhibit collaboration which is the groups willingness to confront conict both in interpersonal and task-related issues. Process losses are minimised without diminishing the members experienced satisfaction with membership. Collaboration sustains members involvement, motivation to contribute, acceptance of authority and active participation. Group members feel empowered and the group has the ability to resolve conicts by collaborative means rather than by resorting to bargaining or negotiating. This in turn prevents the formation of coalitions and challenges to the structure of the group. Stage 4 groups are mature groups because members are condent about their personal abilities and willingly communicate their condence in performance to the work group. The mature work group quickly attacks evidence of process loss which might erode performance. Indeed, a key difference between a stage 3 and a stage 4 work group is the ability of the stage 4 group to detect the emergence of process losses in good time. In a stage 4 group, anyone can voice concern about process losses. Groups in other stages rely on inuential members (such as the leader) to raise such issues. Therefore, voicing concerns about process losses is less associated with status in stage 4 groups.

Can Stage 4 Work Groups Retain their Position Indenitely?


Just as individuals cannot always be simultaneously highly satised with their jobs and highly productive, work groups may slip from their stage 4 perches. Turnover, changes in group goals, new technologies, rising competitive pressures and changes in leadership all conspire to push work groups out of stage 4. All stage 4 groups must nd mechanisms to remain exible and adaptable. Part of a mature groups resources must be devoted to socialising and training new members, changing ineffective norms, creating new positions requiring new behaviours and scanning the external environment for changes which threaten to expel the work group from stage 4. Work groups may strive very hard to remain in stage 4. Having all stage 4 groups may not be in the best interest of organisational renewal. Any organisation attempting to freeze all work groups in stage 4 is denying the inevitable forces of external change which can cause competitive advantage to migrate to other rms in the industry. A much more reasonable managerial perspective is to view the organisations work groups as moving slowly through an evolutionary cycle of development where a key task is keeping work groups exible so that they can quickly adjust to changes in company strategy designed to create or improve competitive advantage.

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6.4.2

Work Group Risk-Taking and Creativity


Are individuals deciding alone or are groups more risk oriented about making decisions? The accumulated evidence suggests that groups are no more risk oriented than individuals making decisions alone.1 Researchers conclude that groups take risks or are cautious depending on how members value risk in particular decisions. For example, if a new product development team is deciding to scrap a traditional product design, the chances are good that the group will be very risk oriented. Product development personnel are supposed to support new and innovative product designs, so a penchant for risk in such groups would not be unusual. On the other hand, if a group of doctors make a decision to request more diagnostic tests for a very sick patient, they will often choose the medical intervention which is least invasive and most conservative. Physicians believe in the principle of rst do no harm; therefore, their group-based decision is likely to be conservative. Table 6.5 shows the forces which inuence risk-taking in work group decision-making.
Table 6.5
1

Factors inuencing risk-taking in group decisions


The work group is conservative if Members do not value risk and the organisation thinks the group should be conservative. The decision involves human resources or employees perceptions of the company. The leader is averse to risk. The group has a norm that values the status quo.

The work group is risk oriented if The work group is expected to be risk-oriented by the rest of the organisation and the group members value risk. The decision has little to do with organisational systems or personnel. The leader is risk oriented. The group has a history of tolerating deviance from group norms.

2 3 4

Closely related to the issue of work group risk-taking is work group creativity. Often groups are less creative than individuals working alone. Under some conditions groups seem to inhibit creativity. Table 6.6 shows the typical ways in which groups do this. The list in Table 6.6 is rather long. To you it may seem to imply that there is little hope for creativity in work groups. This is hardly the case. Managers have several tools to encourage creativity. 6.4.3

Brainstorming, Nominal and Delphi Decision-Making in Groups

Brainstorming
This technique has been in existence for many years and it continues to prove useful for the creative generation of alternatives in work groups.13 The fundamental principle of brainstorming is the separation of idea generation from idea evaluation. All groups tend to evaluate the rst suggestion made by a member. Brainstorming simply delays such discussions. This is called the principle of deferred judgement.14 By employing this principle, the group can generate many possible solutions, effects and outcomes without becoming bogged down in criticising suggestions. The steps for a typical brainstorming procedure are noted below.
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Table 6.6
1 2 3 4 5 6 7 8 9 10 11 12

Factors which contribute to low-group creativity

The group has no common goal or core focus. No standard method for making decisions is followed. The process of generating ideas is not separated from the evaluation of ideas. Ideas are not evaluated on their own merits. They are evaluated in terms of which group members suggested them. Ideas do not become the property of the group once they are suggested. Conclusions are an individual product instead of a group product. The group does not perceive members time as a valuable and scarce resource. Some members do not feel sufciently at ease to participate and submit their ideas (they fear derision or reprisal). Some members dominate or deect the group from its stated purposes. The group does not have access to higher managers who can review and approve work group output quickly. The group places pressure on its members to make their behaviour conform to a low standard for creativity. The group is critical of failures and blames members for failures which may have had a creative origin.

2 3 4 5

Assemble the work group and appoint a session leader (not necessarily the manager or supervisor, but perhaps someone with special knowledge of the problem). Explain the focus of the session. Dene the purpose and/or problem (ideas, strategies, solutions, alternatives, etc.). Set a time limit for the session. Select a recording method (ip chart, videotaping, blackboard, direct wordprocessing input to a computer). Review the rules of brainstorming, noted below. (a) Break down complex problems into problems specic enough to be brainstormed. Instead of How can we promote a new product?, use three separate problems: How can we promote a new product 1) to the retailer, 2) to the trade and 3) to the consumer? (b) Any suggestion or idea can be proposed by any member at any time. (c) Ideas must be generated as quickly as possible. (d) Use ideas already suggested to spawn new ones. (e) Criticisms or evaluations are not allowed during the brainstorming period. (f) Lengthy explanations or discussions are to be postponed. (g) The more suggestions the better. (h) The session runs for the allotted time or until no more ideas are forthcoming. (i) Idea evaluation is separate from and follows idea generation. The work unit becomes responsible for taking the recommended action on the best ideas and reporting results back to the brainstorming group. (j) Do not use brainstorming as a substitute for individual thinking. It is a supplement.
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Remember, brainstorming is a technique for generating ideas, not for evaluating them. It generates lots of ideas quickly. Further, it does not require accountability so creativity is more abundant and less inhibited. It is particularly applicable in advertising, new product development, production process changes and complex decisions about managerial information systems. There are also variations on the brainstorming methodology shown above. In stop-and-go brainstorming, short periods of brainstorming (10 minutes or so) are interspersed with short periods of evaluation. With large groups, the Phillips 66 technique can be used. Once the problem is clearly understood, small groups of six brainstorm for six minutes. Then a member of each group reports either the best ideas or all ideas to the larger group. Reverse brainstorming brings fresh approaches by turning the problem around, for instance: How could we lower productivity? How could we decrease morale? What can we do to stie creativity?

Nominal Group Technique (NGT)


This method structures the work groups creative process to minimise verbal interaction among members. The group, usually no larger than nine, follows a highly structured procedure which is briey described below. 1 The question under study is posted in front of the group whose members silently generate ideas in writing without looking at the work of others or discussing the question (5 to 10 minutes). The leader goes around the table and asks each participant to read one idea from his or her notes. This idea is recorded in some way (computer, ip-chart, video tape etc.) In a round-robin fashion, all participants present their ideas for recording until all are shown. Each idea recorded is discussed in the order it appeared. The leader reads each item and asks the participants if there are any questions or points needing clarication. Each member records the ideas on 35 cards and rank orders them secretly from 1 to n. The mean average rankings are used as a basis for the groups decision. The NGT process can end here or the decision may be rened through discussion and rewording. The voting patterns can be analysed and reasons can be examined to see if more accurate decisions can be made. A nal vote is taken in the same way as in step 4. This vote closes the decision loop so members experience closure to the NGT process.

5 6

The NGT has advantages over more common and less disciplined group problem-solving methods. First, idea generation is separated from idea evaluation. Second, balanced participation occurs and the effects of dominant individuals on group decision-making are lessened. Third, it ensures the systematic movement towards the aggregation of votes to determine a preferred outcome. Fourth, a group in any stage of development can use the NGT. It is time efcient and members nd the process to be satisfying. On the negative side, the NGT is highly formalised and its repeated use can lead to member perceptions of ritualistic decision-making. Thus, the creative
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benet of the NGT can be neutralised if the technique is used too often. To sustain the effectiveness of NGT, the team or group leader must develop a norm to encourage participation when it is appropriate. The leader who relies only on the NGT as a proxy for team participation will be disappointed in the quality of his teams decision making. Second, groups with stable membership nd the technique effective as well as new groups or project groups. Lastly, the groups formal leader must develop a norm which encourages a systematic approach to group creativity so as not to suppress participation.

Delphi Technique
This method can be used to make group decisions when members cannot attend a meeting. It is a method for gathering systematically written judgements from members using a set of sequentially modied questionnaires interspersed with summaries of results from previous rounds of information gathering from members. The technique was developed by the Rand Corporation as a way of forecasting future events of national and international importance.15 The technique takes considerable time and effort to complete. In using it, members of the group may not know the other group members and it requires a central coordinating mechanism to manage the alteration, transmission and summarising of questionnaire data. The Delphi technique follows these steps. 1 2 3 4 5 Each group member independently and anonymously records comments, suggestions and solutions to the problem facing the group. All the data generated in step 1 are sent to a centrally located individual who is responsible for data compilation and reproduction. Each member receives a copy of all written comments from other members. Members generate feedback on other members comments, and all secondround feedback is written down and sent to the centrally-located individual. Steps 3 and 4 are repeated as many times as necessary to reach consensus.16

Are Delphi Groups Effective?


Evidence indicates that Delphi groups can be more effective than groups which do not follow a disciplined problem-solving procedure. It has been found that average performance was higher for Delphi groups than for undisciplined groups both working on a comparable problem-solving task.17 Delphi groups eliminate the effects of dominant personalities on group decision-making. They also eliminate the effects of perceived member status on group decision-making. Computer-based e-mail systems and the World Wide Web create obvious advantages to the use of Delphi groups. Lastly, Delphi groups are quite different from nominal groups as Table 6.7 shows.

6.5

Practical Guidelines for Managing Groups


Managers must continually shift their emphasis between two tasks which inuence the effectiveness of group decision-making. Task activities are dened as those group activities which channel member efforts to achieve the purposes

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Table 6.7

How Delphi groups differ from nominal groups


Nominal groups are Composed of members who know each other Designed to meet face-to-face Designed to reach a decision more quickly More likely to have status and dominance effects

Delphi groups are Composed of members who are unaware of other group members Made up of members who never meet face-to-face Reliant on a central processing unit which collects, collates and feeds back information

of the group. When members dene work methods, plan schedules or assess service or product quality, the group is working on task activities. Maintenance activities are group functions which nurture and sustain the emotional qualities in a task group. When group members focus on member satisfaction, well-being and the groups cohesiveness, then maintenance activities are being performed. Table 6.8 lists typical situations which indicate the presence of task or maintenance activities in work group decision-making.
Table 6.8 Situations characteristic of task activities and maintenance activities
Maintenance activities are occurring when The group is creating a supporting cohesiveness The group encourages agreement and praises group members Members are discussing group norms and their effects on the groups ability to achieve consensus Members are going along with participantgenerated ideas to ensure member involvement and commitment Members are discussing ways to attract new members and ensure their inclusion in group work The leader advocates the groups position to higher managers All group members discuss levels of status to ensure member commitment to its goals

Task activities are occurring when The group is getting started and introducing ideas The group is diagnosing problems and suggesting problem effects The group requests objective information to ensure accuracy and attention to detail The group is providing timely information about the groups task to its members The group is spelling out relationships between the ow of work among group positions Members sum up group progress on ideas, activities, goals and solutions. Members co-ordinate their activities to ensure steady progress to the groups goals The leader reports the groups progress to higher managers

Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations. St. Paul, MN: West.

Stage 4 groups (see Figure 6.3) have members who willingly confront both task and maintenance activities. When a work group is in an early stage of development, the leader usually carries the burden for detecting and reacting to shifts between task and maintenance activities in the work group. Once the group reaches stage 4, responsibilities for task and maintenance activities can be delegated to members. The leader does not abdicate his responsibilities in these areas; rather, the leader recognises that staying in stage 4 is a function of full member participation in both activities. Emphasis on task and maintenance activities shifts through the stages of work group development. Figure 6.4 shows this effect.
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Emphasis on task and maintenance activities

Task activities Maintenance activities

Forming

Storming

Norming

Performing

Stages of development

Figure 6.4

Stages of development and the emphasis on task and maintenance activities in work groups

Effective management of work groups goes well beyond recognition of task activity and maintenance activity needs. Knowledge of the work groups stage of development coupled with a willingness to use brainstorming, NGT and the Delphi technique can move groups beyond process losses and into stage 4. The following guidelines also help minimise process losses. 1 Dene the work groups task or problem carefully. Before you proceed with idea generation, ensure that each member of the group understands the nature of the problem to be analysed. Do not jump to idea evaluation before idea generation has created numerous alternatives. This is a process loss which can be avoided by using brainstorming or the NGT to generate ideas, solutions, effects and outcomes. Avoid groupthink.Recognise that a norm about conformity can easily develop in cohesive groups which then suspend their capacity for critical decision-making. Further, teach all group members how to recognise the symptoms of groupthink. Manage the norms of the group by making valued rewards contingent on high-quality group performance. This principle will reward individual performance excellence which supports group norms about effort and performance. Make group-level rewards contingent on the groups contribution to work unit successes. When rewards are tied to success for collaborative behaviours, the normative structure of the group remains consistent with organisational goals and performance standards.

6.5.1

Managing Intergroup Behaviour and Performance


Intergroup behaviour occurs when two or more groups in an organisation have interaction requirements set by the organisation or its management. The effectiveness and performance of organisational groups depend on the extent to which they meet the specied interaction requirements. Steers and Black argue

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that there are three prevailing group interaction requirements: 1) interdependence, 2) information ow and 3) integration.18 Interdependence requirements refer to the frequency and quality of interactions among groups. Due to task complexity and uncertainty, interactions among groups must be highly co-ordinated and surrounded by safety procedures to prevent errors and communications lapses. Extremely high interdependence requirements were evident in an American military mission to extract an American F-16 pilot shot down over Bosnia. The mission required over 40 military aircraft from the United States Navy, Marines and Air Force. Two aircraft carriers were involved and the mission was monitored by government ofcials in Washington, DC. Information ow requirements refer to the amount, quality and timing of information necessary to produce joint decisions by interacting groups. If the task(s) facing the groups is unclear and complex (high task uncertainty) then information requirements (amount, quality and timing) rise rapidly. As the number of interacting groups rises along with task uncertainty managers nd rapidly escalating information ow requirements. Integration requirements refer to the extent of collaboration, co-operation and structural unication among groups working towards common goals.19 If integration requirements are low among organisational groups then they can become highly differentiated and they develop their own unique methods and forms of communication. Thus, specialists in one department may chide members of other departments for speaking a foreign language because it becomes a barrier to good organisational communications. Again, integration requirements among co-operating groups generally rise along with increasing task uncertainty. The three elements described above raise interaction requirements among cooperating groups as task uncertainty and the number of interacting groups both increase. When companies shift from hierarchical control and decision-making to the use of self-directed teams, the three elements described above are major obstacles to creating an effective delayered, team-driven company. The rising complexity of intergroup relations challenges managements to nd dependable ways to control interactions among groups. Steers and Black suggest several pathways to effective intergroup relations which are based on the level of task complexity and task uncertainty.20 Rules and procedures. Common under conditions of low task uncertainty and low interaction requirements is the elaboration of rules, regulations and procedures to ensure that co-operating groups are informed of tasks requiring joint action. An example of this would be the requirement that the shipping department notify personnel in accounts receivable within one hour after shipping that products are in transit. Member exchange. To better understand the requirements and activities in one group, another organisational group may temporarily assign a member to the group in question. Once the member is back in his original position, he can help the two interacting groups co-ordinate more effectively their joint work. Frequently job rotation programmes achieve this outcome while also ensuring higher levels of cross-training among members of the companys work-force. Linking roles. By formally creating a position designed to oversee and coordinate the work of two or more groups the organisation can signicantly
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improve their intergroup performance. A brand manager who oversees and coordinates the work of marketing, production and sales to keep a strong market focus on a particular product or brand is a good example of a linking role. Task-forces. A task-force is a group-based, temporary version of a linking role. When an organisation faces a temporary problem such as building a new production facility or launching a new manufacturing platform, a taskforce is usually a highly useful mechanism to improve intergroup performance with respect to the task at hand. A task-force is made up of individuals with complementary skills from various units which will be strongly affected by the solution to the problem at hand. The act of creating a task-force and choosing its members sends a strong signal throughout the organisation about the importance of change and the status of organisational units before and after the change. Decoupling. Because of a need for 1) fast decision-making or 2) organisational security or because of severe intergroup conict, it may be necessary to separate groups physically or administratively. This action may achieve desired performance outcomes while greatly reducing interaction among two or more groups. Setting up special product development teams in their own work areas and requiring them to report only to a given high-level manager is a good example of decoupling. Decoupling may be designed to be temporary so that product designs are framed to a certain point before they are integrated with other product requirements. Thus, decoupling is used to prevent conict among product development teams in early product development stages. At later stages, the conict is far less destructive because the development teams are required to focus on integrating product features rather than competing for scarce product development resources. In very complex organisations with multiple product divisions and far-ung international operations, all ve methods to manage intergroup behaviour and performance are used. Developing the skills of managers to use these methods is absolutely essential in organisations with multiple, complex product lines. To the extent that product life and product development cycles shorten, organisations must apply more resources to the problems of ensuring improved intergroup behaviour and performance if they hope to sustain competitive advantage. 6.5.2

Laggards in Groups: Spotting and Correcting Social Loang


All managers have led teams or been members of teams having members who do not perform their fair share of the groups work. Some group members are practitioners of the ne art of social loang because they cause average member effort and performance to decline as group size increases (see the argument developed to accompany Figure 6.2).21 As an effect on group performance, social loang was documented in a study performed by Ringelmann who found that in a rope-pulling exercise, three people pulling together could achieve only two and a half times the average individual rate. Eight pullers achieved less than four times the individual rate, and so on. Several theoretical explanations have been offered for social loang: 1) equity of effort (Everyone else is goong off, why shouldnt I?); 2) loss of personal responsibility (Its a large group, so no one will miss me); 3) reduced effort

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caused by reward sharing (Everyone is paid the same, so why should I put in extra hours?); 4) co-ordination complexity in larger groups (There are so many of us that were getting under each others feet). In most organisations that extensively use groups we will nd managers who try to reduce the social loang tendency. The recommendations to lower social loang borrow heavily from the concepts of job involvement, work group norms and the signicance of group goals. Here are some practical suggestions that you can follow to reduce social loang in groups that you manage: 1 2 3 4 5 Focus on the interesting and important aspects of the task to increase the level of job involvement of group members. Assure group members that their individual contributions are identiable and signicant. Tell group members that they should not tolerate inadequate effort or performance from group members. Tell them that they should expect to have their performance evaluated. Ensure that some portion of rewards received by group members is dependent on their performance.

6.6

Decision-Making in Teams: Deciding on the Extent of Participation


Managers have long been perplexed by the problem of not knowing when to have employees participate in the decision-making process. Researchers at Yale University have tried to address this problem by developing a decision model which helps managers to choose the best level of employee participation in decision-making given a variety of situational determinants.22 , 23 The model they developed describes ve forms of decision-making which vary from being autocratic and boss centred to being collaborative and group centred. The ve forms of decision-making are: The AI form. A manager makes a decision alone, using the information currently available. This is the most authoritarian, boss-centred style of decisionmaking. The AII form. A manager seeks information from subordinates or group members and then makes a decision. Employees may or may not be aware of the problem before the manager takes a decision. The CI form. A manager explains the problem to his subordinates in a oneto-one format. The manager takes a decision which may or may not reect the ideas of his subordinates. The CII form. A manager explains the problem at hand to his subordinates in a group format. The manager takes a decision which may or may not reect the ideas of his subordinates. The GII form. A manager explains the problem to his subordinates in a group format. With the manager, the group makes a nal decision. The central principle to the model is that the decision-maker should select the method that best ts the problem being solved. The key to using the normative

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model is for the manager to match the correct decision-making style with the characteristics of the decision situation. Using the decision tree in Figure 6.5, it is possible for a manager to select the correct decision style by answering a series of structured questions about the decision situation. The critical attributes of the questions are: available time to make the decision, the importance of quality in the decision, the importance of subordinate commitment to the decision and the extent of information available to make the decision. The manager works through the decision tree to the best decision style at the end of the bracket.
Problem Attributes QR CR LI ST CP GC CO SI Quality Requirement Commitment Requirement Leader's Information Problem Structure Commitment Probability Goal Congruence Subordinate Conflict Subordinate Information

Manager's Questions How important is the technical quality of this decision ? How important is subordinate commitment to the decision? Do you have sufficient information to make a high-quality decision? Is the problem well structured? If you were to make the decision by yourself, is it reasonably certain that your subordinate(s) would be committed to the decision? Do subordinates share the organizational goals to be attained in solving this problem? Is conflict among subordinates over preferred solutions likely? Do subordinates have sufficient information to make a high-quality decision? CP
NO

YES GC YES
NO

AI SI YES NO GII CII GII CII AII


NO

YES
NO YES CO YES NO

S YE

CP

NO
GC

NO
LI NO ST

NO

SI YES

NO YES

YE

HI

NO

GC GC

CR

CP

YES

NO
YES

LO W
NO

HI GH

YES
ST

LI

CO

YES

CI CII AI

State the Problem

QR

YES
LO W
CR LOW

NO

HIGH

CP

YES
NO

GII

Figure 6.5

The VroomYettonJago normative decision model

Source: Reprinted from Victor H. Vroom and Arthur G. Jago, 1988. The New Leadership: Managing Participation in Organizations, Englewood Cliffs, NJ: Prentice Hall. Copyright 1988 by V. H. Vroom and A. G. Jago. Used with permission of the authors.

Researchers use the decision tree in Figure 6.5 to help managers analyse the situational qualities of a decision so that they choose the most appropriate level of participation among their subordinates. For instance, note that the heavy line in the gure indicates that a particular problem is best handled
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with a G group decision method. The models developers have found in their research that managers who were trained to diagnose the key attributes of the decision situation were better able to select the appropriate level of participation than managers who had not received the training. Research in the retail setting has shown that managers who have received training in the use of the normative decision model had higher-performing groups than managers who did not receive the training.24 Additional research indicates that managers who have strong conict-management skills have more effective groups when they use more participative methods than those managers with weaker conictmanagement skills.25 The normative decision model emphasises the importance of choosing the level of participation which is most appropriate for the decision to be made. Practically speaking, the model encourages the manager to evaluate the decisions features and context before he selects the appropriate level of subordinate participation. In practical terms, given all of the decisions with the potential for participation taken by managers every day, it is impossible for the manager to apply the normative model in each instance. Nevertheless, there is a clear discipline and value in applying those qualities and questions which shape the level of employee participation in decision-making. Making explicit those decisionshaping qualities and questions is perhaps the most valuable contribution made by the model.

6.7

Work Groups in Competition and Conict


No discussion of work group behaviour would be complete without considering the signicance of conict and how to manage it in work groups. Consider the following episode:
James was the senior design engineer in Leitnerlox Inc., one of six divisions of the Leitner Company founded by J. M. Leitner. He was a vocal advocate of the design capabilities of his 15 engineers who create new belting systems for moving lightweight products through customers manufacturing systems. Recently, J. M. (who developed the rst interlocking plastic belting systems for industrial applications) became concerned with the specications for a new belting system which James group had produced. J. M. felt the specications were incorrect and the engineers had used poor judgement in the selection of plastic for extruding the interlocking plastic components for the new system. James immediately came to the defence of his engineers and openly criticised J. M. He went to Roger Keyte, the Leitnerlox division general manager with his explanation and demanded that he support the Leitnerlox design group. Roger agreed and took the case to Jay, J. M.s son and chief operating ofcer of Leitner. Roger indicated that he had the best damned engineers in the business and [he] didnt appreciate J. M.s meddling in the design units affairs. Jay responded with: J. M. built the entire business with his inventive genius and he can still design circles around any of your engineers, including James. Roger listened to this and responded abruptly with: If you dont think my engineers are competent then you must think Im not competent. If you want my resignation, youve got it. Jay thought for a moment and responded: I didnt ask for your resignation, but I want James terminated.

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6.7.1

Two Organisational Views on Conict in Groups


The dilemma above illustrates how conict can escalate quickly to produce outcomes unforeseen by members of the organisation. Essentially, organisations fall into two categories when it comes to managing conict in and between work groups: 1) conict is always dysfunctional and unhealthy for the organisation and 2) conict is a by-product of organisational life and it is unavoidable but manageable. It is clear that the conict noted in the example classies the Leitner Company in the rst category, especially when the conict involves family executives and non-family executives and professionals. The rst conict view is called the traditional view and it encourages the suppression of conict. In other words, group and organisational norms emerge which keep conict under strict control. This outcome may be obtained by dening areas of responsibility tightly to prevent jurisdictional disputes. When disputes do occur, they are handled quickly by the formal hierarchy. In other words, the dispute rises to a level in the hierarchy where a manager has sufcient legitimate authority to insist on a solution. Solutions under the traditional view often become very similar because those engaged in the dispute often nd themselves dismissed or transferred to some other part of the organisation. The contemporary view takes the position that conict in and between groups can be a useful deviation from the status quo. The idea is that if deviation can be managed, then positive by-products can emerge. It also holds that the suppression or avoidance of conict is impossible and far too costly to merit serious managerial consideration. Indeed, managers working in organisations with this view on conict often become suspicious if too much harmony is evident! They reason that such organisational tranquillity indicates complacency and perhaps there is insufcient examination of company goals, activities and policies. When companies adopt the traditional view, conict is usually experienced as destructive and it produces negative results for the company and its employees. The contemporary view recognises that conict can be destructive and constructive, sometimes in terms of the same issue. This view encourages the development of company systems to manage and channel conict to valuable organisational ends. As a general rule, conict can have benecial results when the organisation practises employee empowerment and nds ways to involve employees in core issues such as product and service quality, productivity, employee management systems and grievance-handling procedures and job security.

6.7.2

Managing Conict within and between Groups


Conict-management in organisations focuses on lowering the existing level of conict. The methods for managing conict noted below are presented with the idea that conict is currently at undesirable high levels. The methods to be covered are: avoiding, accommodating, forcing, compromising and collaborating.

Avoiding
Any approach which avoids a major conict confrontation is called avoidance.
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Avoidance means the conict is prevented from coming into the open. Avoiding conict can occur by ignoring the conict and refusing to deal with any information or behaviour associated with the conict within or between groups.

When Should Avoiding Be Adopted as a Strategy?


Senior managers generally agree that avoiding conict is usually a short-run, damage-control strategy. The most common reasons given by senior managers for selecting conict avoidance are: 1) when the issue is trivial and more important issues are pressing, 2) when the decision-maker believes there is no chance of satisfying his concerns, 3) when the costs of disruption outweigh the benets of resolution, 4) when it is necessary for people to calm down and gain perspective and 5) when gathering information is more important than immediate action.26

Accommodating
This refers to letting others have their way. This is the strategy of appeasement or self-sacrice. Accommodation may be reasonable if you fear losing a friend or if you know that argument would trigger a structural solution to a conict. This means either you or the other party could be transferred. A manager may also select this strategy when he realises that winning this battle may mean losing the war.

When Should Accommodation Be Adopted as a Strategy?


Research indicates that senior managers select this approach when: 1) a manager decides he is wrong and shows his reasonableness by letting others be heard, 2) an issue is more important to others than it is to the decision-maker, 3) the decision-maker is losing or outmatched, and minimising losses is necessary, 4) the goals of harmony and stability are necessary due to the potential public damage created by conict and 5) employee development can be achieved by letting subordinates learn from their mistakes.26

Forcing
This refers to using power, coercion or pressure to impose a solution through intimidation. Environmental disasters such as oil spills, nuclear reactor dangers and chemical res may require instant decisions which leave no room for discussion or disagreement. When security services deal with terrorism and organised threats to public safety, crisis intervention units follow procedures which leave little room for alternative strategies.

When Do Executives Select the Forcing Alternative?


Not surprisingly, executives cite the following situational characteristics as determinants of the forcing strategy: 1) emergency conditions exist and decisive action is vital, 2) the issue is extremely important and unpopular actions must be implemented, e.g., downsizing, restructuring, discipline, 3) when company welfare is at stake and the decision-maker knows he is right and 4) an organised opposition would take advantage of non-competitive behaviour.26
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Compromising
This refers to negotiating to reach a mutually acceptable solution. This is the standard approach for solving labourmanagement disputes. Compromising tends to occur when the parties in conict have about equal power, and a xed amount of resources must be divided in some way. The process of compromising is frequently punctuated by the efforts of both parties to distort information, make strong emotional appeals and attempt to argue for their positions in the court of public opinion if the conict is a highly visible one.

Why Would Executives Select a Compromising Strategy?


Executives cite several reasons for using the compromise strategy: 1) the decisionmaker believes his goals are important, but insisting on achieving them is not worth the potential disruption created by more assertive modes, 2) the opponent has equal power and is committed to mutually exclusive goals, 3) a temporary solution is sought for a complex issue, 4) excessive time pressure dictates expedient solutions and 5) as a back-up when collaboration is unsuccessful.26

Collaboration
This is the problem-solving approach where the needs of both parties are integrated to solve a problem permanently through mutual commitment to the solution. Problem-solving by the parties involved in the conict usually follows these steps in reaching a collaborative solution. 1 2 3 4 5 Dene the problem and share the facts (rather than make emotional appeals and distort facts). State the problem in specic terms before searching for solutions. Once facts are collected, focus on them instead of focusing on the disagreement. Conduct non-judgemental discussion of the facts and the problem. Collaborate on alternatives which lead to the best mutual solution rather than those alternatives which lead to solutions favouring one partys interests. Develop criteria for measuring the quality and acceptability of the proposed solutions, agree on them, and present the solutions for criteria review before one is selected. Dene all agreements as tentative until all facets of the conict have been addressed. Thus, there is no implementation of any agreement until both parties are convinced they can support the solution.26

Summary Points
A group is a collection of two or more employees who interact, perceive common interests or goals and are brought together to accomplish a meaningful organisational activity.
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Organisations have formal task or command groups and informal friendship groups. Generally speaking, informal groups emerge because formal groups cannot satisfy all their members needs. Project teams have specic purposes to be accomplished in short time periods. Once goals are accomplished, project teams are disbanded. People join groups and organisations because of interpersonal attraction created by proximity, physical attractiveness, attitude similarity, demographic similarity, group activities and group goals. Work group composition refers to the degree of similarity or difference between members personal qualities. When members share a number of characteristics, the work group is said to be homogeneous. When members have little in common, the group is heterogeneous. Cohesiveness is a property of groups which means that members value the benets of membership highly. Cohesiveness will be positively related to performance if the work groups performance norms agree with the performance norm of the organisation. Managers can inuence cohesiveness by controlling composition, size, clarity of goals and activities and disturbances, creating a common enemy and using positive feedback about performance. Work group norms streamline the process for controlling member behaviour. Without norms, a group would have to deal with each example of behaviour as a discrete event. When work groups are cohesive and they have well-developed norms, conformity can be high. Conformity occurs when members consciously adjust their behaviour to the work groups norms. If conformity and cohesiveness are extremely high, a work group may exhibit groupthink. This is the suspension of critical thinking in the group. Groupthink symptoms are detectable and correctable. Groupthink need not always result in bad decisions. Often a work group will exhibit groupthink but possess enough information to reach a correct decision. Positional status refers to the rank of a position in a work groups hierarchy. This form of status attaches to the position and not its incumbent. Personal status is the rank or standing of the individual in the work group. Both positional status and personal status are reected by status symbols bestowed by the organisation. Work group size has predictable effects on member participation, satisfaction with membership, process losses and average performance per member. Work group development proceeds through four stages: 1) forming, 2) storming, 3) norming and 4) performing. Each stage has identiable issues which must be resolved before the group can progress to the next stage. Work groups cannot stay in stage 4 indenitely. Turnover of membership and changes in the groups task eventually dislodge the group from this stage. Managers must recognise and manage these forces to ensure organisational renewal and transmission of organisational culture from one generation of employees to the next. Groups make risky decisions based on how members value risk and the organisations expectations that given groups should be risk tolerant or risk averse.
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Work group creativity can be low if the manager fails to follow a creative decision process, does not separate idea generation from idea evaluation in group decision-making and does not teach the group how to take ownership for creative ideas. Brainstorming in work groups defers judgement about the quality of suggestions and focuses exclusively on generating as many suggestions as possible in a set time period. The nominal group technique (NGT) formalises face-to-face interactions in work groups to minimise the effects of status and to manage member participation in decision-making. While the procedure is ritualistic, it can result in better group decisions. The Delphi technique can be used for large-scale policy decisions where anonymity of group members is a prerequisite for effective decision-making. While it is costly and time-consuming, the Delphi technique does produce decisions which are superior to those produced by conventional face-to-face decision-making groups. The effective group leader must judge when task activities or maintenance activities are of greater concern to the group. The skills which facilitate group relations in these two areas can be learned. Process losses can be minimised by: 1) careful denition of the groups task, 2) separation of idea generation from idea evaluation, 3) avoidance of groupthink, 4) making group rewards contingent on group performance and 5) making group rewards contingent on group contributions to work unit successes. Managing intergroup behaviour and performance requires the manager to assess groups need for interdependence, information ow and integration. Depending on needs in these three areas, managers can choose among the following to improve intergroup behaviour and performance: 1) rules and procedures, 2) member exchange, 3) linking roles, 4) task-forces and 5) decoupling. Social loang is the decline in average member performance in groups of increasing size. Social loang can be reduced if a manager focuses on maintaining high job involvement, preserving group performance norms and reinforcing the importance of the groups performance goals. The extent of group participation in decision-making can be determined by diagnosing the group decision-making situation. The key considerations in the diagnosis are: 1) the time pressure to make the decision; 2) the importance of decision quality; 3) the importance of subordinates commitment to the decision; and 4) the extent to which information is available to make the decision. The actual amount of group participation in decisionmaking varies from none (boss-centred decision-making) to considerable (full group-centred decision-making). When group conict is viewed as a natural process which can be managed in the organisation, the contemporary view exists. If conict is viewed as always being destructive and injurious to harmony this is the traditional view.
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Various methods for managing conict exist. The manager can select from these strategies: 1) avoiding, 2) accommodating, 3) forcing, 4) compromising and 5) collaborating. The selection of the method rests on the decisionmakers analysis of the situation and his personal preferences for given strategies.

Review Questions
True/False Questions
6.1 A group of design engineers formed to complete the reliability testing for a new industrial process is an example of a command group. T or F? 6.2 Informal groups emerge in the organisation when formal groups do not satisfy all the needs of their members. T or F? 6.3 Project team management relies heavily on a well-structured system to support the productivity of the teams. T or F? 6.4 In general, interpersonal attraction leads to heterogeneity in informal work groups. T or F? 6.5 When members of a banks board of directors are asked by executive ofcers of other banks to join the board, interpersonal attractions based on social, economic, gender, race and perceived ability similarity are probably functioning. T or F? 6.6 Over time, stage 4 mature groups are likely to become more heterogeneous. T or F? 6.7 Heterogeneity in work groups generally increases group problem-solving potential, member satisfaction and conict. T or F? 6.8 Cohesiveness in a work group emerges more quickly if the group is homogeneous. T or F? 6.9 If a manager controls 1) work group size, 2) clarity of the groups goals and activities and 3) timing of positive feedback, then cohesiveness will rise. T or F? 6.10 The degree of agreement between the work groups goals and the organisations timing of group-based rewards determines the relationship between work group cohesiveness and performance. T or F? 6.11 Norms in a work group develop most quickly in the areas of members efforts and the groups work activities and goals. T or F? 6.12 Groupthink may be occurring in a work group when it prevents outside experts from introducing information into decision-making and the leader suppresses dissenters. T or F?

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6.13 Project groups which are quickly formed and heterogeneous are less likely to exhibit groupthink than a permanent work group in stage 3 of development. T or F? 6.14 Work groups experiencing groupthink always make poor decisions. T or F? 6.15 Having the respect of your subordinates for your expertise in problem-solving is an example of positional status. T or F? 6.16 When a work group adds two new members, it is generally true that average member participation will decline while average performance per member will rise. T or F? 6.17 Process losses are minimised in a heterogeneous work group which matches members skills to the groups task or goals. T or F? 6.18 Work group composition and maintenance of norms characterise the management problems of a stage 2 group. T or F? 6.19 In general, mature work groups quickly detect the presence of process losses and require the leader to take prompt action to eliminate them. T or F? 6.20 If members of a command group value risk, the group has high positional status and the organisation is conservative, then the group will make risky decisions indenitely. T or F? 6.21 Brainstorming is a successful method for achieving work group creativity because it overrides the groups natural tendency to defer judgement on creative members suggestions. T or F? 6.22 Delphi groups are: 1) composed of members who do not know each other, 2) less likely to exhibit status and dominance effects than nominal groups and 3) not reliant on a centralised data processing function. T or F? 6.23 A stage 4 group discussing ways to attract new members would be engaged in a task activity. T or F? 6.24 The traditional view of conict holds that organisational harmony may sometimes stand in the way of creative work group problem-solving. T or F? 6.25 Forcing would be a good conict-management strategy in a command group if there were sufcient time to make the decision and members had unequal power. T or F?

Multiple Choice Questions


6.26 Participative decision-making tends to be associated with: A B C D E higher levels of group member satisfaction. lower individual member productivity. less creativity among team members. more rapid decision-making. increased rivalry among team members.

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6.27 A way to minimise the effects of groupthink is to: A B C D E encourage members to rationalise the groups decision. increase peer pressure to manipulate dissenting group members. re-examine the preferred solution even if consensus has been reached. criticise the competition or opposition. have the leader convince group members that mistakes are impossible to make.

6.28 Being a project team leader, you recognise the value of achieving some initial success at dening the nature of task problems confronting your team. Therefore, early in the process of achieving team goals you might: A B C D E encourage high cohesiveness to build strong group integrity. use devils advocacy to prevent initial groupthink. minimise member diversity by selecting team members with much in common. use brainstorming to develop a long list of unevaluated problem approaches. use the Delphi technique.

6.29 Social loang is often: A B C D E a deterrent to effective group relations among members and to group performance. a direct result of excessive cohesiveness in a group. a result of groupthink. a stimulant to increased group performance. a deterrent to potential group performance but not a deterrent to average individual member performance.

6.30 A group quality which can sometimes lead to either high or low group effectiveness is: A B C D E high levels of interpersonal attraction. cohesiveness. participation in group decisions by members. risk avoidance by group members. members with uniformly high personal status.

6.31 The third stage of group formation involves: A B C D E members trying to understand those behaviours which are most important to the group. collaboration and minimisation of process losses. the development of trust and support among group members. members assessment of the degree of commitment and support required for group membership. the stabilisation of group leadership and the determination of group hierarchy.

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6.32 By the A B C D E forming performing norming storming maturity

stage of development group cohesiveness tends to be strong.

6.33 Group cohesiveness is negatively affected by: A B C D E large group size, more than 15 members. interpersonal attraction. moderate external pressure in the form of competition among groups. group members with high personal and positional prestige. groupthink.

6.34 Which of the following is not a maintenance activity in a group? A B C D E Smoothing conicts. Following the ideas of other group members. Setting goals and assigning tasks to members. Helping other members express their feelings about group membership. Arranging for new members to be introduced to senior team members.

6.35 Generally speaking, effective, empowered problem-solving teams would take the view of conict. A B C D E traditional short-term liberal contemporary internal

Short Essay Questions


6.1 Describe the organisational conditions which would make the use of project teams desirable. When using project teams, which management requirements must be specied? 6.2 Describe four factors which managers can manipulate to inuence group cohesiveness. 6.3 Does work group cohesiveness mean that the group will be productive relative to organisational standards? Please explain your answer. 6.4 Describe groupthink. What are the characteristics of a work group that is experiencing groupthink? 6.5 How do the problems facing a work group change as it moves through the four stages of development?

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6.6 Assuming a work group has members who value creativity and the group is in an organisation which expects it to be creative, which factors (process losses) can prevent the group from actually being creative? 6.7 Why is the deferral of judgement about creative suggestions in a work group an important prerequisite for sustained creativity? 6.8 If a manager does not wish to use the brainstorming, NGT or Delphi methods, what should he do to keep his work group creative? 6.9 What diagnostic questions should be considered as a manager considers the proper level of team involvement in organisational decision-making? 6.10 As organisations move from centralised decision-making to decentralised decision-making centred in self-directed teams, what will have to be done in terms of team integration and interdependence?

Case Study 6.1: Assessing Work Group Creativity


Lexington Ltd develops and distributes managerial training materials for manufacturing and service companies in the UK. The company was founded by Ean Clease ten years ago. The rm has grown steadily in domestic and export sales. Lexington had sales of 5.4 million in the last year. It projects a 10 per cent gain in domestic sales (about 80 per cent of the rms business) and a 7 per cent gain in foreign sales for this year. The rm currently has 50 employees engaged in production and sales work. The creative core of the business consists of six employees and Clease who develop all of the companys video tape products and allied training materials. Around the company they are known as Eans patrol. Clease hand-picked the six employees ve years ago. Their names, ages, and professional backgrounds are shown in Table 6.9. Ean believes the group works well together, even though some members have odd personal habits. For instance, Lydia prefers to wear her hair in a neo-punk style and it has occasionally been more than one colour at the same time. Wilson, on the other hand, is very conservative and prefers to wear a coat and tie at all times. The group maintains that Wilson wants Lydia to colour her hair plaid. Jensen prefers to work odd hours and he is frequently on the job Saturdays and Sundays. However, he may not show up the next Monday and Tuesday. Andrea prefers a regular work schedule as does Abelson. These two work together quite well and they have designed some new formats for blending computergenerated animation with standard studio footage that is visually very exciting and inventive. According to Ean, Lisa evaluates all the creative products of the group as if she were putting together a travel brochure. The group knows that they have a free rein to use equipment and develop new training products and video tapes as they see t. They work closely with the lming crew, since they must produce all the written scripts which represent the basis for the management topics dramatised in the video tapes. The freedom to be creative has led to all of the group becoming very conversant with all
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Table 6.9
Name Lydia Smith

Eans patrol at Lexington Ltd


Age 28 Professional background She studied theatre arts but left college to work with a small theatre group in London for two years before coming to Lexington four years ago. She was responsible for all set design and stage management. Degree in romance languages from Heriot-Watt University. Worked as a management development specialist at Heriot-Watts Esmee Fairbairn Research Centre for ve years. During that time, he became an expert in designing large-scale corporate training programmes offered by the research centre. Has been with Lexington for four years. Degree in computer assisted graphic design from the University of British Columbia, Vancouver, Canada. He is a wizard in creating animation effects with computer-assisted design. Ten years at Lexington. Seven years of experience in magazine layout and advertising copy-writing before joining Lexington eight years ago. He won several industry awards for his advertising layout work with a medium-sized advertising agency in London. Mathematics and literature major in college. Has worked at Lexington for two years. Prior to that, worked for a small consulting rm specialising in designing software for controlling complex assembly movements for robotic devices. She and her husband owned and operated a successful travel agency. After they sold the business, she worked for three years as an executive in the London Tourism Council. She has worked at Lexington for ve years.

James Wilson

32

Keith Abelson

35

Lawrence Jensen

36

Andrea Wight

26

Lisa Bronson

38

aspects of product and service development. They also know each others jobs quite well, so little development time is lost when someone is ill or on holiday. The group has divided itself into development and production areas. For instance, Lydia, Andrea and Lawrence typically brainstorm new products while James and Keith sketch out the scripts and search for suitable lming locations. Lisa arranges shooting schedules and co-ordinates production work with Ean and the lm crews. She also makes all local arrangements for the crews when they are lming at various corporate ofces in London. Keith and Andrea have been working hard on Ean and the rest of the group to consider animating sections of older training lms to give them a new look. They argue that it would be much cheaper to do the upgrade on older products than start from scratch with new ideas in the works. Some of Keith and Andreas demonstration footage is quite creative and Ean has considered showcasing their work at the next planning session with the vice-president of production and lming. The group has no set work schedule. They usually bring their lunches to work and they can often be found brainstorming new production ideas around the lunch table. Everyone is included in these sessions, but it is not unusual for a member of the team to miss a lunch. No one gives this much thought since team members often take care of personal business at midday.
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It is hard to say if there is a formal leader in the group. Keith has ten years of experience with Lexington, but for any given project, someone else could easily take the lead. The group seems to select leaders on the basis of project expertise rather than on seniority. They all look to Ean however as their anchor or ballast as he is sometimes called. He gladly assumes this role which also occasionally requires settling a dispute in the group. These disputes more often involve artistic licence than personality clashes. The rest of the employees tolerate the odd work schedules and strange demands for equipment made by Ean and his group. Other employees seem to recognise that the creative types are necessary in spite of their odd work habits. 1 Using information from the module, what are the primary features of Eans group? 2 How does the groups composition facilitate creativity? Do you agree with Eans rationale for selecting members for his design group? 3 Isolate and describe three things that Ean has done to instil a strong creative ethic in his patrol.

Case Study 6.2: Team Productivity at A. E. Leesons Ltd.


Allister McPherson is the general manager of A. E. Leesons, a small UK-based electronic sub-component assembly facility. It is a part of a larger conglomerate which imports a variety of computer hardware and software. Reporting to Allister are three key managers of the facility: a production manager who oversees three work shifts; an ofce manager who oversees 15 specialists including two marketing staff members; and a manager in charge of human resources and plant safety. The production facility is designed for work teams. Team members have very clear expectations about the extent of team authority to make productionrelated decisions. Members expect that management will let their teams make their own decisions about work scheduling and production planning. The teams understand their work assignments and the members expect management to leave them alone so that they can get their jobs done. It is not unusual for a team to refuse to follow the orders of a supervisor if members of a team feel that he is impeding team performance or decision-making. Team members have become resentful if they conclude that a supervisor is using discipline unfairly or is trying to force employees to obey the wishes of management. An informal tradition at the facility is job-bidding which workers sometimes use as a way to avoid supervisory authority. A worker bids for a job which is unstaffed in the facility. Most often such actions are taken by employees to avoid a difcult superior or to try to get a job with a better work schedule, e.g., moving from the night shift to the day work shift. Supervisors resent this system because * Source: Adapted from R. Steers and J. Black, 1994. Organizational Behavior, 5th edn. New York: Harper
Collins, 2767.

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they feel that they should have the right to choose their subordinates rather than having a system which allows employees to circumvent their requirements. As an informal job benet, employees were allowed to use company tools and materials for personal use. Employees have grown used to the fact that the company will provide hardware and software to them at cost and they have come to expect the company to let them use tools for xing personal equipment and for home repairs. In turn, the company enjoyed a very low rate of pilferage and generally all company tools and equipment are returned in good shape. Production teams try to ensure that tools and equipment are always available for routine production work. Allister has just learned that the company is sending $15m worth of new production equipment which he will be integrating into the assembly facility. Knowing that his production manager was retiring, he was not surprised to learn that the company was sending Rudy Washington to ll the position. Rudy had served with distinction in the Royal Navy during the Falklands War and he had been highly regarded in two industrial positions before joining Leesons two years ago. Company management had reasoned that facility productivity and protability could rise signicantly with new equipment and a new production manager who was familiar with all the latest management techniques. Soon after his arrival, Rudy began to leave his mark on the facility and its production practices. He concluded that the practice of allowing employees to borrow company tools for personal use was inappropriate and he stopped it. He reasoned that a few unethical employees could steal the tools and resell them because the control process governing their use was extremely lax. He also replaced the job-bidding system with a military-like seniority system. Managers and supervisors throughout the facility avidly supported the system, but it has led to resentment and frustration among the facilitys production workers. Workers have been overheard saying Rudy is still in the Navy and he thinks we are all new recruits. Rudys position was that managements authority should not be questioned and workers had a duty to obey legitimate orders from supervisors. Rudys management style was centred on making his rounds of the production facility on an hourly basis. During his rst four months, he instituted many production changes which reduced labour-hours for assembly and increased product quality and dependability. During this period, ve employees left and they cited the termination of the job-bidding system for their decisions. Three of the resignations were from employees who had obtained excellent job performance ratings on a regular basis. The installation of the new equipment had gone smoothly, but it was clear that employees were unhappy. The common belief among production workers was that their increased productivity had generated more prots for the company but no wage increases for them. As this opinion grew more widespread in the facility, Rudy noticed that losses of company equipment and tools began to rise above historical averages. He decided to install metal detectors and a system for random employee locker inspections to deter theft of company equipment and tools. After a year on the job, Rudy was called back to company headquarters for
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a month-long seminar on leadership and organisational quality improvement. During his absence, Allister decided not to ll his position with a temporary production manager. Instead, he told all shift supervisors that they were each responsible for their shifts with no further direct supervision. Shortly after Rudy left, Allister learned from the third shift supervisor that night employees wanted a slightly longer break at 3 a.m. because humid work conditions were causing some employees who worked with ultra-clean production equipment to experience drowsiness. In these jobs, if employees failed to concentrate the result could be defective assemblies. Allister granted the request and he told the three shift supervisors to use their own judgement to handle minor employee requests. He later learned that several other changes had been made, but none of Rudys major management decisions had been altered. Two weeks later, employees complained loudly about the companys policy of mandatory overtime to meet production output requirements. Demand for subassemblies had been so robust that workers were regularly working 1518 overtime hours each week. Allister considered the problem and announced that if the work shifts could boost production by 15 per cent, then he would suspend the mandatory overtime requirement. Within two days, production rose to the required level and Allister kept his promise. Much to his surprise, the company received several large orders which once again put his facility under a backorder requirement and he reluctantly had to reactivate the mandatory overtime rule. Within a week the work-force had eliminated the back-order problem and Allister ended the mandatory overtime rule. A third work-force matter arose concerning the metal detectors and random employee locker searches. Several informal employee leaders charged that the rules implied that employees were not trustworthy. They also complained that The policies were unjust and that the majority of honest workers should not have to submit to these humiliations just to root out a few bad apples. Allister agreed and he proposed a four-week trial period in which the detectors and searchers would be suspended while tool and equipment losses would be closely monitored. The workers advocates accepted this offer as a realistic compromise. Two days before Rudys return to his position, Allister was studying his production reports and he was surprised to notice that production was up 20 per cent and product defect rates had fallen ve per cent below the averages for the last six months. In effect, production output, product quality and workforce satisfaction had increased without the presence of a production manager. Allister knew that he faced a dilemma. He could report these ndings to corporate ofcials and he could make a strong case for eliminating the production managers position. This would cost Rudy his job and Allister was genuinely concerned by this because he considered Rudy to be his friend. Or he could show Rudy these results and work with him to change his management style. He knew this would be very hard to do because of Rudys strongly held beliefs about effective management. 1 Why was production output up 20 per cent and product defect rates down ve per cent?
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2 Once Rudy returns, what should Allister tell him and what actions should he take with respect to Rudys position and management style?

References
1 2 3 4 5 6 7 8 9 Shaw, M. (1981). Group Dynamics, 2nd edn. New York: McGraw-Hill. Dunham, R. (1984) Organizational Behavior. Homewood, IL: Irwin. Peters, T. and Waterman, B. (1982) In Search of Excellence. New York: Harper & Row. Senn, D. (1971) Attraction as a Function of SimilarityDissimilarity in Task Performance, Journal of Personality and Social Psychology 18: 1203. Collins, E. and Guetzhow, H. (1964) The Social Psychology of Group Processes in decisionmaking. New York: Wiley. Dailey, R. (1988) Understanding People in Organizations. St. Paul, MN: West. Feldman, D. (1984) The Development and Enforcement of Group Norms, Academy of Management Review 9: 4753. Janis, I. (1982) Groupthink, 2nd edn. New York: Houghton-Mifin. Schweiger, D., Sandberg, W. and Ragan, J. (1986) Group Approaches for Improving Strategic decision-making: A Comparative Analysis of Dialectical Inquiry, Academy of Management Journal, 29: 5171. ODell, J. (1968) Group Size and Emotional Interaction, Journal of Personality and Social Psychology. 8: 758. Hampton, D., Summer, C. and Webber, R. (1982) Organizational Behavior and the Practice of Management, 4th edn. Glenview, IL: Scott-Foresman. Tuckman, B. (1965) Developmental Sequence in Small Groups, Psychological Bulletin 63: 38499. Osborne, A. (1941) Applied Imagination: Principles and Procedures for Creative Thinking. New York: N. M. Scribner. Basadur, M. and Finkbeiner, C. (1985) Measuring Preference for Ideation in Creative Problem Solving Training, Journal of Applied Behavioral Science 21: 423. Dalkey, N. (1967) Delphi. Santa Monica, CA: Rand Corp. Dalkey, N. (1969) The Delphi Method: An Experimental Study of Group Opinion. Santa Monica, CA: Rand Corp. Steiner, I. (1972) Group Process and Productivity. New York: Academic Press. Steers, R. and Black, J. (1994) Organizational Behavior, 5th edn. New York: Harper Collins, 26471. Steers, R. and Black, J. (1994) op. cit., 267. Steers, R. and Black, J. (1994) op. cit., 26871. Steers, R. and Black, J. (1994) op. cit., 2767. Vroom, V., Ross, R. and Ross, T. (1989) Who Wants Participative Management?, Group and Organization Studies 14, 42245.

10 11 12 13 14 15 16 17 18 19 20 21 22

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23 24 25

Vroom, V. and Jago, A. (1988) The New Leadership: Managing Participation in Organizations. Englewood Cliffs, NJ: Prentice Hall. Vroom, V. (1973) A New Look in Managerial Decision-Making, Organizational Dynamics (Spring): 6680. Crouch, A. and Yetton, P. (1987) Manager Behavior, Leadership Style and Subordinate Performance: An Empirical Extension of the Vroom-Yetton Conict Rule, Organizational Behavior and Human Decision Processes 39, 38496. Thomas, K. (1977) Toward Multidimensional Values in Teaching: The Example of Conict Behavior, Academy of Management Review 2: 2335.

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Contents
7.1 7.1.1 7.1.2 7.1.3 7.1.4 7.1.5 7.2 7.2.1 7.2.2 7.3 7.3.1 7.3.2 7.3.3 7.3.4 7.3.5 7.3.6 7.3.7 7.3.8 7.3.9 7.4 7.4.1 7.4.2 7.4.3 An Example of Power The Meaning of Power, Authority and Inuence Sources of Power Using Power Ethically How Employees Obtain Power How Subunits Obtain Power Uses and Abuses of Power: Playing Politics How Managers Play Politics Looking Upward: Managing the Boss Leadership: A Conundrum of Theory Are Leaders Different from Managers? Understanding the Roles of the Manager Coming to Grips with the Problem of Leadership Research on Leadership Traits The Behavioural School of Leadership Situational Leadership Theories Fiedlers Contingency Theory Houses Path-Goal Theory Leader Reward and Punishment Behaviour: OB Mod Revisited The New Age of Entrepreneurs How Entrepreneurs Differ from Small Business Owners and Administrators Encouraging Entrepreneurial Behaviour In-House How Organisations Encourage Entrepreneurial Employees and Innovation 7/2 7/3 7/4 7/5 7/6 7/8 7/10 7/11 7/12 7/14 7/14 7/14 7/16 7/16 7/17 7/19 7/19 7/22 7/24 7/26 7/26 7/27 7/29 7/31 7/32 7/36 7/40

Summary Points Review Questions Case Study 7.1: Lenton Industries Case Study 7.2: Looking for Mrs Good Cookie

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Learning Objectives
By the end of this module you will be able to: Distinguish among power, authority and inuence. Differentiate various sources of interpersonal power used by managers in the work setting. Explain the various methods used by employees to gain power. Understand how organisational subunits come to be powerful. Characterise the conditions which make political behaviour in the organisation more likely. Describe examples of how managers play politics. Describe effective methods for upward management. Differentiate leadership behaviour from managerial behaviour. Describe current leadership research initiatives and how they differ. Develop an analysis of leaders consideration and initiating structure behaviour. Contrast situational theories of leadership. Recognise the importance of effective leader reward and punishment behaviours. Explain how characteristics of subordinates, tasks and the organisation can function as neutralisers and substitutes for leadership. Characterise the entrepreneurial prole. Contrast entrepreneurial behaviour and administrative behaviour. Develop an analysis of your organisations ability to encourage entrepreneurship. Diagnose your own ability to be an entrepreneur.

This module addresses three issues important to managers and students of organisational behaviour. First, we will dene the important concept of power in organisations. We will examine the bases for interpersonal power and how individuals and organisational subunits obtain power. Next, well explore organisational politics and we will see how individuals and subunits manipulate the political system. Our next topic is leadership. We will dene it, differentiate it from management and trace its development as a core concept in the elds of organisational behaviour and management. The module concludes with a discussion of entrepreneurship in organisations.

7.1

An Example of Power
The chancellor of the state-supported vocational training school was hand-picked by the previous director of educational administration. The chancellor had hired his family members, put his secretarys husband on the payroll and made other decisions which violated his public trust to run the institution in the most costeffective manner with employees who were the best qualied for their jobs. The director of educational administration knew he had to go. The local newspaper

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had run several front page articles about corruption at the school. Local political leaders were calling for a full-scale audit and talented faculty were leaving the institution. The new director of educational administration dealt with the situation quickly. He announced to the media that the vocational training school was cut out of next years budget. Students were in an uproar, faculty were outraged and the local community was concerned. Students and faculty held a public debate where the chancellor defended his record. The press covered the event in considerable detail. In two days the chancellor had resigned and an acting chancellor was on the job with the budget restored. This example highlights power. People nd power and politics to have connotations of manipulation, loss of self-determination and excessive control. Most managers and experts agree that power and politics are natural features of life in organisations. They are simply the individual, group and organisational expression of human nature and motivation in organisations. 7.1.1

The Meaning of Power, Authority and Inuence


Power is the ability to inuence someone else. It is the capacity to modify employee behaviour in a desired manner while being able to avoid having ones own behaviour modied in undesirable ways.1 A person, work unit or organisation has the capacity to control others and to avoid being controlled. Power has several characteristics. First, it can only be wielded in a relationship which other people depend upon in some way. Power has no meaning outside the context of human relationships. Second, the word ability implies that individuals can learn to use power effectively. Third, power can ow in any direction in an organisation. The hierarchy often represents the vertical differentiation of power. In other instances, one department is perceived to be more powerful than others because the last three chief executive ofcers began their careers there. Another example is the disgruntled employee who becomes a whistle-blower and gains signicant power as a result of his charges. Authority is the right to order or ask others to do what you want them to do. The extent of ones authority is dened by ones level in the organisations vertical hierarchy. Authority over subordinates may include the rights to 1) set goals, 2) evaluate performance and 3) assign overtime work. Authority is downward inuence which ows from the position occupied by the employee. Authority is granted by the organisation, while power may have multiple origins. Inuence is the process of affecting the thoughts, feelings and behaviour of others. The three concepts can all fall within the employees zone of indifference which is the range in which the employee perceives inuence attempts as legitimate and acts on them without a great deal of evaluation or thought. If the employee perceives an inuence attempt as illegitimate, only the exercise of the managers power can expand the zone. Authority is a less useful method to expand the zone of indifference because it is a right.

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7.1.2

Sources of Power
Researchers and managers have been interested in the sources of interpersonal power for some time.2 Table 7.1 illustrates examples of each source of interpersonal power; the rest of this section describes their forms.
Table 7.1
Reward Coercive Legitimate Referent Expert

Sources of interpersonal power and an example of each


Work example Telling a subordinate that he has been very effective in productivity enhancement during a formal performance review. Warning a colleague that you will go to your superior if he does not stop trading on insider information. Transferring an employee to an overseas assignment. Emulating a senior design engineer who is widely respected throughout the company. Including a design engineer in all product review meetings because of his experience in design work.

Source of power

Each source of interpersonal power noted in Table 7.1 is expressed in a dependence relationship. When you have control over what others want, they are dependent on you and you therefore have power over them. Likewise, when you are dependent on others, they have power over you. As we move through the descriptions of the types of interpersonal power, remember that they 1) only have meaning in terms of interpersonal relations and 2) are always expressed in dependence relationships. Reward power is the capacity to exert inuence by providing positive outcomes and preventing negative outcomes. It is often used to back up legitimate power because managers and supervisors are given the authority to recommend pay rises, promotions and transfers, and to do performance evaluations. Managerial reward power is expressed through delegating authority, praising and recognising performance and giving performance feedback. Making these types of rewards or outcomes available to subordinates creates more opportunities for them to satisfy higher-order needs (presuming subordinates value such rewards). Coercive power is the capacity to exert inuence by the use of punishment and threat. Again, it often supports legitimate power. Managers can assign undesirable tasks, order transfers and give negative performance feedback. This form of power can be wielded in interesting ways. Consider the following:
Many organisations have special ways to deal with troublesome employees. For instance, an extremely effective productivity specialist in hospital work was transferred from that job to director of food service operations. Apparently, upper hospital management felt the specialist was getting too good at his job and uncovering too many examples of ineffective department management which would sooner or later tarnish their management reputations. The solution: put the highly competent specialist in a backwater department where he can do less damage.

Legitimate power is the capacity to direct the behaviour of others due to ones position in the organisational hierarchy. Subordinates accept their duty to obey because their superiors have the right to give them orders. Not all organisations
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place the same emphasis on reinforcing legitimate power. Military organisations have various uniforms, rituals and procedures designed to strongly reinforce legitimate power. New product design groups in high tech rms probably would ignore these expressions of legitimate power. Referent power is based on the extent to which the power-holder is well liked and admired by others. Successful entrepreneurs, politicians, entertainers and statesmen all possess referent power to high degrees. People identify with such charismatic individuals and they pay particular attention to the behaviours and attitudes expressed by them. Referent power is important in interpersonal relations because it is based on interpersonal attraction and is much more personal than either reward or coercive power. Second, anyone in an organisation can gain referent power. It attaches to the person and not to his position. Expert power represents power gained through the possession of specialised expertise which is valued by the organisation. It is often expressed through the control of information in a specialised area which is critical to organisational success. Expert power is acquired through the ability to solve key organisational problems. It too is like referent power in that it attaches to the person and not to the position held by the power-holder. A variation on expert power is making yourself or your work group irreplaceable. Consider this:
In a French tobacco plant, maintenance workers made themselves indispensable by keeping all maintenance procedures and techniques secret. New maintenance employees were trained by word of mouth through long apprentice programmes. No one in production or management understood the complex production equipment, so the maintenance employees were able to keep a monopoly on maintenance knowledge. Thus, they retained tremendous power to control operations in the plant.3

7.1.3

Using Power Ethically


Managers are responsible for using the ve sources of interpersonal power in an ethical manner in their work with employees, customers and colleagues. For instance, coercive power must be used carefully. Any punishment should be used consistently, uniformly and privately. Communicating well and respecting subordinates is the ethical starting point in the use of the ve types of interpersonal power. Before a manager exercises his sources of interpersonal power, he should consider three questions:4 1 Does the behaviour produce a good outcome for all internal and external stakeholders? The managers exercise of power should create the greatest good for the greatest number of people. Does the behaviour respect the rights of all stakeholders? The free speech, and due process of stakeholders should not be violated. Does the behaviour treat all stakeholders equitably and fairly? The exercise of power should preserve distributive and procedural fairness in the organisation (see Module 3). Exercises of power should not arbitrarily benet one party at the expense of another.
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7.1.4

How Employees Obtain Power


We have discussed the origins of interpersonal power. Now we can turn our attention to how employees obtain power in organisational settings. That is, how do employees obtain more legitimate power, demonstrate their expertise and get their peers, subordinates and superiors to like them? Figure 7.1 answers the question.

Build an image of success Create obligation in others Identify with powerful people Give excellent performance GAINING MORE POWER Limit access to information Control supplies and budgets Be a knowledge worker Manipulate rules Control personnel decisions Control financial resources Manage your boss Develop a network Reorganise the job Take risks, be creative

Figure 7.1

How employees gain power

Building an image of success refers to designing and creating a good impression which projects competence and organisational commitment. Image-building can be done by drawing attention to ones successes, being enthusiastic about the organisation, placing value on the organisations status symbols and volunteering to act on behalf of the organisation. Having a good image in the company can be aided by practising good citizenship behaviours. Creating obligation in others refers to the quid pro quo of doing favours for others, especially those who may be in a position to help you later. The exchanging of votes for favours in the political arena testies to the popularity of this strategy. Identifying with powerful people refers to nding a mentor in the organisation. This is an individual in a powerful position with the inuence to positively affect the employees career advancement. The employee in question has the opportunity to understand the mentors perspectives on the organisation and its practices. This prevents the employee from making mistakes which could slow down his career progress. Most mentorprot g relationships slowly decline e e in value to both parties, especially as the prot g gains more organisational e e experience. Giving excellent performance refers to striving hard to meet the performance expectations of the organisation. This can mean volunteering for difcult organisational assignments and defending the reputation of the organisation. Being an excellent performer often means extending ones efforts in organisational
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areas which are not covered by the organisations formal performance appraisal dimensions. Limiting access to information is one way to control scarce resources. When you are able to do this, you are controlling something that is of value to others. An employment recruiter who has specic knowledge of the qualications of applicants has great power relative to the applicant and the director of human resources. If you can control the ow of timely and accurate information, you gain power in the management decision-making process. Controlling supplies and budgets is a way to gain power since organisations try to create economies of scale by concentrating the purchasing of supplies in centralised departments. Departments must then order their supplies through that department. To the extent that the supplies are critical, the department manager will gain power. Similarly, control over budgets bestows considerable power on the manager. Developing a network refers to building a good support system which keeps you informed about important matters in the organisation. Nurturing and sustaining old working relationships and not forgetting about those people you worked with on special projects are examples of network-building. Demonstrating loyalty to superiors and making friends in high places are examples of network-building. Network-building and creating obligations for others are two complementary strategies for gaining power. Reorganising the job refers to taking on new responsibilities, adding objectives to ones work and creating new tasks. This is a strategy of job expansion to absorb responsibilities not covered by other employees. It integrates with effective upward management. Taking risks and being creative refers to applying principles of entrepreneurship to the job. If a work unit or team places high value on risk-taking and the organisation expects it from the work group, then an employee is on solid ground if he decides to take calculated risks. Employees should ensure that the risk is data based and objective to the extent that both are possible. If an employee must act on guesswork, it should be tested on several trusted colleagues rst. Being a knowledge worker refers to acquiring wide expertise to solve a given class of organisational problems. The most signicant problems usually involve external contingencies which generate environmental uncertainty for the organisation. Specialised expertise in marketing, crisis-management (controlling hostile take-overs, for instance) and international operations, and knowledge of capital markets, can signicantly boost an employees power. Manipulating rules refers to sticking closely to company policies when it is to ones advantage, and trying to change rules and procedures when that would further your acquisition of power. Some jobs offer ample opportunities to gain power through rule manipulation. Staff lawyers and internal auditors become powerful because they have the job of writing, revising and controlling procedures. Controlling personnel decisions does not simply mean hiring and ring. Power can be increased by making recommendations about which employees need further training, who should be transferred, who should be promoted and
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who handles recruiting for the organisation. In organisations where knowledge obsolescence is a threat to product quality and innovation, employee training and recruiting become critical competitive advantages. The individuals who design the training and select the employees who receive specialised training gain power. Controlling nancial resources is perhaps the most powerful means to gain and keep power. While access to this method is hierarchically based, exclusive control over nancial resources is not concentrated completely at the top of the organisation. Successful use of the other power-acquisition strategies can trigger the delegation of some control over nancial resources to the job-holder. For example, project, product or brand managers often obtain authority for the control of nancial resources relative to their projects or products. The same logic would apply to important cross-functional teams and self-directed teams that create product innovations through customer research and focus groups. Managing your boss is a nal strategy for gaining power. It may sound unlikely for the simple reason that most subordinates seriously underestimate their inuence on their superiors. This comes from several faulty assumptions: 1) the boss is omniscient, 2) the boss has all the information necessary to make decisions and 3) the boss has sufcient time to make all decisions. Subordinates who effectively manage their bosses tend to: 1) identify the bosss preferred decision style, 2) identify the bosss preferred level of formalisation in dealing with subordinates and 3) periodically clarify the bosss goals and objectives. Managing your boss is a useful tool for gaining power. It is also a good technique for keeping control of events that may be strongly political in the organisation. We shall return to the subject of managing your boss when we discuss organisational politics. 7.1.5

How Subunits Obtain Power


So far our discussion has focused on how individuals acquire power. Work units and organisational departments also attempt to gain power. We are certainly aware of power differences between work units in terms of 1) number of employees, 2) size of budgets, 3) quality of facilities and 4) impact on decisions. How did the work units obtain these outcomes? The answer lies in their ability to control strategic management outcomes. This means that the work performed in other units depends on activities, goals and performance of the departments in question. Work cannot proceed in some departments until the strategically powerful department 1) grants permission, 2) provides resources, 3) completes its work or 4) provides critical information.5 Once again, you can see the signicance of dependence relationships. Lets examine the conditions which contribute to a departments abilities to control strategic management outcomes and to accumulate power.

Scarcity
Variation in subunit power is magnied under conditions of resource scarcity. When an organisation has extensive slack resources, subunits seldom compete for power since there is abundant budget money, ofce space, support staff,
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etc. If sales slow, products become obsolete or competitors become much more cost-efcient, slack resources evaporate and subunits must compete to avoid reductions in budgets and downsizing. Competition for scarce resources need not be limited to organisational subunits. When Pennzoil Co. won a $3bn judgement against the Texaco Corporation and it made Pennzoil the most cashrich oil company in America, Texaco barely avoided bankruptcy. Pennzoil busily made a series of corporate purchases while Texaco retrenched to the core areas of its business. As an aside, the employees of Pennzoil presented the outgoing chief executive ofcer with a rug which had a fractured Texaco star in its middle. The rug symbolised what Pennzoil did to Texaco.

Uncertainty
Organisations attempt to limit or remove uncertainty whenever possible. Advanced market testing before product launches and strategic planning are examples of the way resources are expended to reduce uncertainty. Organisational crises create upheavals which disturb operations and paralyse effective decision-making. It stands to reason that those subunits which help the organisation remove or reduce uncertainty are going to be very powerful. Such units protect other units from the unknown. The effect is most noticeable in those organisational units which are boundary spanners. Boundary spanner units tie the rest of the organisation to its external environment. Typical boundary spanning units are 1) marketing and sales, 2) R&D or new product development and 3) legal services.

Centrality
Subunits performing activities which are on the critical path of work ow will acquire more power than subunits off the critical path. This is the principle of centrality and it is possessed by those subunits involved in the core aspects or the basics of the organisations work. Centrality can take several forms. First, the subunit can be at the centre of authorisation for expenses and payments. Accounting departments t this description since they handle accounts payable for subunits and process transfers of raw materials and set transfer prices if the organisation is global or multi-national or set up domestically as interdependent prot/cost centres. Second, centrality can take the form of subunit inuence on the quantity or quality of the organisations product or services. Companies making products that must have extremely high reliability (e.g., medical testing equipment or pharmaceutical products) must have quality control subunits which have the responsibility of maintaining very high product standards. The quality control specialists from such departments have the power to suspend production operations or to initiate inspections at a moments notice. The central importance of such subunit is made obvious when the organisation experiences a crisis triggered by product, process or service failure.

Absence of Substitutes
If a subunit is the only one capable of performing a service or producing a product for the organisation, then its centrality increases because there are no substitute sources of services or products. The development and installation
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of e-mail systems in organisations have diminished the signicance of specialised organisational communication units. Video conferencing and computer networking make all communications easy to decentralise. In turn, it is now much easier for production and service data to be collected, analysed and distributed to organisational units on a real-time basis. Those units that collected and processed this information prior to the computer invasion have since lost power.

7.2

Uses and Abuses of Power: Playing Politics


Organisational politics refers to the management of inuence to obtain ends not sanctioned by the organisation or to obtain sanctioned ends through nonsanctioned (illegal) means.6 The key point in the denition is legitimacy of outcomes and the methods used to obtain them. Figure 7.2 shows a matrix of the combinations of outcomes and methods that represent organisational politics. As you evaluate the four combinations of methods and outcomes, consider how each combination would create different answers to the ethical use of power questions in section 7.1.3.

Political results Acceptable results Management approves Non-political work that is efficient, productive and effective Ignoring the chain of command to gain company support for a product innovation Unacceptable results Whistle-blowing to expose theft of company equipment or the inappropriate use of company funds Degrading a colleague who is a competitor for a higher-level job opening

Management disapproves

Figure 7.2

A taxonomy of political behavior in rms

Approved methods and approved outcomes. Here power is used to achieve sanctioned outcomes. For example, if product development agrees to speed up the production of a prototype because marketing has learned that a competitor is ahead in its product development activity, then approved methods and outcomes are being observed. No political activity is occurring in this situation and legitimate outcomes are being pursued by the subunits in question. This condition would provide satisfactory answers to the three questions shown in section 7.1.3. Approved methods and unapproved outcomes. In this case, the organisations rules are followed to achieve organisationally undesirable outcomes. Suppose a manager covers up the drug addiction of a subordinate by giving him an overseas assignment. The assignment may be authorised, but covering up performance problems caused by drug addiction is not.
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Unapproved methods and approved outcomes. This represents the pursuit of valued outcomes by using questionable methods. Such political behaviour often occurs when resources are scarce and the subunits success is threatened. For instance, a production unit might hoard supplies, or order excessive amounts of raw materials, to ensure steady production operations. No one would question the importance of steady production, but if it is at the expense of tying up cash in excess pre-production inventories, then the methods are clearly questionable. Unapproved methods and unapproved outcomes. This situation is the most agrant form of political activity in organisations. Its users must become skilful in mastering the art of covering their tracks. For instance, the inside trader shifts funds in his personal portfolio to purchase stock in a company which is the target of a secret take-over bid. To cover his tracks, he must nd a way to park money to be used to buy shares in the company that is the target of the take-over. Parking the funds creates a smokescreen which conceals the inside traders real motives and goals. The traders methods and the prots he obtained would be frowned on by both his employer and the relevant government regulatory agency.

7.2.1

How Managers Play Politics


Managers engage in political behaviour to: 1) create organisational change by whistle-blowing, 2) defeat rivals by creating line versus staff conict, 3) build power bases through sponsorship and coalition-building and 4) resist authority through insurgency.7 A brief description of these political strategies follows. Whistle-blowing behaviour occurs when an individual believes the organisation is violating his instrumental or terminal values, or the law. Thus, whistleblowing means that the individual informs a reporter, police ofcer, government ofcial or other inuential individual about an assumed injustice, irresponsible organisational action or violation of the law. The behaviour bypasses the organisations hierarchy of authority. High-level managers are usually infuriated if they learn about the whistle-blowing. Whistle-blowers usually have high ethical standards. They can come from any level or occupation in the company. Whistle-blowers must be treated fairly and not be brushed off and treated like troublesome or abrasive employees. In many cases, they have the interests of the company in mind believing that an organisational crisis will occur if particular practices are not stopped or changed. (See Case Study 1.2 on General Electric at the end of Module 1.) Line versus staff conictrefers to the inherent disputes which must arise when staff units are created in the organisation. Staff experts have specialised knowledge which can greatly improve the quality of line management decisions. Line managers fear the encroachment of staff experts in their line authority. Both line and staff personnel practise 1) withholding information, 2) gaining access to powerful executives, 3) building better images and 4) increasing centrality. The line versus staff clash must be controlled lest it disrupt goals and company effectiveness. Sponsorship and coalition-building are forms of counter-insurgency used by individuals to gain the favour of powerful individuals. The employee attaches

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himself to someone (or to a group) which is gaining power in the organisation. The only rules governing this political behaviour are: 1) stay personally loyal to the sponsor or department, 2) follow the orders of the sponsor, 3) stay in the background to let the sponsor have all the credit and 4) show gratitude. These behaviours allow the prot g to gain political power through the interpersonal e e power bases of his sponsor or mentor. Thus, the prot g is able to tap into the e e mentors power bases and move up the hierarchy more quickly. Insurgency or resisting authority takes many forms in organisations. It is often characterised by following the letter of the law, or interpreting and enforcing policies in a manner unintended by management. Insurgency is hard to document and correct. Its widespread practice indicates a deterioration of organisational culture which should disturb management and lead to the constructive examination of possible internal causes for such behaviour. An example of insurgency was the Eastern Airline machinists and maintenance workers campaign to discredit Easterns aircraft maintenance practices by ling complaints with the US National Transportation Safety Board. The campaign led quickly to the grounding of 40 per cent of Easterns planes. Frank Lorenzo, the president of Texas Air (Easterns parent corporation), mounted a campaign to attack Easterns maintenance employees, but the attacks led to the bankruptcy of Eastern. This example illustrates insurgency which dominates labour management relations in several US industries. 7.2.2

Looking Upward: Managing the Boss


No relationship in the organisation is more political than the one between superior and subordinate. All employees would conrm the political nature of their relationship to their boss, but they would nd little that has been written on the subject of politics in the superiorsubordinate relationship. Keeping this relationship in good working order is crucial to subordinates because their superiors are their links to the rest of the organisation. The superiorsubordinate relationship rests on mutual dependence and in many ways the bosss career is strongly linked to his subordinates career at various times. Subordinates often fail to recognise their signicance in the superiorsubordinate relationship and they meekly leave the management of the relationship to their superiors. Subordinates who fail to understand and to manage the superiorsubordinate relationship often make two faulty assumptions about the relationship: 1 The boss is omniscient and knows, in advance, all of the possible alternatives for solving various performance problems in the unit. Employees who adopt this assumption unknowingly limit their options to aid the unit through participative decision-making. The boss has all the information to make a decision. Related to the rst assumption, this one also casts the boss in the role of omnipotent decisiontaker.

To be more effective in managing upward, the subordinate can take some proven steps to understand his boss as much as possible. These steps are shown in Table 7.2.
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Table 7.2
1 2 3

Strengthening your work relationship with your boss

Take time to understand your bosss goals, objectives, job pressures, strengths and weaknesses and leadership style. Realistically assess your own strengths and weaknesses, preferred decision-making style, comfort level with authority and your need for achievement. Base your work relationship with your boss on: a) both of your needs and styles; b) well-understood expectations; c) keeping your boss informed, d) dependability and honesty, e) documented performance and f) selective use of your bosss time and resources.

The rst step stresses your understanding of your boss and his decisionmaking context so that you are able to avoid emotion in your work relationship. The better you know your boss, the more professional you can be. This will base your relationship with your boss on a strong, professional and performance footing. The second step in the table highlights the importance of honest selfappraisal as a basis for effective upward management. If you strongly prefer to wait for your boss to make decisions because you believe it is his job to make them and it is your responsibility to carry them out, then you should conclude that you prefer to defer to authority gures. This self-knowledge does not mean that you cannot effectively manage your relationship with your boss. Instead, it simply suggests a particular style of upward management. Once you have tried to understand your boss, his decision-making context and your personal style in the relationship, you should then work to establish a professional and effective work relationship (step 3). The elements in step 3 suggest the wisdom of maintaining open communication with the boss and being dependable. If you feel uninformed about unit goals or performance standards and you believe in the virtue of step 3, then you are compelled to discuss with your boss his expectations for unit goals and performance standards. Such an action may be particularly worrisome for the new employee, or for the employee who has been recently transferred into a work unit. While co-workers may be an important source of information about unit goals and performance standards, they cannot actually speak on these issues as authoritatively as your boss. So, rather than labour in the darkness of task uncertainty, shed some light on goals and performance standards by checking the clarity of your understanding of them with the boss. When working with action-oriented superiors who routinely delegate tasks, an effective subordinate knows not to waste the bosss time or resources when he encounters a performance road block. In such circumstances, an effective employee studies the problem and frames the pros and cons for various actions. Once he has carefully framed those decisions, it is time to see the boss. Most managers who are interested in developing their subordinates skills through delegation of authority will help a subordinate choose the best course of action. The key to this example is approaching the boss with alternatives which have been thoroughly thought through. Simply asking the boss what should be done is a classic mistake made by employees who do not manage upward. Worse yet, such mistakes are strong evidence to the manager that his effort to delegate authority to a subordinate may have been a mistake.
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7.3

Leadership: A Conundrum of Theory


Leadership is the most researched topic in organisational behaviour. In spite of this, a comprehensive theory of leadership is elusive. At present, there are a number of theories which give partial answers to complex leadership questions. Our rst task in charting a path through competing leadership theories is to distinguish the concept from management. Leadership is the power of one individual to guide the actions of another. Leaders are individuals who advocate change and who try new approaches to problems. Leadership is often conceptualised as a set of behaviours or a product of the interaction of the leaders personality and the demands of the leadership situation. This view leads to contingency theories of leadership, about which we will have more to say.

7.3.1

Are Leaders Different from Managers?


Absolutely! But they can both be the same person. A manager is a person who performs the specic functions of the manager and who holds a formal title or lls a formal role in the organisation. The manager is responsible for the performance and productivity of one or more subordinates in a particular organisational subunit. We often think of managers as advocates for the status quo and for stability. As we noted, a leader resists the status quo and proposes changes. Leaders are also able to inuence others to pursue their goals. Thus, the study of leadership is much broader than the study of management.

7.3.2

Understanding the Roles of the Manager


Mintzberg has developed a formulation which analyses the managers job in terms of roles.8 He based his managerial role classication system on detailed analyses of how managers spend their time. He identied 10 roles which managers ll in their jobs. The 10 roles are shown in Table 7.3. They cluster into three broad categories which are discussed below. Interpersonal roles connect managerial behaviours that establish working relationships. The informational roles are those which allow the manager to collect and distribute information. The decisional roles include those behaviours used to set, implement and monitor progress towards goals. Managers often sequence their roles to build working relationships based on mutual trust and high performance expectations. Managers often get to know their subordinates and become involved with other departments (interpersonal roles). Networking allows the manager to gather information and function as the spokesperson for the work unit (informational roles). Finally, stable interpersonal relationships and good information lead to decision-making, goal-setting and resource-allocation decisions (decisional roles). Sometimes managers erroneously sequence their managerial roles. They initiate their decisional roles before they have sufcient information and have established dependable interpersonal working relationships. Other research on managers has focused on how managers spend their time.8 Although the allocation of time varies with managerial level, approximately 48 per cent of managerial time is spent with subordinates, seven per cent with

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Table 7.3

The managers roles in todays rms


Testies in court and at regulatory hearings Cuts ribbons and opens new ofces/facilities Gives pep talks and holds open meetings with workers and staff Passes out awards and honours Hires and res

Interpersonal relationship maintenance Figurehead/chief Leader/encourager

Liaison/linking pin

Presides over industry trade group or professional society/certication group

Informational (generation and transmission of data and knowledge) Monitor/surveyor Distributor Advocate/spinmeister Reads industry reports and meets with vendors Holds meetings, writes memos and sends e-mail Makes speeches, meets with the press, grants interviews

Decisional (deciding and controlling) Creator/entrepreneur Crisis controller Resources distributor Mediator/negotiator Scans and detects new ideas/product innovations/ industry trends Acts quickly in a dilemma and makes decisions to limit perceived damage Sets and manages the budget in relation to the rms strategic plan Solves work stoppages/grievances and disputes with vendors and distributors

superiors and 44 per cent with peers and outsiders. Other research indicates that managers spend very little time alone performing solitary tasks.9 Any managers daily routine includes frequent interruptions by many different people who want to talk about varied topics and contains considerable non-work-related information. These interruptions are precisely what keeps them involved in the organisation and able to full their managerial roles. Unfortunately, many managers report that they view interruptions as complicating their real jobs. One thoughtful manager expressed it this way: Being a manager is the most frustrating, infuriating and demanding job anyone could ask for. You dont get time to yourself, and youre constantly on call. You always have to watch out for everyone else. For these reasons, I wouldnt do anything else.10

Effect of Downsizing and the Use of Self-Directed Teams on Certain Managerial Roles
The related trends of downsizing and use of self-directed teams have profoundly altered the emphasis on managerial roles in organisations. In fully delayered and decentralised organisations that use self-directed teams, the managerial roles of gurehead, leader and spokesperson have nearly vanished from dayto-day operations. Self-directed teams have simply taken over these functions once performed by middle managers. Those scarce, middle managers who still remain in the delayered organisation more often nd themselves disseminating information, allocating resources among teams and intervening in disturbances that might threaten inter-team relations. Self-directed teams are likely to perform features of the entrepreneur role and they scan for performance information on a real-time basis.
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7.3.3

Coming to Grips with the Problem of Leadership


Leadership research and writing advances on three strongly related fronts. Organisational scholars and management experts believe that the leader himself has some inuence on the outcomes of work and the success of the organisation. This is research front number one and it is called the trait approach to leadership. Still other scholars and experts stress the importance of the constancy and predictability of the leaders behaviour across leadership situations. This is the behavioural approach to leadership, or front number two. The integrative approach to leadership is front number three. In it the leaders traits and behaviour are considered in terms of the situation that he confronts. It is called the situational approach to leadership.

7.3.4

Research on Leadership Traits


Throughout history, social observers have been fascinated with examples of successful leadership, regardless of its good, bad or indifferent social consequences. The implicit assumption was made that those individuals who became prominent leaders possessed a set of special traits which allowed them to rise above the masses and distinguish themselves as leaders. This assumption is at the core of the trait approach to leadership. Leader traits are used here to refer to personal characteristics which include physical characteristics, social background, intellectual abilities, features of personality, work orientation and interpersonal skills. During and after World War II, there was a great deal of interest in identifying individuals who could be effective leaders. Studies were conducted which produced personality tests used to identify individuals with leadership potential. Test results were used by the Allies to assign individuals to various military schools which prepared them for military assignments as ofcers. After the war, business organisations picked up the trait gauntlet and conducted parallel studies to differentiate the traits of leaders and followers. A summary of traits which have been linked to leadership effectiveness is presented in Table 7.4.
Table 7.4
Physicality Energy level Height Attractiveness Weight Personality Dominance Aggressiveness Self-condence Creativity Stress tolerance

Examples of leadership traits


Social pedigree Economic and social status Alma mater and college degree Job mobility Public service Work orientation Achievement need Initiative Desire for responsibility/promotion Mental characteristics Intelligence Judgment Verbal uency Abstact reasoning ability Social skills/abilities Co-operativeness Likeability People skills Diplomacy Supportiveness

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The results of trait studies have been quite disappointing. Hundreds of studies suggest that many traits are weakly or not related to leadership emergence or success. In studying the effectiveness of established leaders, Bennis and Nanus offer a broader set of traits which may stand up better than those in Table 7.4 They are logical thinking, persistence, empowerment and self-control.11 Logical thinking traits refers to: 1) putting ideas into simpler form, 2) persuading others and 3) explaining things in unique ways. Persistence traits refers to 1) treating setbacks as small mistakes, 2) working long hours and 3) trying to succeed against formidable odds. Empowerment traits highlight 1) getting people excited about goals, 2) being energetic and enthusiastic and 3) making subordinates believe they can achieve excellence. Self-control traits involve 1) working under heavy pressure, 2) remaining even-tempered and 3) resisting intimidation by powerful people. Difculties in the trait approach to leadership. The rst of many problems centres on the question Do great leaders make great situations, or do great situations make great leaders? From the leader trait angle this means: Do dominant individuals become leaders or do they become more dominant after they have successfully occupied a leadership position? If the rst question applies, then it makes sense to select individuals for leadership positions with the dominance trait. If the second applies, then selection based on the trait is meaningless. Unfortunately, the trait approach does not answer this question. A crucial weakness of the trait approach is its failure to take into account the situation in which leadership occurs. Leadership is an inuence process and it cannot occur outside the context of interpersonal relations. Neglecting to consider interpersonal situational parameters explains the weak connection between the traits of leaders and the effectiveness of the work units they lead. Leader traits are more closely related to who gets promoted than who is an effective leader. 7.3.5

The Behavioural School of Leadership


Experts who favour the behavioural approach to leadership stress that the key to understanding leadership effectiveness lies not in asking which traits leaders have but in focusing on those leader behaviours which inuence subordinate performance and satisfaction. These experts have rened this question to: Is there a dominant or preferred leadership style which is more effective than other styles? Researchers at Ohio State University give a strong yes answer to the question above. To date, Ohio State has conducted the most comprehensive research on leadership styles. In numerous studies researchers asked leaders and managers to complete a survey entitled the Leader Behaviour Questionnaire while the subordinates of managers and leaders completed the Leader Behaviour Description Questionnaire. Separate statistical analyses of each set of data yield a common conclusion about leadership style. There are two fundamental leader behaviours: initiating structure and consideration.

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Initiating structure refers to leader behaviours which focus on group goal attainment by stressing: 1) work procedures, 2) planning, assigning tasks, 3) clarifying work roles, 4) supervising subordinates and 5) asking for results. Consideration refers to those leader behaviours which exhibit 1) approachability, 2) supportiveness, 3) maintenance of high morale in the work group, 4) concern for group welfare and 5) maintenance of a collaborative work atmosphere. Consideration focuses on self-esteem issues and the cohesiveness of the work group. Consideration behaviours are intended to achieve a good socioemotional work atmosphere. An important conclusion from the Ohio State University studies is the idea that a leader could be high, average or low on both dimensions at the same time. This means that the two dimensions are compatible. This immediately led to the formulation of a one-best leadership style which is said to appear in the leader who can exhibit high consideration and high initiating structure.

When Do Consideration and Initiating Structure Matter?


The Ohio State University work has spawned work that tries to explain how these two behaviours inuenced group satisfaction and performance. A number of conclusions have emerged about the leaders behaviour and the group outcomes of performance and member satisfaction. 1 When subordinates are experiencing time pressure, job ambiguity or external threat, satisfaction and performance increase under initiating structure leader behaviour. If the groups task is perceived to be interesting and challenging by group members, then the need for consideration and initiating structure is reduced. When the groups goals and task are certain, consideration promotes satisfaction and initiating structure can cause dissatisfaction. Thus, under conditions of high task clarity, initiating structure becomes unnecessary and intrusive. If subordinates lack job performance knowledge or their jobs are vague, consideration has less relationship with satisfaction and performance than initiating structure.

2 3

Other Leadership Style Theories of Current Importance


Predating the Ohio State University studies is the writing of Kurt Lewin on leadership styles. Lewin believed that the leaders style was invariate, therefore he proposed that the leadership situation was irrelevant because a leader simply approached each situation with the same style. He described three leadership styles which were: 1) autocratic style: in its expression the leader is strong, directive, controlling, enforcing of regulations and focused on outcomes; 2) democratic style: in its expression the leader is collaborative, interactive, collegial and responsive to subordinates needs and 3) laissez-faire style: in its expression the leader is unwilling to accept the responsibilities of the situation, or abdicates the position.12
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Evaluating the Leader Behavioural Style Approach


The analysis of leader behaviour makes some improvements over the trait approach because it proposes that behaviour is observable whereas traits must be inferred. It also focuses on what leaders do instead of what leaders are like, as the trait approach does. Since it suggests that leaders can learn how to successfully practise the two principal leader behaviours, it therefore bolsters the organisations attempts to train and to develop leaders. In short, it advances the proposition that leader behaviours can be learned, and through shared experience, they can be transferred from one person to another. Somewhat overenthusiastically it suggests that there is an ideal leader who adroitly balances consideration and initiating structure behaviour. The behavioural approach is not without its problems, however. First, it is not known if leader behaviours cause the outcomes of group performance and satisfaction or conversely, they are the effects of subordinates behaviours which reinforce initiating structure or consideration behaviours in leaders. The behavioural approach does not address the fundamental issue of leadership as a cause or an effect. For instance, if a highly skilled soccer team wins the league championship, their success and skill may bring out consideration behaviour in the coach. The point here is that the behavioural styles theory still suffers because it does not address the leadership situation. 7.3.6

Situational Leadership Theories


Researchers have attempted to blend aspects of the trait and behavioural theories of leadership with specic aspects in the situation that the leader faces. These theories are more complicated than trait or behavioural theories but they show more promise for explaining the leadership phenomenon because they are more inclusive. Let us begin with Fiedlers contingency theory.13

7.3.7

Fiedlers Contingency Theory


Fiedlers contingency theory of leadership proposes that leader behaviour interacts with the favourableness of the situation to determine the level of group effectiveness. Some situations are more or less favourable and they require different leader behaviours. The theory requires the assessment of the leaders style by measuring the leaders orientation to his least preferred co-worker (LPC). This is projective measurement technique which asks the respondent to think of someone with whom he had recent difculty working; i.e., his least preferred co-worker. It was developed by Fiedler and it contains 16 bipolar scales like the examples in Table 7.5. Leaders who describe their least-preferred co-worker in warm and accepting terms (high LPC leaders) are called relationship oriented. The high LPC leader reasons as follows: I found this individual hard to work with, but he still has many worthwhile qualities. I simply had trouble working with him. The low LPC leader is said to be task oriented and he believes the poor performer (leastpreferred co-worker) has few redeeming qualities. Thus, the low LPC leader reasons: The guy is a poor performer and hes dull, boring and uncreative.

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Table 7.5
PLEASANT FRIENDLY WARM DISTANT GLOOMY RELAXED BORING SINCERE 8:7:6:5:4:3:2:1 8:7:6:5:4:3:2:1 8:7:6:5:4:3:2:1 8:7:6:5:4:3:2:1 8:7:6:5:4:3:2:1 8:7:6:5:4:3:2:1 8:7:6:5:4:3:2:1 8:7:6:5:4:3:2:1 UNPLEASANT UNFRIENDLY COLD CLOSE HARMONIOUS TENSE INTERESTING INSINCERE

Thus, the task-oriented leader describes his least-preferred co-worker in rejecting terms. Fiedler argues that the LPC score taps a personality trait called the leaders motivational pattern. High LPC leaders are motivated to maintain good interpersonal relations with subordinates. The task-oriented leader is motivated to get on with the job and achieve goals. Situational favourableness is composed of three constructs. The most important component of the situation is relations between leader and members. This dimension refers to the quality of work group atmosphere which results in loyalty, supportive relations and trust between the leader and his subordinates. When these qualities are absent, insubordination, sabotage, absenteeism, grievances and work slowdowns may result. Task structure refers to the clarity of the groups work and the extent to which members understand the goals of the groups work. When these conditions exist, the inuence process is easier because the leader can formulate clear performance measures which subordinates can understand. If the task is unstructured, the leader may be less able to specify performance measurement and the group may be unconvinced that the leaders way is better than their way. Position power is the leaders legitimate authority to tell others what to do. The more position power held by the leader, the more favourable the situation.

The Contingency Model in Action


We are now in a position to answer the question: Under what conditions is one leadership orientation more effective than another? Figure 7.3 presents Fiedlers full contingency theory of leadership to help answer the question. Figure 7.3 indicates that the task-oriented leader is most effective when the situation is highly favourable (I, II or III) or highly unfavourable (VII or VIII). The relations-oriented leader is most effective when the situation is moderately favourable or unfavourable (IV, V or VI). Fiedler explains these results in the following way. When the leadership situation is highly favourable, it is not stress inducing, therefore it is possible for the task-oriented leader (low LPC score) to behave in a relations-oriented manner. However, when the work group faces a crisis in performance and the situation is therefore highly unfavourable, the work group needs strong, focused leadership (at which the task-oriented leader excels). In the middle positions which vary from slightly favourable to slightly unfavourable the leader is faced with shoring up leadermember relations which is the strength of the relations-oriented, high LPC leader. The theory stresses that the leaders orientation cannot be easily changed.
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Situation favourableness High Leader-member relations Task structure Position power Structured Strong I Weak II TASK Good Unstructured Strong III Weak IV Structured Strong V Weak VI Poor Unstructured Strong VII TASK Weak VIII Low

RELATIONSHIP

MOST EFFECTIVE LEADER ORIENTATION

Figure 7.3

Fiedlers contingency theory of leader effectiveness

Thus, the organisation must match the leader to the situations favourability. Fiedler says it makes most sense to diagnose the leadership situation and see if there is a good match between the leaders orientation and situational favourability. Fiedler argues against trying to train leaders to exhibit different behaviours. He thinks organisations should match the leaders orientation to the demands of the leadership situation. However, it would be cumbersome indeed for organisations to be continually assessing the t between the orientations of leaders and the situations they face. Fiedler has offered several suggestions to alter the leaders situational control to improve the t between his motivational pattern and situational favourability. They are shown in Table 7.6.
Table 7.6
1 2 3 4 5 6 1 2 3 1 2 3

How leaders can change the situation that they face

Tinkering with relationships at work Spend more or less time with subordinates including lunch and after-hours socialising Request certain people for group membership or assignments Volunteer to supervise or work with troublesome group members Transfer certain group members Get additional rewards to improve morale Listen to employees concerns and offer personal advice Give the group creative challenges with no constraints on methods Provide more standardised assignments Divide the work into smaller, more specialised units Rely on discipline to constrain troublesome team members Require that all information and group decisions are reviewed by upper management Delegate more authority to group members (empowerment)

Modifying task structure

Modifying position power

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7.3.8

Houses Path-Goal Theory


The path-goal theory is concerned with the situations which cause various leader behaviours to be most effective.14 House believes the leaders main job is the clarication of pathways between subordinates performance and the rewards they value. The rewards which subordinates value are such things as promotions, pay increases, more challenging work, time off with pay and recognition. When subordinates obtain these rewards, they become more satised and are more willing to exert effort and to accept leadership inuence. This formulation highlights how the path-goal theory got its name and it also points out why the theory is a transactional theory of leadership. A transactional theory of leadership species how a leader exchanges rewards for performance and effort from subordinates. In the path-goal theory, the leaders job is clearing pathways between employee effort and performance and between employee performance and rewards. Thus, leaders must be exible enough to practise a number of behaviours which move subordinates along the sequence of effort-to-performance and performance-toreward. The behaviours which the leader must develop are described below: 1 2 3 4 Directive behaviours. These are behaviours such as work planning, setting performance standards, clarifying work expectations and giving instructions. Supportive behaviours. Leader behaviours which are friendly, supportive, caring and considerate. Participative behaviours. Using subordinates ideas in problem-solving. Achievement-oriented behaviours. Setting goals for subordinates and expecting them to achieve them.

The path-goal theory focuses on two aspects of the leadership situation. First, it looks at the subordinates task abilities and need for achievement. Second, it looks at the environmental factors of task clarity, routineness and challenge. The idea behind the model is that the leader must match his behaviour to the interplay of subordinate characteristics and environmental factors. Several combinations of the situational factors and the best leader behaviour are noted below. 1 Subordinates with a strong achievement drive will work well under achievement oriented leader behaviour that effectively rewards individual employee contributions to unit performance. Subordinates who prefer high work structure will perform best under directive leader behaviour that gives performance feedback to keep them informed of their work progress. When subordinates question their task abilities, they will respond best to directive leadership. However, they will nd this behaviour irritating if they have high ability to perform the task well and there is time pressure to complete it. If tasks are clear and work procedures are routine, any leader behaviour may be seen as intrusive and redundant, especially when subordinates are highly professional and competent.
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If tasks are challenging and ambiguous, subordinates will exhibit more satisfaction and leader acceptance if the leader combines directive and participative behaviours.

Does Leadership Matter in all Cases?


The list above indicates that various combinations of subordinate and task characteristics require different leader behaviours if subordinates are to work hard, accept the leaders inuence and be satised with work. Some of the combinations hint at the fact that the leaders behaviour may be less important relative to subordinate acceptance, effort and satisfaction in some situations than in others. Researchers in organisational behaviour have argued that certain subordinate, task and organisational characteristics can be neutralisers of leadership. This means that certain features of the leadership situation reduce the number of opportunities for the leader to exert inuence. Consider these two situations:
Aaron is a university research scientist with a scientic grant which frees him from teaching duties. For two years he has conducted basic research on materials possessing superconductive properties. His grant covers all of his living expenses plus a six-month leave of absence to work with scientists conducting similar research at Lucent Technologies. Sidney is a chartered public accountant who hopes to become a partner in the practice. He works closely with his peers and the managing partner. He wants to be assigned to a major audit for a new client so that he can gain the attention of his superior. His boss has the authority to give him an early promotion to senior auditor. Sidneys boss is in a much stronger position to exert successful inuence than Aarons department head at the university. Aarons scientic expertise and external nancial support are bound to make him less responsive to the short-term rewards in the department.

Neutralisers for leadership can become substitutes for leadership. Neutralisers for leadership reduce the effectiveness of inuence attempts while substitutes reduce the necessity for leadership. Consider these situations:
The members of the new product development team had worked together for four years. During that time they have created seven new products which had earned 150m. The group is highly cohesive and members understand and accept their roles in the team. Employees in purchasing and manufacturing continued to have trouble with the MRPII integrated inventory and production management system. Manufacturing complained about continued out-of-stock problems, and purchasing was troubled by incorrect summaries of inventory levels.

It is clear that leadership is much more necessary in the second situation due to poor co-ordination and conict between manufacturing and purchasing. The new product development team has an excellent work atmosphere, stable membership, evidence of success and effective work relationships. The team has evolved its own governance mechanisms which create powerful substitutes for leadership. Table 7.7 shows the various categories of leadership neutralisers.
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Table 7.7
Substitutes

Substitutes for leadership and control in work relationships


Neutralisers of relationship orientation Neutralisers of task orientation yes yes yes yes yes

Qualities of subordinates Ability, expertise, knowledge Professional certications and licenses Indifference to rewards Jobs features Routine methods and clear goals Provides own feedback Intrinsically satisfying and involving Firms features Formal, inexible work rules Cohesive self-directed teams E-mail and intranets Spatial separations yes yes yes yes yes yes yes yes yes yes yes

Please note by referring to the examples that neutralisers can convert to substitutes for leadership. In Aarons case, his expertise and research grant neutralised his department heads inuence. This was not the case for Sidney. In the case of the new product development team, the characteristics and success of the team functioned as substitutes for leadership. In the situation of the MRPII system installation, formal leadership was needed and perhaps overdue. 7.3.9

Leader Reward and Punishment Behaviour: OB Mod Revisited


So far, the leadership theories put forth in Module 7 have not been tied to the principles of OB Mod in Module 2. OB Mod casts the leader as a manager of contingencies of reinforcement. Research on leader rewarding and punishing behaviour has conrmed four primary, behavioural dimensions: 1 Performance-contingent reward behaviour. The extent to which a leader uses positive reinforcers, such as praise, recognition and afrmation of successful performance, contingent on high subordinate effectiveness on the job. Contingent punishment behaviour. The extent to which a leader uses discipline and punitive outcomes, such as reprimands and disapproval, contingent on ineffective subordinate performance on the job. Non-contingent reward behaviour. The extent to which a leader rewards a subordinate, regardless of how well the subordinate performs on the job. Non-contingent punishment behaviour. The extent to which a leader uses punitive means and reprimands, regardless of how well a subordinate performs.15

3 4

Studies of performance-contingent leader reward behaviour conrm that it is associated with higher levels of subordinate job performance and satisfaction.
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Results for contingent punishment and reprimanding leader behaviour are mixed in terms of their effects on subordinates job performance and satisfaction. However, non-contingent punishment leader behaviour has a strong, negative effect on subordinates job performance and satisfaction. Subordinates resent punishment and discipline that are discretionary or arbitrary on the leaders part.15 The careful reader will also note that the leaders use of rewards and punishers is magnied by the effects of equity comparisons made by employees. We saw, in Module 3, that equity is based on social comparisons made by employees in work settings. If employees judge the leaders contingent reward and punishment behaviours to be strongly connected to performance, then their (the employees) equity comparisons will strengthen perceptions of leader fairness in the work setting. However, if they see leaders who distribute rewards and punishers in a highly personalised way (non-contingent behaviour), then their perceptions of leader fairness will drop dramatically. The resulting decline in employees morale and job performance will be sharp and long-lasting. If such employees have job mobility, then they may quit or transfer to restore the balance in their equity comparisons. Again, if such employees are somehow locked into their jobs due to limited job mobility or nancial considerations (pay and benets which would be hard to duplicate elsewhere), then they will still try to restore fairness to their equity comparisons by discounting the importance of their jobs and by cutting back on their effort levels. Given the magnifying effects of employees equity comparisons on the leaders reward and punishment behaviour noted above, the prudent manager must make a special effort to practise the principles noted below in his use of rewards and punishers. These recommendations match those suggested in Module 3 for the use of punishment. 1 For signicant nancial and non-nancial rewards, ensure that their distribution to employees is based only on measurable and well-understood individual and group-based performance standards. To enhance the power of nancial and non-nancial performance-based rewards, use recognition and acknowledgement of organisational gratitude for exemplary individuals and groups. Create as much variety in nancial and non-nancial rewards as possible. Avoid confusion among employees concerning how individual and group performance is measured and rewarded. Generally avoid the use of punishment except in cases of organisational legal liability such as non-compliance with stated contracts; employee and customer safety; employee ethics violations such as sabotage or product espionage; continuous product and service defects which are traceable to individuals and work groups; and deliberate violations of organisational policies by individuals or their work groups. Avoid delays in the administration of both performance-contingent rewards and punishers. Avoid personal biases in giving rewards and punishers. Administer punishers to individuals or work groups in private.
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7.4

The New Age of Entrepreneurs


Entrepreneurship is the creation of wealth by assuming risk through equity, time, or career commitment to add value to a product or service. When this activity is performed in a large organisation, it is often called intrapreneurship. Peter Drucker suggests that much of the conventional wisdom about entrepreneurship is wrong. To Drucker, entrepreneurship is a discipline which can be learned and it is characterised more by hard work than by romanticism.16 A crucial feature of entrepreneurial behaviour is a bias for action, especially in creating innovative activities aimed at prot enhancement. Despite the growing systematisation of information about entrepreneurial behaviour, there are still a number of myths about entrepreneurs.17 1 Entrepreneurs are doers, not thinkers. It is clear from the histories of successful entrepreneurs that they assume risk based on careful planning and analysis. They assume risk, but only after they have reduced the chances of failure by thinking through their actions in some detail. Entrepreneurs are born and not made. Considerable evidence indicates that entrepreneurial traits are acquired and not inherited. This supports Druckers contention that entrepreneurial skills can be taught and learned. All you need is money. Having commitment to a good idea is much more important than having instant capital. If business starts required minimum levels of capitalisation to succeed, then few entrepreneurships would get off the ground. Being single minded is much more important than being rich when it comes to starting a business. All you need is luck. If you subscribe to this view, you must also believe that entrepreneurial skills are irrelevant. Individuals who believe in luck will not be successful entrepreneurs because they deny the importance of hard work and tenacity in making a business succeed. Virtually all successful entrepreneurs state that hard work and urgency were much more instrumental in their success than luck. The myth of the entrepreneurial prole. There are no checklists which simplify the traits of the successful entrepreneur. These checklists are useless oversimplications of a complex pattern of human behaviour. The prole approach to entrepreneurship suffers from the same problems as the trait approach to leadership. You can only partially understand a phenomenon if it is removed from its context.

The previous paragraph points out the dangers of the prole approach; Table 7.8 presents the views of psychologists and management consultants, who, through their research, perpetuate the myths of entrepreneurship.18 7.4.1

How Entrepreneurs Differ from Small Business Owners and Administrators


Researchers have tried to identify qualities that distinguish the entrepreneur from small business owners, managers and administrators. Sexton and BowmanUpton argue that dissatisfaction with the status quo and the ability to recognise an opportunity, exploit it and make a business grow set the entrepreneur apart

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Table 7.8
1 2 3 4 5 6 7 8 9 10

The entrepreneurial prole


What the entrepreneur believes You must make sacrices in your family life and standard of living to start a business. You must have a strong desire to succeed even in the face of several failures. Have a clear vision of your goal and be able to explain it to others. You should seek situations where you can assume responsibility for success or failure. Turn problems over until you get the best solution or result. Catch things that others miss. Believe that your outcomes are a control matter of your efforts. Be productive and focused in the face of substantial uncertainty. Lower your risk by developing a thorough business plan. Failure is temporary.

Entrepreneurs characteristic Is tenacious and makes sacrices Pursues achievements Is directive Assumes personal responsibility Solves problems Appreciates novelty Has an internal locus of control Tolerates ambiguity Takes calculated risks Handles failure

from the small business owner or the manager in a large corporation.19 They think of entrepreneurship as a process of opportunity recognition followed by a plan to exploit the opportunity. Thus, entrepreneurs and small business owners both start off the same way. However, a successful entrepreneur creates a business that soon outgrows the small business classication. Individuals beliefs about business opportunity detection and exploitation are not conned to only those individuals who start businesses. Entrepreneurs can be found in all organisational settings. In contrast to the perspective advanced in section 7.4, Sexton and Bowman-Upton argue that terms such as intrapreneurs are meaningless, because they create an articial category based on organisational afliation to describe a group of people who are really just entrepreneurs.20 They argue that the dening characteristics of entrepreneurs are the abilities to detect business opportunities and to exploit those opportunities to create a rapidly growing enterprise. Table 7.9 contrasts further the differences between entrepreneurial behaviour and the behaviour of administrators in public and private organisations. 7.4.2

Encouraging Entrepreneurial Behaviour In-House


Large companies are encouraging and rewarding employees who prevail against the forces of bureaucracy to become entrepreneurs. This happens when the organisation is well established and cannot react quickly to rapid market and technological change. Let us consider four companies which meet the challenge and overcome traditional internal, organisational obstacles to entrepreneurship. 1 Minnesota Mining and Manufacturing. Arthur Fry, 53, a 3M chemical engineer, used to be annoyed when pieces of paper he used to mark hymns slipped to the oor as he stood up to sing. He knew that Spencer Silver, a
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Table 7.9
Dimension of behaviour Creating value-added strategies

Differentiating entrepreneurial behaviour from administrative behaviour


Entrepreneurs tend to Spot opportunities Radically change the rm Exhibit self-condence Believe in rms capabilities

...

Bureaucrats tend to

...

Control the ow of resources Make incremental changes in methods Efciently use the rms current resources Separate personal beliefs about external opportunities and change (change is not always good) Checks and balances are more important than rapid decision-making Own equipment and facilities and add capacity only when capital costs are manageable Develop and maintain merit- based reward system Periodic salary surveys to ensure competitive pay

Taking decisions

External product and process opportunities are closely linked to the personal value that change is valuable and meaningful Flat structures best keep the rm exible and uid (cross-training is a must) Minimise risk by leasing or renting facilities and equipment Always be prepared to add capacity Keep salaries low and use ISPs to retain talented employees Use bonuses at individual and team levels

Tackling problems in the rm

Using incentives

scientist at 3M, had discovered an adhesive with very low sticking power. In the world of industrial adhesives that made for a useless adhesive. In Arthurs hymnal, it was another story. Arthur reasoned that a market existed for a paper product coated with an adhesive strip which gave the paper light adhesive properties. Since 3M allows employees to spend 15 per cent of their work time on independent projects, he began to develop the commercial aspects of the product. Fry made pads of paper coated with the material and distributed them to secretaries as a market test for the product. They were delighted with the product. 3M started production and distribution in earnest and soon had sales of $100m worth of Post-it Notes. At the age of 28, Nolan Busnell created a game called Pong, Americas rst video game. He formed the Atari Corporation to market his game. Within ve years he had sold his interests in the company for $28m. While a student at Yale, Frederick Smith sketched out his plans for an airdelivery business in a paper for his economics course. His professor gave him an average grade on the paper and in the course. After graduation he started a company based on his ideas. By the time he reached 40, his company called FedEx was grossing well over $1bn per year. Along with Paul Allen, William Gates founded the Microsoft Corporation when he was 20 years old and a Harvard drop-out. At the age of 40, his 30.5 per cent stake in the company was worth over $8bn. In the 20 years since he founded the company, it has generated more than $29bn in marketvalue added wealth for its shareholders. This places Microsoft well ahead
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of General Motors which is 60 years older and has annual sales of over $140bn.

7.4.3

How Organisations Encourage Entrepreneurial Employees and Innovation


The companies described above have employees who are innovative and entrepreneurial. In fact, these and other successful rms have special roles which are lled by managers and engineers who help nurture and develop entrepreneurial innovation in employees. Let us consider the roles that are necessary for encouraging intrapreneurship in the rm. First, each innovation in an organisation begins with an idea champion.17 This is an employee who generates an idea and retains responsibility for developing that idea in the organisation. Often, the idea champion with expertise power is a technical or professional employee with few management responsibilities. The idea champion recognises a problem and generates a solution. For each idea champion, there must also be a sponsor who nurtures the new concept and applies organisational resources to the increasingly disruptive and expensive development of the idea. The sponsor, who may be from another department, lends his positional power (and perhaps his reputation) to the idea, project, process, service or product in question. The best sponsors are former or current idea champions. They are employees who like to innovate and who tolerate pressure to be innovative. For the new concept to succeed, the organisation must have employees who occupy the role of orchestrator or godfather. This individual handles all of the political obstacles surrounding the commercialisation of the product, service, etc. He is often the president or general manager who has the authority to say: Were going to develop this concept. The godfather makes resources available, gets people working together and builds coalitions which help convert non-believers. The best godfathers were once idea champions and sponsors themselves. The creation of the special roles noted above are not sufcient to sustain entrepreneurship and innovation in the large organisation. The organisation must also create horizontal co-ordination mechanisms which protect innovation teams from outside interference. Galbraith calls these islands for unencumbered creative thinking reservations or greenhouses.22 These work units are different from other parts of the organisation.23 They are often physically removed from the rest of the rm. They take on unique characteristics which reect the work habits of the employees. One managers comments about such a work unit are illuminating:
The oor is cluttered with all a variety of magazines, a stereo blasts away, and photos of scenes from various science ction movies decorate one corner. These employees do not come to work until 10 a.m., and they dont leave until 11 p.m. This went on for four months. At the end of that period, I asked one employee what he had accomplished. The employee responded: Weve nally found the key problem that users are having with our software. They dont like the way the screens present information. When I asked why it took four months to gure this out, the employee responded, Why not? We now know the key to what makes

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the product sell or not sell. Within two months the group presented a redesigned software package which eventually contributed to a 20 per cent increase in sales.23

Now, let us see how you think you would t in to an organisation which uses idea champions, sponsors, godfathers and greenhouses. Try the short questionnaire below to see if youre innovative and suited to be an idea champion.10 Instructions: Rate each statement honestly by using the following scale: 1 = Always describes me. 2 = Often describes me. 3 = Sometimes describes me. 4 = Never describes me. 1 2 3 4 5 6 7 8 9 10 I do not worry about getting a bad job performance rating. I more often attempt difcult tasks that I am not sure I can do than easier tasks that Im sure I can do. I would rather do something that I feel is challenging and difcult than something that is easy. I prefer to develop my own approach to work rather than have a job description. It is very important to me to do my work as well as I can, even if it means not getting along well with my peers. I rarely ask for instructions from my manager even when my job seems unclear. My idea of how success should be measured does not depend on the number of promotions I receive. When I work, I like situations in which I cant get everything done without the help of others. I make things happen when I work. I can accomplish things no matter what the work climate is like. I do not expect to succeed all of the time. The important idea is to have lots of room to try new things.

Add up your score. If the total is under 28, then you would be effective in an organisation that puts pressure on employees to innovate. As a general prole, you 1) probably tolerate ambiguity well, 2) believe you can control your own destiny at work, 3) are not too concerned with organisational politics, 4) handle work overloads well, 5) are persistent about accomplishing things under conditions of adversity and 6) are not afraid to go against work rules. If you scored over 28, then you probably favour an organisation which rewards adherence to rules and procedures and has very specic performance goals. You are sensitive to the needs of your co-workers and political aspects of the organisation matter to you. Where do you stand? You can see that the idea champions life is loaded with controversy and doubters. People may block the idea champions way and resist his ideas in favour of the status quo in the organisation. If the idea champions
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life is for you, be prepared to defy the culture of the organisation if it does not encourage intrapreneurship and innovation. It can be lonely for a while, but the rewards can be substantial.

Summary Points
Power is the ability to inuence someone else. Authority is the right to order or to ask others to do what you want them to do. It is bestowed by the position in the organisational hierarchy. Inuence is the process of affecting the thoughts, feelings and behaviours of others. All employees have a zone of indifference, the range in which they perceive inuence attempts to be legitimate and fair. Managers who use power ethically must communicate effectively and through their words and actions show respect for their subordinates. There are several sources of interpersonal power. Reward power, coercive power and legitimate power all adhere to the position held by the individual. They are a function of vertical placement in the hierarchy. Referent and expert power are forms of personal power which have little to do with placement in the hierarchy of the organisation. Subunits in the organisation gain power by 1) competing for resources, 2) managing organisational uncertainty, 3) occupying a central position in the ow of work and 4) eliminating substitutes for the subunits activities. Organisational politics refers to the management of inuence to obtain ends not sanctioned by the organisation or to obtain sanctioned ends through non-sanctioned means. Managers play politics by whistle-blowing, sustaining line and staff conict, building coalitions and nding sponsors and practising insurgency. Whistleblowing behaviour occurs when the organisations values and practices violate an employees instrumental or terminal values. Upward management of the boss is both reasonable and necessary to sustain an effective superiorsubordinate relationship. Leadership is the power of one individual to guide the actions of another. Management is understood as a set of interlocking roles: 1) interpersonal, 2) informational and 3) decisional. The study of leadership moves forward on three fronts: 1) trait theory; 2) behavioural style theory and 3) contingency theory. The trait theory emphasises qualities of the leader. The behavioural style theory focuses on the actual behaviours of the leader. The contingency theory attempts to blend leader behaviours with the demands of the leadership situation. Behavioural style theory emphasises two basic forms of leader behaviour: 1) consideration refers to those behaviours which sustain the morale and cohesiveness of the work group and 2) initiating structure refers to directive behaviours which focus on achieving goals and clarifying work. Both leader behaviours are related to group performance and member satisfaction
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depending on: 1) external pressure, 2) nature of the task, 3) clarity of goals and 4) extent of performance feedback. Fiedlers contingency theory tries to integrate the leaders orientation to his least-preferred co-worker and the favourableness of the leadership situation. The theory proposes that the situation is composed of: 1) leadermember relations, 2) leaders position power and 3) task structure. The leaders control of situational favourableness can be enhanced by changes in leader member relations, position power and task structure. The path-goal theory of leadership proposes that the leaders job is the clarication of pathways between subordinates effort and performance, and between subordinates performance and the rewards they value. The leader can adopt: 1) directive, 2) supportive, 3) participative or 4) achievementoriented behaviour to achieve the clarication noted. Characteristics of subordinates, tasks and the organisation can function as neutralisers and substitutes for leadership. Leader reward and punishment behaviours consist of four dimensions. The leaders use of non-performance-contingent punishment behaviour will undermine his position the fastest. Entrepreneurs are special types of leaders who create wealth by assuming risk. Entrepreneurship consists of skills which can be learned. They differ from administrators in their orientation to strategy, opportunity exploitation, decision-making, resource-allocation and reward practices. Entrepreneurial behaviour can be learned by employees. The organisation must create the roles of: 1) idea champion, 2) sponsor and 3) godfather to ensure a culture that encourages entrepreneurship. Organisations must also protect creative groups from organisational bureaucracy by creating greenhouses or reservations.

Review Questions
True/False Questions
7.1 If an employee has expert power and referent power, then he must also have authority. T or F? 7.2 Banning smoking in public work areas is an expression of coercive power. T or F? 7.3 If a task is ambiguous, subordinates will be more effective and satised with a manager who uses a combination of referent and expert power than with a manager who uses a combination of legitimate and reward power. T or F? 7.4 An employee with referent and expert power will automatically acquire more legitimate power. T or F? 7.5 By and large, employees are limited in the ways they can gain power at work. T or F?

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7.6 If an employee attempts to manage his boss, it always makes sense to become thoroughly familiar with his management style. T or F? 7.7 Generally, manufacturing units are better able to manage organisational uncertainty than sales and marketing units. T or F? 7.8 As organisations practise more just-in-time inventory management, purchasing departments will lose their centrality. T or F? 7.9 Stockbrokers who practise insider trading would be pursuing approved outcomes by unapproved methods. T or F? 7.10 Whistle-blowers are typically disgruntled employees who have an axe to grind with their employers. T or F? 7.11 If a manager were explaining a new personnel policy to his workers, he would be engaging in the disseminator role. T or F? 7.12 The trait theory of leadership does not emphasise the observable behaviour of leaders. T or F? 7.13 Contingency theories of leadership blend leader behaviours or traits and the situation the leader confronts. T or F? 7.14 The main problem with the trait approach to leadership is its failure to develop a set of core traits. T or F? 7.15 The behavioural approach to leadership posits that leaders can only be successful if they learn how to exhibit both consideration and initiating structure. T or F? 7.16 Fiedlers contingency theory places special emphasis on the value of teaching people how to change their task-oriented or relations-oriented leader behaviours. T or F? 7.17 When subordinates have high ability and the task is unambiguous, then a combination of directive and supportive behaviour will work best for the leader. T or F? 7.18 Characteristics of subordinates can be a substitute for leadership, but never a neutraliser. T or F? 7.19 Companies can achieve more intrapreneurship by encouraging idea champions, creating sponsors, and protecting creative teams from organisational bureaucracy. T or F? 7.20 Creating a greenhouse for a new product development team may encourage the development of expert power in all team members. T or F?

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Multiple Choice Questions


7.21 The right to give orders inherent in ones position is to inuence peers and superiors is . A B C D E power; authority inuence; authority locus of control; need for achievement authority; power power; control and the capacity

7.22 Which of the following types of interpersonal power is not likely to change after a lateral job transfer (or transfer to the same job at another location) in the same company? A B C D E legitimate expert coercive reward referent

7.23 Which of the following power sources is least likely to be available to a technical, non-managerial employee? A B C D E expert legitimate referent knowledge coercive

7.24 Being a management trainee, you are assigned to a senior manager who becomes your mentor. The relationship you have with your mentor is based on power. A B C D E reward coercive referent expert legitimate

7.25 When an employee engages in entrepreneurial behaviour and seeks to nd creative solutions to problems confronting his department, he is using to gain power in his job and career. A B C D E creating obligations in others giving excellent performance limiting access to information taking risks and being creative rule manipulation

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7.26 Which of the following is least likely to minimise the problems associated with organisational politics? A B C D E encouraging participative management. communicating the rationale behind decisions. clarifying goals and performance objectives. maintaining open communication channels to higher levels of management. disregarding the informal organisation.

7.27 The problem of which comes rst: great leaders who make great situations or great situations which make great leaders, is handled least well by the leadership theory. A B C D E behavioural trait contingency path-goal neutraliser

7.28 The Fiedler contingency theory of leadership would predict which of the following in matching the leader to a favourable leadership situation? A B C D E re-engineer the situation. leader behaviour training. better selection and assignment of the leader to the situation. match LPC score to locus of control. train followers in consideration and initiating structure.

7.29 According to Fiedlers leadership research, high LPC (relations-oriented) leaders are most effective in situations where: A B C D E leadermember relations are poor, the task is unstructured and position power is weak. leadermember relations are poor, the task is structured and position power is strong. leadermember relations are good, the task is unstructured and position power is weak. leadermember relations are good, the task is structured and position power is weak. leadermember relations are good, the task is structured and position power is strong.

7.30 Houses path-goal theory of leadership is a transactional, contingency theory of leadership which shares theoretical principles with A B C D E expectancy theory. Herzbergs two-factor theory. Maslows hierarchy of needs. McClellands socially acquired need theory. management by objectives.

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Short Essay Questions


7.1 A project team is working to develop a new product. The team selects members to manage components of the project based on their expertise. The members have all worked together before and this is their third new product development effort. The team is highly cohesive, members set their own work hours and the team is generally protected from outside interference by the project manager. Given this description, which sources of interpersonal power will be most important in sustaining the effectiveness of the project team? 7.2 What is the most important distinction to make in understanding a persons power in an organisation? 7.3 Develop an argument for explaining the extent of your marketing departments power in your organisation. 7.4 Some top executives have suggested that their organisations would do much better if they could get rid of politics. From the information in the module, do you think that the complete elimination of political behaviour is possible? 7.5 Characterise how management differs from leadership. 7.6 Suppose you had to explain to a friend how leadership study had changed over the years. What would you say about its development? 7.7 Based on the discussion of entrepreneurship, what recommendation would you make to a rm wanting to develop entrepreneurial employees and innovative teams? 7.8 Why do start-up companies in industries with shortening product life cycles have to function in an entrepreneurial fashion? 7.9 Why must upward management become more important in delayered and downsized organisations?

Case Study 7.1: Lenton Industries


Ian Reese could not think of a time in the history of the company when there had been as much anti-company sentiment among the workers as had emerged in the past few weeks. He knew that Ashton Lenton would blame him for problems in the production division. Ian was supposed to be smoothing the transition for Ashtons son Wexley as manager of the production division. Wexley had only recently taken over as production manager of the company (see Table 7.10). Wexley was very unpopular with most of the production workers, but the events of the past weeks had caused him to be resented even more. Anger was so high in the production division that several foremen had left and none of the female production workers would come to work. Their resentment had increased to the point where several female employees were threatening to le harassment suits against Wexley. The programmes which had caused the worker resentment were instituted by Wexley to reduce waste and production costs, but they had produced completely
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opposite results. Ian knew that on Monday morning he would have to explain to Mr Lenton why the workers had reacted as they had and that he would have to present a plan to resolve the employee problems, reduce waste and decrease production costs.
Table 7.10 Lenton organisational chart
President Mr Lenton Assistant Ian Reese Accounting Engineering Production Marketing Product Design Wexley Lenton Assistant Eve Orderly Foreman L. Orbs Foreman B. Sharp Foreman Y. Fore

Company History
The rm makes circuit boards for an original equipment manufacturer. Lenton purchases all the parts and assembles the boards for direct shipment to several American manufacturers. Lenton had grown swiftly due to the expansion of its major customer which accounted for 90 per cent of Lentons business. When Mr Lenton began the business, his was one of a handful of rms building the boards. Recently, several other rms had started making similar boards. One competitor had bid on business with Lentons major customer. Thus, Mr Lenton began to put pressure on Ian to increase efciency and cut production costs to ensure low bids to the valued customer.

Conditions before the Cost Reduction Programmes


A family-type atmosphere had existed at Lenton before the cost reduction programmes were installed. There was little direct supervision and pressure was seldom placed on employees to meet production standards. Several employees worked overtime without supervision and most employees socialised at lunch and they often played cards together after work. Mr Lenton was on good terms with all employees but he was not perceived by employees as being involved actively in all operational decisions. He used Ian as his assistant and he was responsible for ensuring that company goals were achieved. Ian had a reputation as a rm manager who seldom gave in to employee complaints. Wexley Lenton had recently been appointed as production manager by his father. He was 25 and recently married. He supervised employees very closely and was a stickler for detail in record-keeping. Most of the production employees believed that Wexley was the production manager because he was the founders son. He would frequently pull production employees away from their jobs to work on his special projects which were not always related to the work of the
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rm. Recently, several employees had completed the installation of a computer system at Wexleys home. While Wexley took great personal interest in the details of record-keeping, his interest in personnel matters and production control was lower. He rarely spoke to employees and he left distasteful personnel decisions to his secretary, Eve Orderly. Production tasks were repetitive and foremen supervised the work of 70 employees on three assembly lines. Employeeforeman relationships were good, but the employees found the work to be boring and monotonous. Wages were about average for the industry and Lentons employee turnover rate was also about average. The foremen knew that the work was monotonous. They frequently looked the other way if employees took slightly longer breaks, especially if the group was on schedule with its work. Employee theft was generally not a problem. Quality control had become an issue and several foremen had mentioned to Wexley that a quality control inspector should be hired.

New Programmes in Production


After Mr Lenton began emphasising cost control and waste reduction, Wexley called the foremen together and indicated to them that they would be responsible for implementing tighter work rules. Each foreman received specic goals in terms of 1) higher production quotas, 2) more productivity per labour hour, 3) lower waste and 4) a new handbook on administering employee discipline. They were told to implement the programme in a week. The foremens efforts to implement the goals met with immediate employee resistance. The employees reactions were typied by Allison Roe, an assembler on Lewis Orbs production line: I dont get it, Lewis used to be one of us. He knows how monotonous this work is, why is he being such a tyrant all of a sudden? Nobody wants to be around him any more. All he does is complain about his new goals. Foremen complained to Ian that they were caught in the middle, and were made to be the bad guys in the new efciency programme. For several weeks there were no improvements in the four targeted areas. Ian called a meeting with Wexley and the foremen to announce a new cost-cutting programme. The production division was going on a four-day, 40-hour work week to reduce costs. In addition, the practice of unsupervised overtime would end. There was considerable grumbling about the new work hours, especially among the older workers who felt 10-hour work days were too long. The younger employees were indifferent to the four-day work week plan. The third change upset all the employees, however. Ian told them that no one would work overtime any more. Employees from each of the production lines agreed to stage a work slowdown. Previously hard-working employees voiced their support for the slowdown, reasoning that the company cant re all of us. Ian and Wexley observed the effects of the slow-down. Wexleys response was to further tighten work rules by requiring: 1) a loss of one half-hours pay for each ve minutes of lateness in reporting to work in the morning and after lunch, 2) reducing breaks from
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30 minutes to 15 minutes and 3) a new discipline system which would result in dismissal more quickly for work infractions. The new rules drew re quickly from the employees. For the next two weeks they agrantly violated the new rules. Wexley had Yves Fore dismiss two employees under the new discipline system. Other problems surfaced in Bernard Sharps assembly area. There, employees were slowing down work by taking too much time to test circuit boards. Since they had been told that quality control was too lax in their department, they had agreed among themselves to increase the amount of time they spent on board inspection regardless of its effect on production output. Bernard had asked Wexley to help him design some new standards for quality control, but Wexley had not done it. Now employees were setting up their own quality control guidelines and it was hurting production seriously. Ian heard of the problem and he promised Bernard that he would meet with the employees and discuss a more workable system for conducting good board inspection without serious disruption to production rates.

Ians Dilemma
As Ian sat at his desk, he gave serious thought to resigning. The new emphasis on cost control and waste management was turning into increasingly numerous and restrictive work rules which were frustrating employees. He was nding that his work relationship with Wexley was becoming more strained. Worse, perhaps, was the total deterioration in co-operation between Wexley and the foremen. The foremen were routinely ignoring Wexleys tightened work rules. Phillip Colson, the company accountant, came into Ians ofce. He dropped the previous months production efciency and productivity report on Ians desk. Ian ipped the printout to the production gures and he knew instantly that hed have to call a meeting with Mr Lenton, Wexley and the production foremen. The report clearly indicated that production quotas had not been met, quality control had deteriorated and productivity per production employee had declined. These gures indicated that the company was no longer price competitive. Mr Lenton would not be pleased. 1 What kind of leadership procedures are now needed to resolve the problems in the production division? 2 Analyse the current problems in production from the standpoint of Mintzbergs managerial roles.

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Case Study 7.2: Looking for Mrs Good Cookie

Debbie Fields is the quintessential hands-on CEO and founder of the cookie company which bears her name. As part of her management routine, she makes unannounced visits to stores where she quickly sizes up the effectiveness of operations and quizzes the manager about sales gures and store expenditures. Since she had an extremely high need for achievement, she had demanding expectations for store managers and their adherence to company management practices. While some management experts might judge her to be a very demanding taskmaster, others who are familiar with her methods say: If shes not satised with the way a store is being run, she simply rolls up her sleeves and does the job herself. According to her husband Randy, She can go into a store after visiting [once] and remember not only a staff persons name but the names of members of her family, or what the telephone bill was at that store two months ago. As she is something of a business icon, management writers and students of business have compared her to gures as diverse as Colonel Saunders and Margaret Thatcher. Her autobiography, One Smart Cookie, has been a best-seller and her store management methods have been copied by competitors. During the late 1980s she was a frequent guest lecturer at prominent American business schools and she has been a celebrity guest on American TV game shows. She has been an inspiration to would-be women entrepreneurs everywhere because she seems to have geared herself for success in the cut-throat food retailing world while maintaining a household and a successful marriage. Dissatised women on corporate career paths ocked to her seminars and several became highly successful managers of her retail cookie stores. By 1987, 10 years after she started the company, it had grown to 543 retail outlets in six countries. While the debt load grew, sales grew faster, and the company had sales of $104m and earnings of $18m in 1987. That year the companys stock was issued in London on an unlisted exchange and it soared as investors hoped to capitalise on the companys proven growth formula. By the late 1980s the strains of the companys frenetic growth were beginning to show. The rapid expansion in the number of stores had proven costly as many of the stores were weighted down by very expensive long-term leases which placed a huge burden on prot margins. The onset of a US recession made once loyal customers think twice about paying a dollar for a chocolate chip cookie. Mrs Fields soon recognised that she could not personally control all aspects of the business and continue to make good decisions which would lead to stable operations and continued growth. By 1988 her bankers were concerned by stagnant sales, rising costs and the companys increasing inability to service its heavy debt load. Her bankers encouraged her to reduce costs so she agreed to close 97 stores which resulted in a $19m loss. Meanwhile, she started to learn how to delegate authority and * Sources: Alan Prendergast, Learning to Let Go, Working Woman, February 1992: 425; Robin Pogribin,
What Went Wrong with Mrs Fields?, Working Woman, July 1993: 911; Harris Collingwood, Kitchen Too Hot for Mrs Fields?, Business Week, 1 March, 1993: 46.

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she began to ll needed professional manager positions in her company. With the help of a marketing specialist, she repositioned the company as a speciality food retailer in the highly competitive, premium, convenience food niche. To exploit this new competitive advantage, her company began to load the product pipeline with new offerings which capitalised on her name. To broaden the market base for her companys products she signed a licensing agreement with the Marriott Corporation, a major US hotel and restaurant conglomerate. This agreement allowed Marriott to open Mrs Fields stores along freeways and in major US airports. Over 50 new locations were planned in 1995. Her company also entered a licensing arrangement with Ambrosia Chocolate to peddle semisweet chocolate chips in supermarkets. The company is now opening cookiebakery-coffee shops which also feature soups and sandwiches along with the signature premium cookies and cakes. Clearly, the mass-merchandising of the Mrs Fields name had begun. Still unsatised, her lenders forced her out as president and CEO in the spring of 1993. In a debt-for-equity exchange, her creditors got 80 per cent of the business when she resigned her two positions. Even though she has been removed from company operations, she remains chairwoman of the board and the companys largest stockholder with her 20 per cent stake. 1 Was Debbie Fields hands-on style of management necessary to build the company? Did it contribute to the companys problems by the late 1980s? 2 Using concepts from the module describe Mrs Fields use of power and features of her leadership behaviour and style.

References
1 2 Cobb, A. (1984) An Episodic Model of Power: Toward an Integration of the Theory and Research, Academy of Management Review 9: 48293. French, J. and Raven, B. (1959) The Bases of Social Power, in D. Cartwright (ed.), Studies in Social Power. Ann Arbor, Mich.: Institute of Social Research, University of Michigan. Crozier, M. (1964) The Bureaucratic Phenomenon. Chicago, IL: University of Chicago Press. Velasquez, M., Moberg, D. and Cavanaugh, G. (1982) Organizational Statesmanship and Dirty Politics: Ethical Guidelines for the Organizational Politician, Organizational Dynamics 11: 6577. Hickson, D., Hinings, C., Lee, C., Schneck, R. and Pennings, J. (1971) A Strategic Contingency Theory of Intraorganizational Power, Administrative Science Quarterly 16: 21629. Mayes, B. and Allen, R. (1977) Toward a Denition of Organizational Politics, Academy of Management Review 2: 6728. Mintzberg, H. (1983) Power In and Around Organizations. Englewood Cliffs, NJ: Prentice Hall. Mintzberg, H. (1973) The Nature of Managerial Work. New York: Harper & Row.

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Kotter, J. (1982) What Effective General Managers Really Do, Harvard Business Review (JanuaryFebruary): 15662. Dailey, R. (1988) Understanding People in Organizations. St. Paul, MN: West. Bennis, W. and Nanus, B. (1985) Leaders: The Strategies for Taking Charge. New York: Harper & Row. Lewin, K., Lippitt, R. and White, R. (1939) Patterns of Aggressive Behavior in Experimentally Created Social Climates, Journal of Social Psychology 10: 27199. Fiedler, F. (1967) A Theory of Leadership Effectiveness. New York: McGraw-Hill. House, R. (1971) A Path-Goal Theory of Leader Effectiveness, Administrative Science Quarterly 16: 32139. Korukonda, A. and Hunt, J. (1989) Pat on the Back or Kick in the Pants: An Application of Cognitive Inference to the Study of Leader Reward and Punishment Behaviors, Group and Organizational Studies 14, No. 3: 299324. Drucker, P. (1985) The Entrepreneurial Mystiques, Inc. (Oct.): 3444. Aldag, R. and Stearns, T. (1987) Management. Chicago, IL: Southwestern. McClelland, D. (1976) The Achieving Society. New York: Irvington. Sexton, D. and Bowman-Upton, N. (1991) Entrepreneurship: Creativity and Growth. New York: Macmillan, 1213. Sexton, D. and Bowman-Upton, N. (1991) op. cit., 13. Aldag, R. and Stearns, T. (1987) op. cit. Here Come the Intrapreneurs (1985) Time, 4 February: 367. Galbraith, J. (1982) Designing the Innovating Organization, Organizational Dynamics (Winter 1982): 525.

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Contents
8.1 8.1.1 8.1.2 8.2 8.2.1 8.2.2 8.2.3 8.2.4 8.2.5 8.2.6 8.2.7 8.3 8.3.1 8.4 8.5 8.5.1 8.5.2 8.6 8.7 Making Sense of Organisational Anatomy Understanding Organisational Design Aspects of Organisational Design Organisational Structure: Understanding the Basics Centralisation and Decentralisation Interorganisational Designs Organisational Design and Employee Needs Co-ordination and Control Vertical Co-ordination Mechanisms Horizontal Co-ordination Mechanisms Control in the Organisation Understanding the Responsive Organisation Experiments with the Boundaryless Organisation Drivers of Growth in Customer Service How Good Service Retains Customers Managing Services Differs from Producing Products Excellent Service Goes Beyond Manufacturing Efciency Organising Principles of Service Quality Creating a Service-Driven Organisation 8/3 8/3 8/4 8/13 8/13 8/15 8/18 8/19 8/20 8/22 8/24 8/27 8/30 8/35 8/36 8/37 8/38 8/40 8/44 8/46 8/49 8/54 8/56 8/60

Summary Points Review Questions Case Study 8.1: Analysing a Change in Design Case Study 8.2: How Hewlett-Packard Avoided the Decline Suffered by IBM and DEC Case Study 3: Dumbsizing

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Learning Objectives
By the end of this module you will be able to: Differentiate between organisational structure and organisational design. Identify the distinguishing features of mechanistic and organic organisational designs. Develop the four key design issues of division of labour, delegation of authority, departmentalisation, and span of control. Explain the principles underlying effective delegation of authority. Differentiate between the four basic organisational designs. Explain the reasoning behind decisions to centralise or decentralise organisations. Weigh the benets and costs of decentralised business operations. Differentiate between organisational co-ordination and organisational control. Delineate the methods to achieve improved horizontal and vertical coordination. Explain the differences between process-oriented and results-oriented control systems. Understand why eliminating the manufacturing approach in customer service requires a commitment to a strengthened employment relationship. Explain why service quality improvements require the rebuilding of organisational structure and processes from the bottom up to support service delivery employees. Assess whether service quality is a major component of competitive advantage in the rm. Explain why service quality training is an investment in future earnings streams (and not a current expense). Show how excellent service depends on employees who are highly trained and empowered to make on-the-spot improvements in service. Explain how a service-driven competitive advantage must be based on performance-contingent intrinsic and extrinsic rewards. Show how the managers role shifts from control to support of front-line service employees in service-driven rms. Explain how outsourcing of services to cut costs can jeopardise competitive advantage and customer loyalty if the suppliers service is deemed inadequate by customers. Explain that raising service quality is far more time consuming than downsizing, but is more likely to sustain competitive advantage.

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8.1

Making Sense of Organisational Anatomy


This module deals with the macro, or large-scale, organisational design issues. Here, we are concerned with how managers put people together to co-ordinate their work and to achieve the organisations goals. If managers pay little attention to the proper design for the rm (or do not co-ordinate work), employees do not full their performance potential and they do not achieve the goals of the companys strategic plan. Consider the following example.
Rex is a senior design engineer who has a good idea for an improvement in a robotic device used to examine the interior of large turbines built by the company. He was told to take his idea to a project manager in the robotics division. The project manager explained that Rex must get written approval from the director of robotics to work on the device. Rex took his idea to that director who informed him that he needed sketches before he could consider giving him permission to work on it further. Rex was beginning to sense that he was getting the red tape run-around. Next, he went to the computer assisted design division for approval to create the preliminary sketches. The department head told him that all of his computer design stations were occupied for the near future. Rex lost his temper and lectured the department head about obstacles that keep the company from being the technological leader in the industry.

All of the people in this example may be highly motivated and effective employees. However, Rexs desire to innovate is being severely hampered by the structure of the company and the formality of its product decision making system. 8.1.1

Understanding Organisational Design


Informally, the structural conguration of a company is the way work is divided and how it achieves co-ordination among its various work activities. 1 A companys structure resolves the two basic tasks of getting work done: 1) dividing up the work in the organisation and 2) ensuring the work gets done by providing co-ordination and control of employees work activities.

How Do Managers Tackle the Problem of Creating an Effective Organisational Design?


Organisational design is a series of decisions made by managers about the best organisational arrangements to achieve the goals in their strategic plans. The organisational arrangements include: 1) division of labour, 2) allocation of authority, 3) departmentalisation, and 4) span of control.2 The concepts are shown in Figure 8.1 along with some related ideas. Burns and Stalker, two British social scientists, have labelled organisations as either mechanistic or organic (see Figure 8.1).3 Mechanistic organisations have: 1) high division of labour, 2) low delegation of authority, 3) departments with great uniformity of work activities, and 4) narrow spans of control. Mechanistic organisations are represented by the left end of each continuum in Figure 8.1. Such organisations possess tight rules and policies, limited individual job discretion, and co-ordination which is formal and written. Organic organisations exist on the right side of each continuum shown in Figure 8.1. These organisations have less job specialisation, greater delegation
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MECHANISTIC DESIGN ORGANISATIONAL DESIGN ISSUES Division of labour High Distribution of authority DEGREE OF CENTRALISATION Low delegation DEGREE OF WORK SPECIALISATION

ORGANIC DESIGN

Low

High delegation DEGREE OF WORK UNIFORMITY

Departmentalisation

High uniformity NUMBER OF SUBORDINATES Few

Low uniformity

Span of control

Many

Figure 8.1

Fundamental issues in organisational design

of authority to employees, low uniformity among employees in work units and wide spans of control for managers. Employees in organic organisations: 1) have few rules and procedures to follow, 2) expect face-to-face or informal co-ordination, and 3) expect to be empowered to create their own work plans and schedules. 8.1.2

Aspects of Organisational Design

Division of Labour
Division of labour is the degree of job specialisation in a rm. It is the specic tasks and work methods which dene an employees job. Its aspects are: 1) specifying the type of work performed (e.g., research scientist, computer programmer, production superintendent), or 2) the work method or process to be used (accounting, production, marketing). Division of labour results in specialisation and it is the primary source of increasing marginal productivity in work units. To a point, output per employee increases as more employees performing related tasks are grouped together. Technological advances in communication and process control overcome co-ordination problems as work unit size increases. Such advances make it possible for one manager to supervise a large number of employees, even telecommuters. Technological advances reduce declines in employees marginal productivity as unit size increases. Division of labour makes companies effective because managers break down jobs into subtasks at which employees develop expertise through repetition. In this way companies capture efciencies in production systems which can be transformed into lower cost per unit of output and sustainable competitive advantage.

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Delegation of Authority
Delegation of authority is a managers decision about how much authority to give to a subordinate. In many ways, it is a managers decision to give a piece of his job to a subordinate or a team of employees. Authority was dened in Module 7 and it is the legitimate right to give direct orders to teams or individuals. It ows to a manager from his position in the hierarchy or chain of command.4 The process by which authority is distributed downward to employees is delegation of authority. Heres a short story on the subject of authority delegation.
Victors superior, Adrian, was concerned that Victor might make costly mistakes if he were given more authority. When Adrian reviewed the types of errors that Victor could make, he determined that the costliest mistake was 15 000; yet it could cost the organisation as much as 35 000 in executive time, regulatory compliance and other time-consuming activities if Adrian and other managers had to handle the problems that should be assigned to Victor. He decided, after considering the differences in costs, to give Victor more authority.4

Why Must Managers Delegate Authority?


From the managers point of view, delegation represents giving up some measure of control. Managers cannot do all of the rms work alone. They must accomplish goals through the efforts of others. They must take advantage of subordinates expertise and job skills while developing them to take on increasingly more complicated tasks. From the standpoint of subordinates, receiving authority is one of the only ways to acquire management skills which can lead to promotions and pay rises. Getting more authority can be a powerful motivator (intrinsic reward) which raises subordinates effort levels. The need to be effective in delegation of authority is even more pressing in downsized and delayered rms. There, the focus of delegation is likely to be self-directed work teams rather than separate individuals. Principles of delegation of authority. Lets note the major principles which a manager must follow to be an effective delegator. First, for each responsibility delegated to a team or a subordinate, an equal amount of authority must be given. If you give a business computer salesman the responsibility for assessing the needs of customers, you must also give him the authority to act on the assessment and recommend a particular conguration of hardware (and price) to meet the customers needs. Second, all decisions should be delegated to the lowest organisational level possible, i.e., to the level at which employees or self-directed teams who know what to do can act responsibly on behalf of the rm. This rule can make the difference between high-quality products and swift, sure service priced to meet the competition or shoddy products which are backed up by deplorable service. When employees are involved in decisions which affect product quality and service (i.e., given authority for quality control) and, in turn, are held responsible for controlling production, costs begin to stabilise or go down, and quality rises. Japanese management systems rely on the principle of delegation of authority to teams in the areas of production and quality control. These techniques have helped make Japanese products the highest quality in the world.
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Third, practise management by exception. A manager only becomes involved when an exception to the work routine of the team or subordinate occurs. This does not mean the manager retracts the delegated authority. He gets involved in the work activity which is creating the exception. When managers leave people alone to do their work, they have time to complete their own work. Managing by exception is not an excuse to be out of touch. Instead, it is a way to help teams or subordinates achieve their potential while giving the manager more time to manage. Fourth, managers should tell the teams or subordinates not only what to do but how to do it. Simply telling them that they now have the authority to complete particular tasks or projects on their own is not effective delegation. The effective delegator ensures that the employees understanding of the task is complete. Also, he checks with the subordinate to see that he knows how to complete the work. Fifth, the subordinates responsibility to his superior is absolute and superiors cannot escape responsibility for the performance of their subordinates. This means that the boss cannot escape responsibility for failure by saying: My subordinate did not complete his work on time. Ultimately, all managers are responsible for the work of their subordinates. The application of the ve rules of delegation create benecial outcomes for the rm and its work-force. First the widespread delegation of authority leads to a competitive work climate because employees at the same level are evaluated by their ability to handle delegated tasks. Employees also can become more creative because they have more autonomy which leads to more opportunity to participate in problem-solving and decision-making. Additional benets of delegation are summed up in the book In Search of Excellence by Peters and Waterman (Harper & Row (1982), who point out that simple organisational structures are the result of widespread delegation of authority. In general, simple structures with high delegation characterise many of the most effectively managed organisations. Peters and Waterman have come up with the rule of 100, which says that there is seldom a need for more than 100 people in the corporate headquarters. Examples of this rule include the following: 1 2 3 4 Emerson Electric, with 54 000 employees, has fewer than 100 at its headquarters. Dana, with 35 000 employees, recently cut its corporate staff from 500 to 100 employees. WalMart, with $190bn in annual sales has a corporate staff of under 400 at its headquarters. Schlumberger Inc. has a corporate staff of 90 employees.5

These rms have lean corporate staffs because their top managers believe that their companies can be low-cost competitors in their industries. To achieve a lower cost structure, managements of the rms must practise the principles of delegation so that employees working in the eld stay close to the needs of customers and react quickly to actions taken by competitors. In a company that pursues the low-cost producer competitive advantage, delegation of authority must be a basic principle of operation.
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Departmentalisation
Departmentalisation refers to how work activities are grouped together. For instance, functional departmentalisation groups work activities around essential functions such as manufacturing, sales and nance. Departmentalisation can also be based on technology, product, types of customers, types of distribution channels used, or geographic regions covered by the company. Regardless of the form of departmentalisation chosen, work activities are grouped together and assigned to managers. Departmentalisation is the logical grouping of work activities to create divisions, branches, units and sections in a company. Below, the various forms of departmentalisation noted above are described in greater detail. Managers can create work units which have employees performing aspects of the same function. All organisations have basic functions which must be performed. As an example, a hospital has the following functions: radiology, surgery, emergency care, cardiac care, pediatric care, internal medicine, nursing services, and psychiatry and out-patient services. The functions of a manufacturing rm might include production, purchasing, personnel, nance, accounting, and marketing. Figure 8.2 shows a simple functional departmentalisation for an organisation.

GENERAL MANAGER ENGINEERING MANUFACTURING EXECUTIVE ENGINEER PRODUCTION PURCHASING MARKET RESEARCH PUBLIC RELATIONS QUALITY CONTROL MARKETING AND SALES FINANCE PERSONNEL

Figure 8.2

The functional design

The functions depicted in the manufacturing rm shown in Figure 8.2 are engineering, manufacturing, quality control, marketing and sales, nance and personnel. The principal advantages of the functional design are noted below. 1 2 The structure is a logical reection of the rms functions. It is based on specialisation (i.e., the purchasing department has expertise in buying all the components and materials which go into production) which is efcient. It is efcient because individuals in functional departments learn to speak a common language (accounting, purchasing, quality control, and so on). It minimises the extent of duplication of effort. Training of employees is narrowed and simplied. It facilitates tight control and the legitimate authority of the chain of command is reinforced. Several disadvantages do occur in functional designs, however.
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Overspecialisation can take place and this can narrow the business viewpoints in functional departments. The development of managers is limited to their functional areas. Co-ordination between departments can weaken; for instance, employees in purchasing may never be aware of problems confronting marketing personnel. Employees identify more strongly with their departments than with the culture of the rm. The chief executive may be overburdened. Managers may fail to develop a strong focus on customers, products or markets.

The territorial design establishes work groups based on a geographic area. The rationale is that all activities in a particular area should be controlled by a single manager. He would control all company activities in a single region. The principal advantages of this design are the following. 1 2 3 4 It tailors work units to the particular features of customers in a given region, i.e., British, Japanese, American, French. It provides an excellent training ground for managers as they are assigned to different regions. It provides an excellent basis for the career development of managers (movement from eld operations to company headquarters). It creates work units that are highly responsive to specialised customer needs.

There are a few disadvantages which occur in the territorial form of departmentalisation. 1 2 There is a danger of duplication of effort across departments serving various territories or regions. The company must be able to hire general managers who are capable of handling several functions such as production, sales and human resources.

The product divisional design has been widely adopted by companies with diversied product lines. They create divisions to handle all activities associated with producing and marketing a given product or family of related products. This design is the preferred method to handle company growth as the rm expands its product line. Figure 8.3 shows a design which combines the features of the product and territorial designs. The product design is represented by the computer division and the eld service division. The territorial design is reected in the international division. The principal advantages of the product divisional design are presented below. 1 2 It provides adaptability and exibility in meeting the needs of customers and the companys ability to manage a set of related products. External changes can be detected more readily and understood in productrelevant terms.
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PRESIDENT AND CEO

PRESIDENT , COMPUTER DIVISION Vice-President Office Machines Vice-President Printers and Peripherals Vice-President Personal Computers Vice-President Mainframe Computers

PRESIDENT , FIELD DIVISION Vice-President Office Machine Repair

PRESIDENT , INTERNATIONAL DIVISION Vice-President European Region Vice-President South American Region Vice-President Australia Vice-President North American Region

Vice-President Printers and Peripheral Repair Vice-President Personal Computer Servicing Vice-President Mainframe Computer Servicing

Figure 8.3

Combined product and territorial design

5 6

Employees gain deep understanding of product and market characteristics (product divisions are good training grounds for developing managers with generalizable skills). The structure encourages the development of separate business units (prot centres) which top management can pit against each other through friendly competition to maximise prots. Performance measures are easy to create and judging the performance of various product divisions is less complicated. The design shifts some of the burden for general management from corporate executives to division executives (This reduces the extent of diversity in the chief executives job making easier the management of a large company with diverse products, customers and territories).

The principal disadvantages of the product divisional structure are noted below. 1 Product divisions can duplicate effort and resources as they attempt to solve similar problems without consulting other divisions (The corollary to this is that corporate executives have less day-to-day control over product division operations). Finding and training people to head each division is a difcult job. When product divisions attempt joint ventures conicts can arise due to sharing resources and agreeing on transfer prices.

2 3

What Kinds of Problems Can the Complex Product Divisional Design Create?
We have noted some of the problems in the product-divisional design. When product divisions multiply in the rm, severe co-ordination and communication problems can arise. In some cases, product-oriented divisions can actually work
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at cross-purposes to each other. At both Digital Equipment Company (DEC) and Hewlett-Packard during the early 1980s, widespread product divisionalisation led to the production of products which could not integrate with each other. Both companies were not serving customer needs very well. Both moved away from their nearly autonomous product divisional structure to a market structure which was better adapted to serving customer needs. In its earlier, less effective design, H-P operated as an organic organisation composed of autonomous businesses each of which focused on its own product line. The arrangement worked well as long as the company focused on product lines aimed at specic market niches. However, customers demanded H-P products able to work together and the organic, decentralised design became a liability. Under the watchful eye of Bill Packard and a new CEO, HPs divisions were rearranged to create a strict customer focus. Not all of H-P changes sat well with employees. Turnover in the redesigned divisions rose and disgruntled engineers and designers cited poor co-ordination and failure of other divisions to cooperate as their reasons for leaving. Through the restructuring, formerly independent product divisions were merged into three large sectors aimed at different markets. One division, the CAE division was moved to a design group in Colorado, far from the divisions old home in Cupertino, California. Embittered about the reorganisation, and reluctant to accept transfers, CAE engineers and managers left for other jobs in H-P, or worse yet, left H-P altogether. H-P employee r sum s uttered about e e Silicon Valley in phenomenal numbers. Richard Moore, a 23-year veteran of H-P and the head of the CAE division, went to Valid as president. By the time H-P completely closed CAE, many of its top managers and engineers were gone. Matrix departmentalisation. Another form of departmentalisation is called the matrix design. This conguration evolved in aerospace rms which often work on very complex projects requiring more co-ordination than is possible in any of the previous designs. The matrix design overlays a project or product design on a functional design. Figure 8.4 shows the basic matrix arrangement in a medical products rm. In Figure 8.4, the matrix design is represented by the project managers and their project teams which are composed of employees from the functional divisions of production, marketing and engineering. The matrix design creates the need for the specialised management position called project manager. These individuals become thoroughly knowledgeable about their projects and they typically have responsibilities which exceed their authority for their projects. Higher management in the matrix organisation selects employees from functional departments to work on one or more project teams. The teams remain intact for the duration of the project work. The team members have two or more bosses, one or more project managers, and a functional boss. For this reason, the matrix design is said to violate the unity of command principle which is one boss for each employee.

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PRESIDENT AND CEO MEDICAL PRODUCTS DIVISION INDUSTRIAL INSTRUMENTS DIVISION DEFENCE SYSTEMS DIVISION

PRODUCTION MANAGER RESONANCE IMAGING PROJECT MANAGER LATERAL COLLATOR PROJECT MANAGER

MARKETING MANAGER

ENGINEERING MANAGER

Production employees

Marketing employees

Engineering employees

Production employees

Marketing employees

Engineering employees

Figure 8.4

The matrix design in a medical products rm

Now let us examine the advantages and disadvantages of the matrix design. The principal advantages are noted below. 1 2 3 The matrix design combines the strengths of the product divisional and functional designs. The design blends an emphasis on market changes with management and technical expertise in given product or project areas. It develops managers with technical product and project knowledge who can communicate effectively with marketing, production, and personnel from other functional departments. A self-contained department can devote its undivided attention to the needs of its product, project or customer groups. The rm can focus on specic products and their development without creating permanent units which may outlive their usefulness. The disadvantages of the matrix design include the following: 1 It is a confusing design because employees may not know who their real boss is. The project manager is worried constantly about the project, while the functional manager frets over departmental details. This confusion can lead to political game-playing and loss of work focus in the project and functional areas. The design requires excellent planning and resource allocation to ensure that functional work proceeds and projects do not starve. Project managers must have excellent technical, political communication, and managerial skills. When an organisation decides to go matrix, it must often do extensive training or hire new employees with project management experience. The design may lead to excessive overhead costs because projects may over-hire technical and support staff.
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Table 8.1 summarises the discussion on departmentalisation.


Table 8.1
Emphasis on: Prot responsibility CEO Subsidiary president Regional manager Project / programme managers project expertise emphasised for project managers

Forms of departmentalisation
Functional Product divisional Hybrid/territory Decentralised matrix

Self-directed teams Cross-training for manager and employees Customer relations and service quality

de-emphasised de-emphasised

used at unit level used at unit level

customer-driven vendor and customer-driven

de-emphasised

mostly a product focus

balanced emphasis on product and service emphasised on a process and service basis

emphasises mostly product

Broadening of managers and employees technical skills

emphasised on process basis

emphasised on a product and process basis

emphasised on a product and process basis

Span of Control
The organisational designer must make a decision about span of control.. This concept is the number of subordinates who report to a given manager. There is no agreement on the ideal span of control. Most experts note that span of control is inuenced by the number and intensity of interpersonal relationships between the superior and his subordinates. Ivancevich and Matteson note that three factors affect a managers span of control.2 1 Required contact. In research and development, and medical and production work, there is a need for sustained and frequent co-ordination between superiors and subordinates. Self-directed teams need exible co-ordination mechanisms to ensure product quality and cost control in production. Team leaders and team members must rely on face-to-face contact to make the team effective. Degree of specialisation. In general, a manager lower in the rm can have a wider span if he oversees many specialised employees doing the same thing. On the other hand, higher-level jobs have much less specialisation, therefore, spans of control narrow further up the organisations hierarchy. Modern computer-based communication systems are turning these established relationships upside down. Employees performing complicated work can now work from home and stay in instant contact with work colleagues by being on-line. Ability to communicate. Managers who can clearly and concisely convey company policies, procedures, and work expectations to subordinates can
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manage a wider span of control. During the last ten years, the managers ability to communicate has been exponentially increased by computer-based technologies Video teleconferences allow managers to communicate with their colleagues and customers wherever they are located. Geographic separation no longer means ineffective or intermittent communication.

8.2

Organisational Structure: Understanding the Basics


Managers make countless decisions about division of labour, delegation of authority, departmentalisation, and span of control. Over time, their decisions create an organisational structure which is the linking of departments and jobs within the rm. Extensive research on rm structure indicates that it is composed of several dimensions which have signicant effects on company performance, employees behaviour and their levels of job satisfaction. In this section we will consider two most basic components of organisational structure: 1) centralisation and decentralisation, and 2) co-ordination. We will also consider the effects of these structural variables on organisational performance, employees behaviour and their levels of job satisfaction.

8.2.1

Centralisation and Decentralisation


Centralisation is the retention of authority to make decisions by top management. Decentralisation is the process of pushing authority down the organisational hierarchy so that decisions are made as close to the origin of organisational problems as possible. When a rm is centralised, all employees follow uniform procedures and policies which are formulated and enforced by higher management. Rules and regulations direct employees to do certain things in specic ways at certain times. Rules and regulations make employees tasks explicit and they determine the nature of superiorsubordinate relationships. If managers establish many rules and regulations covering employee behaviours, then they maintain control over their subordinates tasks, work relationships, and behaviour. Thus, decision-making is centralised through the formal system of rules and regulations. When centralisation dominates, the rm creates more control by adding more layers to the chain of command. This causes the number of managers and administrators to grow faster than the number of employees engaged in production and customer service. This trend expresses a rising administrative ratio and it can be a cause of rising costs in centralised rms. Highly centralised rms usually exhibit high formalisation. Formalisation is dened as written documentation of rules, regulations, and procedures which guide employee behaviour and organisational decision-making. Centralisation usually triggers standardisation as well. Standardisation is the degree to which behaviour variation is allowed in a job or a series of jobs. Standardisation occurs if typical work situations are isolated and regularised to the point that few exceptions are encountered. Written work guidelines are formulated so that similar work activities are performed in the same way each time. Greater standardisation and formalisation lead to greater centralisation and larger administrative ratios in rms.

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We have said that decentralisation is a managerial decision to delegate authority to employees or to self-directed teams at lower levels in the chain of command. The spreading beliefs among managers about the use of self-directed teams and employee empowerment as ways to sustain competitive advantage cause them to favour decentralisation over centralisation. Henry Albers observes that decentralisation has become the golden calf of management philosophy. It has been lauded as more democratic, a step toward world peace, greater freedom of spirit, and less authoritarian. The implicit assumption is that centralisation reects the opposite of these worthy qualities.6 The drive to decentralise using the tools is also propelled by several powerful forces. They are: 1) shareholder demands for higher returns, 2) increasing global competition from rivals that are true low-cost producers, 3) more sophisticated repeat buyers who demand higher quality products and services and 4) technological advances that support highly delayered structures. Lowered entry barriers to many markets also force decentralisation moves in many rms. Because of the growing power of these forces, decentralisation has become a rule of competition in many industries. This means simply that a company decentralises or it leaves the industry.

Other Driving Forces and Effects of Decentralisation


Some contemporary managers decentralise their rms on the basis of products, services and markets while they centralise functions and processes (e.g., accounting, purchasing, nance, information systems and human resources). If process centralisation proves to be too costly, then managers try outsourcing. Outsourcing is contracting for manufacturing, distribution and personnel activities. Outsourcing allows the rm to control its costs because many types of labour and overhead costs are pushed off to the supplier. Outsourcing allows the company to mix and match external product and service providers to create the best modular design to facilitate strategy implementation. Outsourcing is the ultimate end-point of decentralisation. The function in question is contracted out to a more efcient supplier. Outsourcing can be thought of as a form of strategic alliance that raises company performance by the recognition that a supplier has a competitive advantage that the company cannot easily match. Outsourcing conserves resources for the company in question. The assumption in outsourcing is that the companys management team will nd a higher economic return for the freed assets. Presumably, management will use the resources to raise competitive advantage and generate more shareholder value. In many US rms, the use of outsourcing employees is creating modular work forces that use temporary employment agencies to provide managers, technicians, accountants and staff specialists on a contract basis. Because employment benets and payroll taxes now represent on average 25 percent of total worker compensation in the USA and over 80 percent in many EC countries, many companies have concluded that the decision to use contract workers is much more economical than hiring permanent workers. American managers nd that it is much easier to dismiss temporary or contract workers than it is to lay off workers who were hired by the company. Currently, about nine percent of US workers are employed by companies in the temporary or contract work industry. It is the fastest growing segment of the US labour market.
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If competitors were not so aggressive about lowering costs and stealing the market share of rivals, most managers would prefer to reduce uncertainty by creating highly centralised organisational designs. True decentralisation seems to go against the instincts of managers as they try to reduce risk and uncertainty. Most managers prefer xed accountability and responsibility for decision making. Centralised designs make these two issues easier to resolve. Robert Duncan, a prominent management researcher, has summarised the strengths and weaknesses of decentralised organisational designs. Table 8.2 presents his ndings.7
Table 8.2
Strengths 1 2 3 4 Meshes well with rapid change and fast company growth High awareness for projects, programmes, or products A high task focus which yields control over time, nancial and human resources Customers can determine task responsibilities and project personnel are highly responsive to their needs Concurrent multiple tasks can be co-ordinated across functional departments

Strengths and Weaknesses of Decentralised Designs


Weaknesses 1 2 3 4 Innovation is often restricted to projects or specialised programmes Difcult to allocate pooled resources such as computer analysis Co-ordination problems in joint functions such as purchasing Deterioration of broad managerial skills and potential for loss of technically skilled employees Jurisdictional and priority disputes Possible neglect of high-level co-ordination to ensure organisational effectiveness

5 6

The weaknesses noted in Table 8.2 come through strongly in the case description of the Hewlett-Packard company found at the end of this module. 8.2.2

Interorganisational Designs
Current discussions of organisational design would be incomplete without mentioning inter-organisational designs that permit one company to work closely with another to produce goods and services. Two common approaches to such arrangements are conglomerates and strategic alliances. Conglomerate arrangements involve diversication while strategic alliances are a form of joint venture for a specic purpose between two or more companies. A conglomerate is a holding company that acquires many other companies which have entirely different business strategies and operate in diverse industries. A conglomerate is the expression of the strategic principle of unrelated diversication. Unrelated diversication is the acquisition of companies because they are: 1) undervalued, 2) nancially distressed; or 3) likely to grow but cannot because they have limited capital. Making a conglomerate successful requires the linking of comparatively autonomous companies into a successful enterprise that increases shareholder wealth faster than alternative uses of capital. Conglomerates are very large and they have widely different, unrelated product lines and services. Also, they are managed through a system of autonomous subsidiary presidents who report to sector or group vice-presidents who in turn report to the conglomerates CEO.

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In the United States, General Electric is an excellent example of a conglomerate. To achieve overall co-ordination and control, it uses 43 strategic business units (SBUs) to group its 190 subsidiaries. A strategic business unit is a grouping of companies based on an important strategic element such as overlapping competitors, a closely related strategic mission, or a common need to compete globally. GEs 43 strategic business units are compartmentalised into six sectors. For conglomerates such as GE, the SBU concept helps reduce the complexity of integrating corporate strategy (conglomerate-level) and business strategy (subsidiary or company-level). Further, the integration of strategy obtained through the application of the SBU and sector concepts reduces the number of strategic plans which must be reviewed by the CEO and his staff, which is no small chore when you consider the size of GE. Conglomerates are not conned to North America and Europe. In Japan they are called a keiretsu which is a corporate system that links suppliers and manufacturers that are clustered together to take advantage of geographic, logistical, and nancial proximity. Mitsubishi is an example of a keiretsu. It is composed of three leading companies: 1) Mitsubishi Corporation, 2) Mitsubishi Bank and 3) Mitsubishi Heavy Industries. Its 29 companies are organised into 12 sectors including paper, chemicals, food, real estate and construction, glass, electrical and machinery, shipping and warehousing, textiles and bres, nance and insurance, mining and materials, metals and petroleum. All of the sectors are highly vertically integrated and each sector supports the business and trading activities of the other sectors. If Kirin Brewery has container needs for its products, it turns to the other Mitsubishi companies such as Ashai Glass and Mitsubishi Paper Mills (for labels and boxes). Worldwide marketing is handled through the general trading company and nancing is available through the conglomerates bank. In general terms, the keiretsu provides a reliable source of raw materials and support for each company in the keiretsu. The keiretsu also provides a ready market for the products of its subsidiaries. In Japan, the six largest keiretsu represent about 15 percent of the entire Japanese economy, about 4 percent of the labour force, and 13 percent of all corporate assets. In most keiretsus, companies hold stock in the companies in other groups. Twenty-ve percent or less of the stock in a given keiretsu company is held by other members of the conglomerate. Financial arrangements also dictate that no one company in a keiretsu hold more than ve percent of the stock of another keiretsu member. These interlocking nancial relationships encourage co-operation and information sharing within the keiretsu. At Mitsubishi cooperation is enhanced by meetings called kinyokai among company CEOs. Held every second Tuesday among the 29 CEOs, the meetings encourage new idea exchange, problem solving and product development. Mitsubishi makes a nal effort at integration by practising amakudari which is the exchange of executives from the top three leaders to less key companies in the various groups or sectors. This form of executive job rotation is designed to broaden the organisational knowledge base of Mitsubishi managers and to deepen the pool of managerial talent to ensure a steady stream of managers who can rise to the executive-level ranks. Recently, not all has been well in the stable world of the Japanese keiretsu.
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The on-going deationary period in Japan has forced them to slash expenses to maintain prots. During the mid-90s, Toyota slashed domestic production costs by $1.5bn. Known as the worlds most efcient car producer, Toyota is believed to be still immensely protable at an exchange rate of 92 yen to the dollar. Some experts believe that the company could still be protable at 52 yen to the dollar. Keiretsu like Toyota lower their costs by pushing suppliers and switching to cheaper imported components, thus the keiretsu have raised their prot margins by a full percentage point since the mid-90s. Subcontractors and suppliers have a term for this trend: shitauke ijime, or subcontractor bullying.8 Ultimately, the unrelenting squeezing of subcontractors by the keiretsu threatens the keiretsu themselves because it may signal the end of cooperative relationships among companies in the supplier chain. For instance, at Matsushita, some 6000 suppliers have prospered along with the company for the past 50 years. In 1932, founder Konosuke Matsushita declared, Our primary goal is to eliminate poverty and increase wealth through the principles of co-existence and coprosperity.9 During the Great Depression, he announced a 250-year plan for meeting his goal. Lately, that goal has fallen on hard times as Matsushita has squeezed suppliers to reduce their prices by as much as 27 percent in an effort to raise its prot margin to 5 percent. The Japanese conglomerates are under enormous pressure from Japanese consumers to lower prices. Small retailers in Japan are failing in record numbers because they cannot compete on price with larger, more efcient, discountoriented retailers. Business analysts note that after 50 years of quasi-legal price-xing, Japans business cartels must lower prices and reduce prot margins. These pressures continue to accumulate due to nearly four years of nearzero economic growth.9 The formerly close relationships between manufacturers and suppliers are collapsing as Japans industrial customers shop for bargains. For instance, Nissan Motor Company imports steel from South Korea and, in turn, this pressures Japanese steel suppliers to cut prices.9 By some estimates, keiretsu and collusion cost Japans consumers more than $140bn per year.9 So, the head of Japans Federal Trade Commission (FTC) has hired more investigators and last year the agency cracked down on price-xing in six industries ranging from cosmetics to warehousing. By 2000, the agency promises to eliminate all of Japans cartels.9 Until the economic distortions created by cartels and price xing are eliminated, Japans recession will continue as will the large number of business failures in retail distribution channels. This ensures that unemployment will continue its slow, upward rise. Even as the keiretsu system is working less well in Japan, it is under attack by companies licensed to sell products in Japan. Foreign competitors claim that the keiretsu create structural impediments to international trade. An example of such an impediment was recently advanced by IBM which was the largest seller of personal computers and mainframe computers in Japan.10 During the late 1980s IBM had the right product at the right price in Japan. Japanese customers sought out IBM computers and its products were perceived as superior by Japanese customers. As Japanese companies such as NEC and Fujitsu improved their own computer products, IBM slipped to a distant third in sales. This happened because
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companies in the NEC and Fujitsu keiretsus were expected to buy their companies products instead of those produced by non-keiretsu rivals. Such mandated purchasing patterns generally raise the price of goods produced by Japanese companies for sale in Japan over the prices of products produced by foreign competitors trying to sell products in Japan. These structural impediments substantially reduce the purchasing power of consumers in Japanese markets. A strategic alliance is a form of interorganisational design. A strategic alliance is a cooperative agreement between two rms that fall short of a merger or full partnership. An alliance can involve joint product development or research, production technology-sharing, joint use of production facilities, marketing of one another companys products, collaborating to manufacture components or to assemble nished goods, or outsourcing as mentioned earlier. Strategic alliances have come into use as a method for companies in the same industry but based in different countries to compete on a global scale while maintaining their independence. Both Japanese and American corporations have formed alliances with European companies to meet the challenge of the European Economic Union. To maintain its leading competitive edge in world markets, Caterpillar formed a strategic alliance with Mitsubishi in 1984 to better market its products in Japan. Its toughest competitor, Komatsu, formed a strategic alliance with Dressler Industries to expand its manufacturing and marketing capabilities in the US market.11 Companies entering into strategic alliances expect several benecial outcomes.12 They hope to gain economies of scale in production or marketing or they might believe that such a move will ll perceived gaps in their technical or manufacturing expertise. These arrangements are commonly used to gain access to markets by lowering their entry barriers. Alliances have drawbacks because they require exhaustive co-ordination through meetings and task forces. Other problems in alliances are: 1) deciding what is to be shared and what remains proprietary; 2) overcoming cultural and language barriers; 3) rising above suspicion and mistrust; and 4) depending too much on expertise and skills in another company. In most instances, strategic alliances are best thought of as transitional arrangements that can be used to overcome a competitive disadvantage in international markets. Seldom are such arrangements the source of sustainable competitive advantage.13 8.2.3

Organisational Design and Employee Needs


While there is no simple relationship between employee job satisfaction and organisational design, the literature in OB does offer us some clues. Research indicates that managers in decentralised organisations with fewer than 5000 employees are more satised with their jobs than their counterparts in centralised organisations with more than 5000 employees.14 Formalisation of rules and regulations often promotes job dissatisfaction, except for employees who have very strong needs for job security, which is provided by adherence to well-understood rules and regulations.15 High formalisation is a special problem for those employees who must deal with customers and suppliers. If a company has rules which prevent salesmen from handling customer complaints directly, both customers and salesmen grow frustrated.

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Research on span of control suggests that employees begin to experience confusion about work expectations and performance if their managers span of control is too wide.16 Spans that are too wide can cause communication and co-ordination problems. Narrow spans may frustrate professionally trained and experienced employees who believe they should have considerable autonomy at work, for example, research scientists and professors. 8.2.4

Co-ordination and Control


The rms formalised operating practices provide it with a framework for controlling the work behaviour and work expectations of employees. Written rules and regulations inherent in a rms design do not ensure co-ordinated effort and goal accomplishment. To ensure these outcomes, managers must create co-ordination and control. Co-ordination is the set of mechanisms used to link the actions of subunits to achieve a pattern of desired outcomes. When a rm is small, the chain of command can ensure desired outcomes. With growth, the hierarchy overloads and the managers seek other ways to link work units to sustain competitive advantage.

How Much Co-ordination is Needed in Organisations?


The answer to this question has been formulated by Lawrence and Lorsch, two Harvard researchers who have studied organisational co-ordination issues in depth.17 They believe that the critical determinant of the co-ordination need is the amount of information which must be processed during task execution. They think that the rms environment determines the information load which creates the need for co-ordination mechanisms to manage information ows.17 If a work unit manager knows exactly what needs to be done to co-ordinate the units work with other units, then minimal information would have to be processed and exchanged to get work done. When tasks are unclear then more co-ordination must take place among related work units. The uncertainty which creates pressure for more information processing often stems from the rms environment. Turbulent business environments create higher co-ordination needs in the organisation. Lawrence and Lorsch found that business environments with changeable and complex features forced rms to nd varied and unique ways to co-ordinate subunit activities.17 They concluded that integration was harder to sustain in rms operating in turbulent environments because they generate more uncertainty and create more information processing requirements. Stable environments require fewer methods for co-ordinating the work of subunits. Firms with more stable and placid environments do not need as many co-ordination mechanisms because these environments do not create as much uncertainty, thus the organisation needs less capacity to process information. This means a lower co-ordination burden between subunits of the organisation. Lawrence and Lorsch found that rms operating in stable environments were more centralised, with greater standardisation and formalisation, than rms operating in turbulent environments.17
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What Requirements Must a Co-ordination Mechanism Meet?


The major job of any co-ordination mechanism is to reduce uncertainty for employees and their subunits about what they are supposed to do. As external uncertainty increases, information processing capacity in the rm must increase. This usually means the installation of PC networks and an e-mail system. In turn, companies need more sophisticated co-ordination mechanisms to handle the information load. Information processing capacity in the rm must be developed in the vertical and horizontal dimensions. Increasing vertical information processing capacity reduces the number of exceptions which must be resolved by the hierarchy and its line managers. When the capacity to process information is increased horizontally, the rm is better able to integrate its workow. We can now consider vertical and horizontal co-ordination mechanisms which help managers to handle the rms internal information load. 8.2.5

Vertical Co-ordination Mechanisms


Vertical co-ordination strengthens the link between organisation levels. To be effective, these co-ordination mechanisms must decrease uncertainty. Let us consider the co-ordination tools that rms use to handle vertical ows of information. 1 Use teams and task forces. One way to increase co-ordination hierarchically is to create more group decision-making. For example, a rm might use task forces composed of people from different subunits to identify and solve problems which span hierarchical levels. Another way to use groups is to create a collateral organisation which is composed of task forces. A collateral organisation is a parallel, co-existing arrangement of task forces which supplements the formal organisational hierarchy.18 The collateral organisation works on problems which cut across the rm. Research indicates that knowledge problems which are ill-dened are solved more effectively by collateral organisations than by the rms formal hierarchy.19 A collateral organisation is much broader than a single, temporary task force. It can be composed of, for example, members of self-directed teams, employees who work in a strategic alliance and expatriate managers who have overseas assignments. An example of how a rm could set up a collateral organisation to solve a complex problem is presented below.
Digicourse Ltd. produces digital compasses used in offshore oil exploration. Rapid technological change in the industry and explosive growth in Digicourse have caused the rm to be less able to anticipate sudden product changes. With the help of external consultants, the rm decided to tackle these issues at its Birmingham plant. The project started by gaining top management commitment and involvement to solve the plants co-ordination problems. The consultants held informational meetings about the need to improve the rms capacity to manage change and improve the effectiveness of lower-level supervisors. Data were gathered and fed back to management and employees. This encouraged employees to provide specic recommendations to correct the problems. A collateral organisation was set up to involve supervisors and employees in changes which could not be easily managed by the formal hierarchy. The

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collateral organisation consisted of a steering committee composed of managers and employees from different departments. Several task forces were created and they reported to the steering committee. Each one was given latitude to experiment with new ideas and methods to improve product design, reliability and production cost control. The steering committee reviewed all proposals submitted by the task forces. The proposals were presented to top management by members of the task forces. Examples of innovations accepted by top management included: 1) using customer focus groups to detect product improvements, 2) giving engineers 15 per cent of their work time to spend on product innovation, and 3) an employeecontrolled board to review production cost control suggestions.

Use direct supervision. This costly form of traditional vertical co-ordination works through the chain of command. Supervisors and managers coordinate the work of their subordinates by using standardised work rules and procedures. This method has fallen out of favour for numerous reasons that are related to competitive advantage. Use standardisation of work processes. Much work is so routine that the rms technology dictates the pattern of co-ordination. Little direct supervision is necessary. The sequential work ow dictated by the assembly of cars is an example of technology-driven co-ordination. Workers do not have to interact with each other. This method has fallen out of favour because standardisation makes it harder for organisations to utilise selfdirected teams. Many companies have simply thrown out their rule books and installed self-directed teams that have cross-trained members. Use standardisation of outputs. When direct supervision is minimal and work processes are not standardised, co-ordination can be achieved by specifying the nature of work outputs. Co-ordination issues shift from how work is done to ensuring that outputs conform to certain physical and economic standards. Technicians in a product design division may be required to construct complex prototypes. In turn, these designs dictate the arrangement and set up requirements for the production. Use performance appraisal. Performance appraisal is a tool not often recognised as a vertical co-ordination mechanism. It can be used to control individual performance and to communicate work expectations and goals to employees. Managers and their subordinates meet several times each year to discuss the subordinates performance and goal accomplishment. These assessments are then communicated upward by managers. This process links levels of the hierarchy. The newest twist on performance appraisal is the 360-degree appraisal system described in Module 4. Create a management information system. Originally, management information systems (MIS) were simple devices such as employee suggestion systems or company newsletters. Now, they consist of computerised information and record keeping systems. Their uses include: 1) providing early warning signals (product breakthroughs), 2) providing information to assist decision-making (supplying nancial ratios to top managers), 3) conducting programmed decision-making (allocating funds to spread risk in a companys investment portfolio), and 4) automating routine clerical functions (meeting payroll needs with a computerised system). The areas for the greatEdinburgh Business School

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est economic benet from MIS are: 1) inventory management, 2) accounts payable, 3) purchasing, 4) production control, and 5) project control. 8.2.6

Horizontal Co-ordination Mechanisms


As noted earlier, horizontal co-ordination mechanisms ensure the orderly processing of the companys workow. With improved horizontal co-ordination, fewer work exceptions are encountered causing work units to integrate more effectively. Fewer exceptions are referred up the hierarchy and managers can focus on strategy making. Several horizontal co-ordination mechanisms are described below.20 1 Use direct contact. The simple and least costly form of horizontal coordination is direct contact among units linked by workow. If a product design group is behind in its schedule, the manager of the group can go to the engineering department manager and they can work out an agreement. Thus, direct contact reduces demands on the hierarchy by moving decisionmaking down to the level of workow integration. The managers in the situation described above should have all the information necessary to solve the design problem. Galbraith makes several important points about the use of direct contact to facilitate horizontal co-ordination.20 First, the use of direct contact is a function of the amount of interdepartmental work experience of managers. Managers with considerable interdepartmental work experience build a network of dependable interpersonal contacts over time. These contacts facilitate lateral relations which are instrumental in solving workow problems. Second, direct contact and lateral relations decay over time because managers are promoted, transferred or dismissed, or leave of their own accord. The decay in lateral relations must be offset by a programme designed to develop new managers with the task expertise and interpersonal skills to form new lateral relations. Most programmes rely on the formalisation of mentorprot g relationships and the rotation of managers through intee e grated work units. Use liaison roles. The liaison role is formally established to link two or more subunits which must co-ordinate workow. For example, in an oil company, the marketing staff often had trouble with the renery personnel. The marketing staff understood which products were selling at the highest and lowest prices. The renery personnel were simply providing those products which were the easiest to produce with available supplies. The solution chosen by management was to create the position called Oil Products Co-ordinator, and the sole responsibility was to ensure that marketing and rening worked together more effectively. The creation of liaison roles assumes that there are knowledgeable managers in the functional units which need improved horizontal co-ordination. The boundary spanning managers need excellent political skills and the ability to speak multiple functional languages. As the rm becomes more complex and it adds new horizontal departments or divisions, the need for skilful liaison managers grows.
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Use cross-functional teams. When direct contact or liaison roles are inadequate, a third option is to create a temporary task force to provide horizontal co-ordination. When problems arise involving numerous departments, a cross-functional team can be created with members from the affected departments. For many rms, informal task forces are a way of life. For instance, one large manufacturer requires managers from marketing, engineering, quality control, and production to get together when joint problems arise. Once the problem is solved, the representatives on the task force return to their functional assignments. Formal cross-functional teams can also be set up in the organisation.21 For instance, an advertising rm may hold weekly creative account reviews. Account executives are required to present their campaigns to senior managers. The senior managers represent a task force charged with the responsibility of reviewing the creative aspects of advertising campaigns before they were reviewed with clients. In other rms, engineers are required to present their new product ideas to senior managers and engineers before the rm will commit resources to further product development. Use permanent teams to manage recurring workow problems. If the rm nds that horizontal co-ordination problems persists, then it can create permanent teams to address them. Let us consider an example of how hospitals are using permanent teams to handle horizontal co-ordination needs.
In the United States, hospitals operate under a government-imposed system of reimbursement for various types of health care services. The government caps its payment for various services provided to patients who qualify for Medicare. If a hospital exceeds the cap payment for a particular procedure or treatment, the hospital must absorb the extra cost. This system has forced hospitals to be more cost conscious and market-oriented. One outgrowth of this prospective payment system has been the development of service line managers in American hospitals. Service line managers are health care professionals who have responsibilities for a set of related health care functions. Most hospitals would have service line managers for cardiac, psychiatric, wellness or tness, pediatric, community health and education, emergency, drug rehabilitation, and other health services. The service line managers have responsibility for marketing protability, and growth of their respective health care services. To ensure horizontal co-ordination between the service lines, the managers would meet periodically to communicate their goals and review service line activities.

The important point in the example is that hospitals are creating service line managers who possess specialised business expertise and technical expertise in a specic health care function. The need to control costs, a new constraint for American health care systems, has created a service focus in marketing health care. More progressive hospitals are adopting horizontal co-ordination mechanisms which have served consumer goods manufacturers for years. Proctor and Gamble, UniLever, General Mills, Quaker Oats, and Carnation are just a few of the large corporations which have used product and brand managers to preserve the protability of their extensive product lines. As competition works its way into the American health care market, this form of horizontal co-ordination will proliferate.
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8.2.7

Control in the Organisation


We have considered how rms meet their vertical and horizontal co-ordination needs. Co-ordination is concerned with linking together the actions of employees and their work units throughout the rm. Control is the set of mechanisms used to keep action and outcomes within predetermined limits. It is the setting of work standards, measuring results against plan, and initiating corrective action. Management control systems focus on methods of doing work, i.e., process control, or on objective settings, i.e., results control. Let us consider each. Process control. This is the standardisation of task performance. Managers see process controls as tools for achieving economic efciency by reducing the marginal costs of production. Employees see process controls as mindless formalisation (standardisation and specialisation) forced on them by managers who do not understand the nature of their work. During the last 15 years, much externally-based process control (rules and regulations imposed upon employees and over which they have no control) has come to be inefcient and counter productive in terms of product and service quality. Companies that have shifted to internally-based process control (total quality management (TQM)) applied in a self-directed team environment seized an immediate competitive advantage over their rivals. By using the twin engines of self-directed teams and TQMs continuous process improvement, Japanese rms were able to get a competitive jump on their less effective, foreign rivals. In industry after industry, American rms gave market share to their more quality conscious Japanese rivals. Today, in most industries, the product innovativeness of American and European rms have mostly neutralised the competitive advantage of Japanese rms that use TQM. In strongly contested, global markets, TQM is now simply a rule of competition that is well understood by all industry contestants. Firms that are still relying heavily on process controls have become rigid and inexible. This may be acceptable if the rm operates in a placid business environment. However, if the environment is turbulent and highly uncertain, extensive, external process control severely limits company exibility. Previously mentioned factors that disturb external business environments are: 1) knowledgeable repeat buyers who compare prices and product options; 2) much shorter product life-cycles; 3) rapid product innovation; 4) production process improvements; 5) global competition; 6) industry and market deregulation; and 7) return-hungry investors. Effective, internal process control applied by self-directed teams creates a number of benets. These include the creation of meaningful work standards, accurate and continuous measurement of performance, specication of employee training and development needs, a clear team basis for distributing performance or merit-based rewards, a way to link employees and customers, and a sound basis for taking corrective action. Company efforts to create unnecessary, external process control can also result in a number of problems.22 These are summarised in Table 8.3. Results control. A popular results-oriented control system is management by objectives (MBO). In Section 4.2, in Module 4 we discussed the motivational

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aspects of MBO for individual employees. We can also examine this subject from the standpoint of the rms efforts to create integration, co-ordination and proper t between its strategy and its design. As a method of integration, MBO is used to gain output control in rms. MBO systems try to ensure that managers set specic measurable goals, monitor progress toward these goals, and receive rewards based on their accomplishments. Output control through MBO focuses on desired targets and allows managers to select their own methods for reaching dened targets which have been specied in the rms strategic plan. Firms relying on output controls can remain more open to environmentally induced uncertainty.
Table 8.3 Organisational problems created by external process controls

Lack of patience. External process controls may lead to sub-optimal decision-making as managers search for the rst solution rather than a team-generated best solution. This is a short-run band-aid approach which leads to lowered integration of work activities. Across-the-board cuts. Heavy emphasis on external process controls may lead to poorly implemented cost containment strategies when business conditions deteriorate. Confusing documentation with action. Concern for external process controls and standards may lead to impressive process control documentation but no actual results. Managers get lots of data that do not mean much. Vague and unrealistic expectations. A heavy emphasis on how work is done may lessen the concern for clearly specied results and challenging goals. Panic. This often occurs when controls are established in a department which formerly had none. Employees resent the sudden imposition of standards in their work. Escalating standards. To improve productivity, managers may unilaterally raise work standards without increasing resources, rewards, or the number of employees.

What Are Some of the Co-ordinating Characteristics of MBO Systems?


In operational terms, MBO relies on superiorsubordinate meetings 1) to establish goals, 2) to review periodically goal activities and results, and 3) to resolve conicts and take corrective actions. MBO experts believe that three properties are critical to the success of any MBO system.22 1 Knowledge of what is expected. MBO can reduce misunderstandings for superiors and subordinates. Reduction of misunderstandings leads to common work expectations for employees and their managers. Knowledge of results. MBO systems place a high priority on performance feedback. For the feedback to be effective, it must be supportive and immediate. The function of the superior. Superiors must work to provide feedback which is work-oriented and not personality-oriented.
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Steps in the MBO Process


Much information exists on the characteristics and methods of MBO. Besides focusing attention on output control, MBO shapes company culture in terms of how the rm values setting ambitious goals, maintaining high standards and focusing on long-run results instead of short cuts. The characteristics of a typical MBO system are noted below. Please note the emphasis on employee involvement and participation. 1 2 3 Members of the work unit establish goals and action plans for achieving those goals. Discussion of work unit goals ensures that everybody understands them. Employees in the work unit establish their own action plans for achieving their goals. The managers participate in one-to-one meetings with employees. Here the goals are made specic and quantiable if possible. The superior and subordinate jointly establish outcome criteria for assessing success. The superior conducts periodic formal and informal feedback with employees concerning individual and work unit goals. The system is documented with all goals set down on paper. Goals are cascaded down the hierarchy. They become more specic and quantied at lower levels.

4 5 6 7

The MBO process is summarised in Figure 8.5, which shows that it is a comprehensive control system which creates a results-oriented work relationship between the superior and subordinate. Thus, MBO is teamwork-oriented. Figure 8.5 shows how participative decision-making can extend from planning goals to the evaluation of the subordinates successes in goal attainment. MBO can be a comprehensive process offering employees numerous opportunities to nd intrinsic rewards from their work. While MBO can greatly improve control at all levels in the rm, overemphasis on goal-setting can lead to certain problems. Let us consider the documented problems which have developed in using MBO. 1 Employees can develop tunnel vision about results and they may not give adequate attention to how task activities should be done. MBO can be more effective if it is linked to product and service quality standards. MBO degenerates into a paper chase, emphasising red tape and completing forms in triplicate. This may occur when MBO is linked to external process control mechanisms. Superiors fall into an either punish or reward mentality regarding results achieved by subordinates. The collaborative aspects of the system are lost if employees have too many goals or they are worried about accomplishing their specic goals.23

3 4

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Manager or Team leader

Employee or Self-directed team

Jointly establish performance goals and service outcomes

Employee or team set methods to achieve goals and improve service Manager or team leader ensures resources, aids co-ordination and gives feedback

Joint evaluation of performance and service

Organisation gives performance and service - contingent incentives

Figure 8.5

The MBO process in delayered organisations

8.3

Understanding the Responsive Organisation


Today experts preach the virtues of companies which are not bound by the mechanistic reaction patterns of highly bureaucratic, centralised rms composed of employees burdened by external process controls. As management expert Tom Peters puts it, success in the market-place is directly proportional to the knowledge that an organisation can bring to bear, how fast it can bring that knowledge to bear, and the rate at which it accumulates knowledge.24 Companies must be designed to respond to new competitors, products, technologies, de-regulated industries and foreign markets, shrewd, price-sensitive customers and tough, global competitors. Product divisional structures, matrix designs, vertical and horizontal co-ordination mechanisms are a few of the tools that companies use to be responsive. Yet, often these tools are inadequate to help rms obtain and preserve a competitive advantage. Several new actions to capture competitive advantage through enhanced responsiveness have emerged and they are discussed below. Simplify and delayer. To reduce costs and to speed decision making, companies are simplifying and reducing the complexity of their structures. The complementary processes of simplication and reduction often entail 1) eliminating several layers of the chain of command; 2) widening the spans of control of those managers who remain and 3) reducing the amount of management attention paid to employees by managers (elimination of close and constant

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supervision). Delayering was a tactic applied by Union Pacic Railroad in the late 1980s. Figure 8.6 shows the old chain of command on the left while the companys new command structure is shown on the right.25

PRIOR TO 1987 REORGANISATION Executive VP Operations VP Operations General Manager Transportation Services Assistant Manager Regional Transportation Superintendent Divisional Superintentent Divisional Superintentent Transportation Trainmaster / Terminal Superintentent Assistant Trainmaster Terminal Trainmaster Yardmaster Railroaders

NEW COMMAND STRUCTURE (1990) Executive VP Operations VP Field Operations Superintendent

Manager Train Operations Yardmaster Railroaders

Figure 8.6

Union Pacic Railroad hierarchy: 1987 and 1990

CEO Mike Walsh had this to say about the sluggish rm that he took over in the mid-1980s:
Suppose a customer was having difculty nding a railroad car it was either not the right one, or wasnt where the customer needed it for loading or unloading. The customer would go to his UPRR sales representative, who went up to the district trafc manager, who in turn went up to the regional trafc manager. The regional boss passed the problem from his sales and marketing organisation, across a chasm psychologically wider than the Grand Canyon to the operations departments general manager. The general manager then went down to the

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superintendent, who went down to the train master to nd out what had gone wrong.25

When Mr Walsh reviewed his rms rigid design, he immediately ordered the removal of 800 managers in ve layers of management shown in Figure 8.6. He believed that a more streamlined structure would deliver superior customer service. In the time necessary for UPRR to move from the old to the new structure, customer service and the market valuation of the rm would both increase. Reassign supporting staff employees. Over time, corporations tend to build top-heavy staff components at corporate headquarters. Industrial engineers, staff consultants, human resources specialists and management information experts grow in number at headquarters. This leads to a rising administrative ratio. In highly responsive rms, this trend is often reversed. Staff experts are transferred to operating divisions where they become involved in running the SBUs or business teams. An example of this would be the giant Wal-Mart Corporation, with annual sales of over $190bn. It has only 450 corporate staff employees at its company headquarters while it employs 358 000 people worldwide. Similarly, when Percy Barnevik assumed control of Swedens ASEA, it had a corporate staff of 2000, which he immediately pared to 200. When he acquired Finlands Stromberg company he reduced its corporate staff from 880 to 25.26 Widen spans of control. Delayering creates wider spans of control for those remaining. In responsive rms, spans of 100200 employees per manager are common.27 Wide spans are made possible by sophisticated computer networks which deliver current production information to teams of employees that monitor their productivity and take corrective measures without managerial oversight and permission. In these arrangements managers jobs shift from oversight and control to facilitating co-ordination. Empower the work-force. In leaner structures found in responsive rms, employees and their work teams take on decision-making duties once done by middle managers. Employees who once had to seek permission from managers before they could make a decision now have responsibility for handling all point-of-transaction activities. Their responsibilities cover transactions with customers, suppliers, vendors and regulators. Often the changes in empowerment reach out to a companys eld operations. In less responsive structures, eld representatives and technical specialists might have to wait for weeks for answers to warranty questions or pricing proposals. Empowered eld reps and specialists have the authority to answer warranty questions and to commit their company to make the necessary adjustments. Create team-based work system. Because of the control vacuum created by command structures with fewer management layers, companies rely more on self-managed teams to raise productivity, product and service quality and cost effectiveness. By using teams, rms boost their responsiveness without adding layers to their hierarchies. As noted in Module 6 empowered work teams manage themselves and make point-of-transaction decisions without direct management oversight. In such rms, empowered teams make the following decisions.

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1 2 3 4 5 6 7

Recruiting, hiring, performance evaluation, and termination. Formulating and tracking a budget prepared by the team. Making capital acquisition proposals as needed. Handling quality control, subsequent trouble shooting and problem solving. Developing numerical standards for productivity and quality. Suggesting new products and the development of their prototypes. Working with other teams from sales, marketing and product development.

8.3.1

Experiments with the Boundaryless Organisation


Rigid, hierarchy-based rms create numerous vertical boundaries which act as obstacles and choke points to rapid and responsive decision-making. Such rms develop highly differentiated departments which create horizontal complexity that often prevents members of one department from working swiftly and effectively with other departments. If companies also use the product divisional structure, then the work of each division is self-contained and separate from the work performed in other product divisions. This design works well when problems are few in number and their solution can proceed in an orderly fashion without crises or mounting time pressures. The cases describing Hewlett-Packard and Digital Equipment Company strongly underscore these observations. The simplicity of stable markets and routine technologies has given way to rapid product and process change and acute competitive pressures from lowcost, domestic and foreign rivals. Neat, clear organisational boundaries are disappearing as rms replace complex vertical hierarchies with loose horizontal networks to link traditional functions such as production, marketing, accounting and product development with cross-functional teams. Companies expand their responsiveness by forming strategic alliances with suppliers (outsourcing), customers and competitors. Outsourcing of sales work to telemarketing rms reduces the costs of goods sold. These profound changes represent the unraveling of years of efforts to integrate vertically. They are creating what management experts call the boundaryless organisation. The boundaryless organisation is one in which traditional vertical and horizontal boundaries are made more permeable and exible by using self-directed teams, technologically sophisticated communications, responsiveness to customers, outsourcing and strategic alliances. These arrangements create a much more exible and adaptable work-force whose has members are capable of performing many more complex tasks than their counterparts in rigid, hierarchicallyoriented rms. In the evolution of boundaryless rms, strategic alliances with customers and suppliers dismantle those traditional boundaries. Hirschorn and Gilmore argue that traditional vertical and horizontal boundaries will disappear if a rm alters its authority, task, political and identity boundaries.28 The authority boundary is the natural distinction between leaders and followers in rms. In rms using self-managed teams the authority boundary still exists. Hirschorn and Gilmore state that this is precisely the problem. They say to achieve responsiveness, the at, or delayered rm must move away from a system which issues orders. To overcome this barrier, managers must learn to

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lead while remaining open to criticism and accepting advice from lower ranking employees who are experts on various aspects of problems which arise. In the boundaryless rm it is assumed that problem solving expertise is widely dispersed. This encourages employees to follow leaders without losing the ability to challenge them if they detect a performance problem. Hirschorn and Gilmores advice is ne as long as it does not involve investors who may be unhappy with their returns and the companys earnings per share. When these problems arise, shareholders expect executives to correct earnings and market performance problems. When this happens, these executives reassert the power of the chain of command through their decisions to downsize, delayer and outsource. In each of these decisions employees experience rising economic insecurity through job loss and low salary rises. After the fallout from these decisions, employees would say that the authority boundary has come roaring back. Preaching that the authority boundary should be eliminated is one thing. Making it happen in companies that face intense, global competition and return-hungry shareholders is quite another thing. The task boundary emerges when someone decides who must do what when departments work together. When employees from different departments co-ordinate work, they create a exible task network which supersedes the traditional compartmentalised view of work in centralised rms. For the network to be effective, members must shed the notion of that task is not in my job description. As Hirschorn and Gilmore note:
Indeed, their own performance may depend directly on what their colleagues do. So, while focusing primarily on their own task, they must also take a lively interest in the challenges and problems facing others who contribute in different ways to the nal product or service.29

Once again, our experts are preaching to the choir. All managers would like employees to pull together to ensure excellent product quality and customer service. Employees say that they would prefer to work in the energised, selfdirected team environment. However, the devil is in the details of implementing and sustaining these more open, collaborative work arrangements. The biggest threat to the exible task boundary idea is in how managers view costs versus investments. If managers fully adopt the accounting view of costs, then all expenditures in training and development, research, product development, and new forms of co-ordination are seen as annual costs (which are subject to minimisation). This perspective leads to budgeting systems and resource allocation decisions which inherently favour cost reduction and containment to bolster short-run performance (higher net income). If, instead, a value-added perspective is adopted, all of the costs noted above become investments in future earnings through a focus on the maximisation of future revenues. When the value-added point of view is favoured by managers a shift in emphasis occurs. The focus of management decisions becomes the maximisation of the market value of the rm. This causes executives to emphasise increasing future earnings. To do this, rms must increase market share, improve products, extend greater and more valuable services to customers and so on. It is a revenue-driven perspective that can only be nurtured by more
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exible task arrangements and responsiveness. It does not happen in companies run by executives who are obsessed by cost containment. It occurs in companies run by managers who are