Enggmgmt 4 8

Learning Outcomes
After studying this chapter you should be able to:
1. Define decision making and discuss types of

decisions and decision-making conditions.
2. Discuss rational perspectives on decision making,
including the steps involved.
3. Describe the behavioral aspects of decision making.
4. Discuss group and team decision making, including
its advantages and disadvantages and how it can be
more effectively managed.
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The Nature of Decision Making
• Decision Making
–The act of choosing one (the best) alternative
from among a set of alternatives.
• Decision-Making Process:
Recognizing Identifying Choosing Putting the

and defining alternatives the “best” alternative
the decision alternative into practice
situation
The Nature of Decision Making (cont’d)
• Decision-Making Process (cont’d)

–An effective decision optimizes some set
of factors such as profits, sales, employee
welfare, and market share.
–Managers make decisions about both
problems and opportunities.
Types of Decisions
• Programmed Decision
–A decision that is relatively structured
or recurs with some frequency (or both).
–Example: Starting your car in the morning.
• Nonprogrammed Decision
–A decision that is relatively unstructured
and occurs much less often than a
programmed decision.
–Example: Choosing a vacation destination.
Decision-Making Conditions
Conditions Affecting
Decision Making
Decision Making Decision Making Decision Making

Under Certainty Under Risk Under Uncertainty
FIGURE 4.1 Decision-Making Conditions
The decision maker

faces conditions of…
Certainty Risk Uncertainty
Level of ambiguity and chances of making a bad decision
Lower Moderate Higher
Management Challenge Question
• Your are captain of a container ship caught in a typhoon.

Water is leaking into the cargo hold and you are unsure
of whether or not you should abandon ship.
–What state of uncertainty is described in this
scenario?
–How does the state of uncertainty affect the likelihood
that you will make the correct decision?
Distinguishing Between
Decision Making Conditions
Are there multiple

possible outcomes?
Yes No
Are the probabilities of the

Decision is certain.
outcomes known?
Yes No
Decision is risky. Decision is uncertain.
Decision-Making Conditions
• Decision Making Under Certainty

–The decision maker knows with reasonable certainty
what the alternatives are and what conditions are
associated with each alternative.
• Decision Making Under Risk
–The availability of each alternative and its potential
payoffs and costs are all associated with risks.
• Decision Making Under Uncertainty
–The decision maker does not know all the alternatives,
the risks associated with each, or the consequences
of each alternative.
FIGURE 4.2 The Classical Model of Decision Making
When faced with a • obtain complete and …and end up with

decision situation, perfect information a decision that best
managers should… • eliminate uncertainty serves the interests
• evaluate everything of the organization
logically and rationally
Table 4.1 Steps in the Rational Decision-Making Process
Step Detail Example

1. Recognizing and Some stimulus indicates that a decision A plant manager sees that employee
defining the must be made. The stimulus may be turnover has increased by 5 percent.
decision situation positive or negative.
2. Identifying Both obvious and creative alternatives are The plant manager can increase wages,
alternatives desired. In general, the more important the increase benefits, or change hiring
decision, the more alternatives should be standards.
generated.
3. Evaluating Each alternative is evaluated to determine Increasing benefits may not be feasible.
alternatives its feasibility, its satisfactoriness, and its Increasing wages and changing hiring
consequences. standards may satisfy all conditions.
4. Selecting the best Consider all situational factors, and choose Changing hiring standards will take an
alternative the alternative that best fits the manager’s extended period of time to cut turnover,
situation. so increase wages.
5. Implementing the The chosen alternative is implemented into The plant manager may need
chosen alternative the organizational system. permission from corporate
headquarters. The human resources
department establishes a new wage
structure.
6. Following up and At some time in the future, the manager The plant manager notes that, six
evaluating the should ascertain the extent to which the months later, turnover dropped to its
results alternative chosen in step 4 and previous level.
implemented in step 5 has worked.
FIGURE 4.3 Evaluating Alternatives in the Decision-Making Process
Optimization—selecting the alternative that offers the

best combination (balance) of feasibility, satisfactoriness,
and affordability suited to the situation.
FIGURE 4.4 The Administrative Model of Decision Making
When faced with a • use incomplete and …and end up with

decision situation, imperfect a decision that may
managers actually… information or may not serve the
• are constrained by interests of the
bounded rationality organization
• tend to satisfice
What Influences Decision Making
Political
forces
Bounded
Intuition
rationality
Influences on
Escalation of
Satisficing Decision
commitment
Making
Risk
Coalitions
propensity
Ethics
Behavioral Aspects
of Decision Making
• Bounded Rationality
–The concept that decision makers are limited by their
values and unconscious reflexes, skills, and habits.
• Satisficing
–The tendency to search for alternatives only until one
is found that meets some minimum standard of
sufficiency to resolve the problem.
• Personal motives and biases
• Expediency (degree of impact alternative choice will have)
• Cost of continuing to search for alternatives
Behavioral Aspects of
Decision Making (cont’d)
• Coalition
–A positive or negative political force in decision
making which consists of an informal alliance of
individuals or groups formed to achieve a goal.
• Using Coalitions
–When to use them
–Assessing their impact
–Constraining their effects
Behavioral Aspects of
Decision Making (cont’d)
• Intuition
–An innate belief about something
without conscious consideration.
• Escalation of Commitment
–A decision maker’s staying with
a decision even when it appears
to be wrong.
• Risk Propensity
–The extent to which a decision maker is
willing to gamble when making a decision.
• How could a coalition lead to escalation of

commitment?
• What can be done to prevent or avoid the
escalation?
• How are escalation of commitment and
groupthink related?
Managerial Ethics and Decision Making
Employees
Individual Managerial Organizational

Ethics Ethics Ethics
Other economic agents
Ethics and Decision Making
• Managerial Ethics
–Individual ethics (personal beliefs about right and
wrong behavior) combine with the organization’s
ethics to create managerial ethics.
–Components of managerial ethics:
• Relationships of the firm to employees
• Employees to the firm
• The firm to other economic agents
Group and Team Decision Making
in Organizations
Forms of Group Decision Making
Interacting Delphi Nominal

groups or teams groups groups
Group and Team Decision Making
• Forms of Group Decision Making

–Interacting groups or teams
• Consists of an existing group or newly formed team
interacting and then making a decision.
–Delphi groups
• Developing a consensus of expert opinion from a panel of
experts who individually contribute through a moderator.
–Nominal groups
• Generating ideas through the individual contributions of
alternatives that are winnowed down to reach a decision.
Table 4.2 Advantages and Disadvantages of Group and Team Decision Making
Advantages Disadvantages
More information and The process takes longer than individual
knowledge are available. decision making, so it is costlier.
More alternatives are likely to be Compromise decisions resulting from
generated. indecisiveness may emerge.
More acceptance of the final decision One person may dominate the group.
is likely.
Groupthink may influence a group or
Enhanced communication team’s desire for consensus and
of the decision may result. overwhelm its desire to reach the best
possible decision
Better decisions generally emerge.
The 1. Group Cohesiveness
Group
2. Leader Promotion of Preferred Solution
Group-think 3. Insulation from Expert Opinion
Characteristics
Process
1. Invulnerability 5. Peer Pressure
2. Rationalization 6. Self-censorship Symptoms of
3. Morality 7. Unanimity Groupthink
4. Stereotyping 8. Mindguards
1. Few Alternatives
2. No Reexamination of Preferred Alternative
3. No Reexamination of Rejected Alternative Decision-Making
4. Rejection of Expert Opinions Defects
5. Selective Bias of New Information
6. No Contingency Plans
Lower Performance Outcome

Lower Decision Quality Variables
Managing Group and Team
Decision-Making Processes
Promoting the Effectiveness of Group
and Team Decision Making:
• Be aware of the pros and cons • Have each group member

of having a group or team individually and critically
make a decision. evaluate all alternatives.
• Set deadlines for when • As a manager, do not make
decisions must be made. your position known too early.
• Avoid problems with • Appoint a group member to be
dominance by managing group a “devil’s advocate.”
membership.
• Hold a follow-up meeting to
recheck the decision.
Learning Outcomes
1. Identify the basic elements of organizations.

2. Describe the bureaucratic perspective on
organization design.
3. Identify and explain key situational influences
on organization design.
4. Describe the basic forms of organization
design that characterize many organizations.
5. Identify and describe emerging issues in
organization design.
The Basic Elements of Organizing
• Organization Structure and Design

–The overall set of structural elements that can
be used to configure the total organization.
–A means to implement strategies and plans to
achieve organizational goals.
• Job Specialization (Division of Labor)
–The degree to which the overall task of the
organization is broken down and divided into
smaller component parts.
Job Specialization
• Benefits of Specialization
–Workers can become proficient at a task.
–Transfer time between tasks is decreased.
–Specialized equipment can be more easily developed.
–Employee replacement becomes easier.
• Limitations of Specialization
–Employee boredom and dissatisfaction
with mundane tasks.
–Anticipated benefits of specialization
do not always occur.
Alternatives to Job Specialization
Job Specialization
Alternatives
Job Job Work

rotation enrichment teams
Job
Job
characteristics
enlargement
approach
Job Characteristics: Core Dimensions
Skill Variety The number of tasks a person does in a job
The extent to which the worker does a complete or

Task Identity
identifiable portion of the total job
Task Significance The perceived importance of the task by the worker
The degree of control the worker has over how the work
Autonomy
is performed
The extent to which the worker knows how well the job
Feedback
is being performed
Growth Need The desire for people to grow, develop, and expand their
Strength capabilities that is their response to the core dimensions
FIGURE 6.1 The Job Characteristics Approach
Grouping Jobs: Departmentalization
• Departmentalization
–The process of grouping jobs according
to some logical arrangement.
• Rationale for Departmentalization
–Organizational growth exceeds the owner-
manager’s capacity to personally supervise
all of the organization.
–Additional managers are employed
and assigned specific employees to
supervise.
Common Bases of Departmentalization
By Function By Product
CEO CEO
Finance Marketing Operations Computers Printers Software
By Customer By Location
CEO CEO
Home Business Educational

Africa Europe Asia
Users Users Users
Functional Departmentalization
The grouping of jobs involving
the same or similar activities
• Advantages • Disadvantages
– Each department can be – Decision making becomes
staffed by functional-area slow and bureaucratic.
experts. – Employees narrow their
– Supervision is facilitated in focus to the department and
that managers only need be lose sight of organizational
familiar with a narrow set of goals/ issues.
skills. – Accountability and
– Coordination inside each performance are difficult to
department is easier. monitor.
Product Departmentalization
The grouping of activities around
products or product groups
• Advantages • Disadvantages
– All activities associated – Managers may focus
with one product can be on their product to the
integrated and coordinated. exclusion of the rest
of the organization.
– Speed and effectiveness
of decision making are – Administrative costs
enhanced. may increase due to
each department
– Performance of individual
having its own
products or product groups
functional-area experts.
can be assessed.
Customer Departmentalization
The grouping of activities to respond to and interact

with specific customers and customer groups
• Advantage
– Skilled specialists can deal with
unique customers or customer
groups.
• Disadvantage
– A large administrative staff is needed
to integrate activities of various
departments.
Location Departmentalization
The grouping of jobs on the basis of
defined geographic sites or areas.
• Advantage
– Enables the organization to respond
easily to unique customer and
environmental characteristics.
• Disadvantage
– Large administrative staff may be
needed to keep track of units in
scattered locations.
Establishing Reporting Relationships
Establishing the
Chain of Command
Unity of Scalar Span of

command principle control
Establishing Reporting Relationships:
Tall Versus Flat Organizations
• Tall Organizations • Flat Organizations

– Are more expensive – Lead to higher levels of
because of the number of employee morale and
managers involved. productivity.
– Foster more communication – Create more administrative
problems because of the responsibility for the
number of people through relatively few managers.
whom information must – Create more supervisory
pass. responsibility for managers
due to wider spans of
control.
Tall Versus Flat Organizations
Tall Organization President
Flat Organization President
Distributing Authority
• Authority
–Power that has been legitimized by the organization.
• Delegation
–The process by which managers assign a portion of
their total workload to others.
• Reasons for Delegation
–To enable the manager to get more work done by
utilizing the skills and talents of subordinates.
–To foster development of subordinates by having them
participate in decision making and problem solving.
Steps in the Delegation Process
Step 1 Step 2 Step 3

Assigning Granting Creating
responsibility authority accountability
Manager Manager
Manager Manager
Manager
Subordinate Subordinate Subordinate
Problems in Delegation
• Manager • Subordinate
–Reluctant to delegate. –Reluctant to accept
–Disorganization delegation for fear of
prevents planning work failure.
in advance. –Perceives no rewards
–Subordinate’s success for accepting additional
threatens superior’s responsibility.
advancement. –Prefers to avoid any
–Lack of trust in the risk and responsibility.
subordinate to do well.
Factors in the Choice of Centralization
or Decentralization
Organization’s
Centralization Choice
External Nature
environment’s History of the (cost and risk)
complexity and organization of decisions to
uncertainty be made
Coordinating Activities
• Coordination
–The process of linking the activities of the various
departments of the organization.
• The Need for Coordination
–The greater the interdependence of departments and
work groups, the greater the need for coordination.
Major Forms of Interdependence
Sequential Reciprocal
Input Output Input Output Input Output
Pooled
Input
Input Output
Input
Input Output
Structural Coordination
Management
Task Forces
Hierarchy
Structural
Rules and Integrating
Procedures
Coordination Departments
Techniques
Managerial Liaison Electronic

Roles Coordination
Electronic Coordination Techniques
• Electronic Information Technology

–E-mail and instant messaging
–Electronic scheduling to coordinate
arrangements for group meetings
–Local networks structured around a common
web-based communication system.
–Video-conferencing
–Wireless networks
–Social networks
The Bureaucratic Model
of Organization Design
• Bureaucratic Model (Max Weber)
–A logical, rational, and efficient organization design
based on a legitimate and formal system of authority.
–Characteristics:
1. A division of labor with each position filled by an expert
2. A consistent set of rules to ensure uniformity in task
performance
3. A hierarchy of positions, which creates a chain of command
4. Impersonal management with appropriate social distance
between superiors and subordinates
5. Employment and advancement based on technical
expertise and employees protected from arbitrary dismissal
Bureaucratic Model
Advantages Disadvantages
Organizational inflexibility
Efficiency in function
and rigidity
Neglect of social and

Prevention of favoritism
human processes
Recognition of and Belief in “one best way”

requirement for expertise to design organizations
Situational Influences on Organization Design
Core Technology Environment

1. Unit or small batch • Stable/unstable
2. Large batch or mass • Mechanistic/organic
production organizations
3. Continuous process • Differentiation/integration
Optimal
Organization
Design
Organization Size and Life Cycle

• Unstable, growing rapidly
• Stable, mature
Core Technology and Organization Design
Woodward’s Basic
Forms of Technology
Unit or small-batch technology
Large batch/mass production
Continuous process
Woodward’s Findings
• Unit or small-batch technology and continuous

process firms tend to be organic—less rigid and
more informal.
• Large batch/mass production firms tend to be
mechanistic—bureaucratic with higher degrees
of labor specialization.
• Organizational success was related to the extent
to which organizations followed the typical
pattern appropriate to their technology.
Environment–Organization Design
(Burns and Stalker)
• Research focused on identifying extreme forms
of the organizational environment:
–Stable environments that remain constant over time.
–Unstable environments subject to uncertainty and
rapid change.
• Organization Designs
–Mechanistic organizations occur most frequently in
stable environments.
–Organic organizations are found in unstable and
unpredictable environments.
Differentiation and Integration
(Lawrence and Lorsch)
• Predicted environmental factors have differential
effects on organization units; affecting the
overall design of the organization.
–Differentiation, the extent an organization is broken
into subunits, is associated with stable environments.
–Integration is the degree to which the various subunits
must work together in a coordinated fashion.
–The degree of differentiation and integration needed
by an organization depends on the stability of the
environments that its subunits face.
Effects of Size and Life Cycle
• Organizational Size
–Defined as the total number of full-time or full-time
equivalent employees.
–Research findings:
• Small firms tend to focus on their core technology.
• Large firms have more job specialization, standard operating
procedures, more rules and regulations, and are more
decentralized.
• Organizational Life Cycle
–The progression of organizations as they grow and
mature—birth, youth, midlife, and maturity.
Basic Forms of Organization Design
• Functional or U-form (Unitary) Design

–Organizational members and units are grouped into
functional departments.
• Requires coordination across all departments.
• Resembles functional departmentalization in its
advantages and disadvantages.
• Promotes a narrowing functional rather than
broader organizational focus
• Tends to promoter centralization
• Is common in smaller organizations
FIGURE 6.2 Functional (U form) Design for a Small Manufacturing Company
Organization Design (cont’d)
• Conglomerate or H-form (Holding) Design

–Organization consists of a set of unrelated
businesses with a general manager for each business.
–Holding-company design is similar to product
departmentalization.
–Coordination is based on the allocation of resources
across companies in the portfolio.
–Design has produced only average to weak financial
performance; has been abandoned for other
approaches.
FIGURE 6.3 Conglomerate (H form) Design at Samsung
• Divisional or M-form (Multidivisional) Design

–Is based on multiple businesses in related areas
operating within a larger organizational framework;
following a strategy of related diversification.
–Activities are decentralized down to the divisional
level; others are centralized at the corporate level.
–The largest advantages of the M-form design are the
opportunities for coordination and sharing of
resources.
FIGURE 6.4 Multidivisional (M Form) Design at Hilton Hotels
• Matrix Design
–An organizational arrangement based on two
overlapping bases of departmentalization.
• A set of product groups or temporary departments are
superimposed across the functional departments.
• Employees in the matrix become members of both their
departments and a project team under a project manager.
• The matrix creates a multiple command structure in which an
employee reports to both departmental and project managers.
• Matrix design is useful when:

–There is strong environmental pressure.
–There are large amounts of information
to be processed.
–There is pressure for shared resources.
FIGURE 6.5 A Matrix Organization
• Matrix Design Advantages

–Enhances organizational flexibility.
–Fosters high motivation and increased
organizational commitment.
–Provide opportunity for team members
to learn new skills.
–Makes efficient use of human resources.
–Allows team members to serve as bridges
to their departments.
–Is a useful vehicle for decentralization.
• Matrix Design Disadvantages

–Employees are uncertain about reporting
relationships.
–Managers may view design as an anarchy in
which they have unlimited freedom.
–The dynamics of group behavior may lead to
slower decision making, one-person domination,
compromise decisions, or a loss of focus.
–More time may be required for coordinating task-
related activities.
• Hybrid Design
–Is based on two or more organization design
forms such as a mixture of related divisions
and a single unrelated division.
–Most organizations use a modified form of
organization design that permits them to have
the flexibility to make strategic adjustments.
The Future of Organization Design
Emerging
Organization Design
Issues
Team-based organizations
Virtual organizations
Learning organizations
Learning Outcomes
1. Describe the nature of organization change, including

forces for change and planned versus reactive change.
2. Discuss the steps in organization change and how to
manage resistance to change.
3. Identify and describe major areas of organization
change and discuss the assumptions, techniques, and
effectiveness of organization development (OD).
4. Describe the innovation process, forms of innovation,
the failure to innovate, and how organizations can
promote innovation.
The Nature of Organization Change
• Organization Change
–Any substantive modification to some part of the
organization (e.g., work schedules, machinery,
employees).
• Forces for Change
–External forces in the organization’s general and task
environments force the organization to alter the way in
which it competes.
–Internal forces inside the organization cause it to
change its structure and strategy; some internal forces
are responses to external pressures.
Planned versus Reactive Change
• Planned Change
–Change that is designed and
implemented in an orderly
and timely fashion in
anticipation of future events.
• Reactive Change
–Change that is a piecemeal
response to events and
circumstances as they
develop.
Managing Change in Organizations
• Steps in the Change Process

(Kurt Lewin’s Model)
–Unfreezing
• Individuals must be shown why the
change is necessary.
–Implementing change
• The change itself is implemented
–Refreezing
• Involves reinforcing and supporting
the change so that it becomes a
integral part of the system.
FIGURE 7.1 Steps in the Change Process
Understanding Resistance to Change
Uncertainty about the

Threats to self-interests
extent and effects of
and power and influence.
change.
The Change Process
Different perceptions Fear of loss of social

of change effects and networks, power, security,
outcomes and familiar procedures.
Understanding Resistance to Change
• People resist change because of:

–Uncertainty about the extent and effects of change.
–Threats to self-interests, power, and influence.
–Different perceptions of change effects and outcomes.
–Feelings of loss in disrupted social networks, power,
security, and familiarity with existing procedures.
Reasons for Resistance to Change
T Uncertainty
H
E
O
R
Threatened
G self-interests
Planned A
Change N
I Conflicting
Z
A
perceptions
T
I
O Feelings of
N personal loss
Overcoming Resistance to Change
• Encourage active participation in the change

process.
• Provide education and communication about the
change process.
• Facilitate the change process by making only
necessary changes, announcing changes in
advance, and allowing time to adapt to change.
• Use force-field analysis to focus efforts on
removing barriers to change.
Overcoming Resistance to Change
in Organizations
Participation
Education and
communication
Resistance to Change
Facilitation
Force-field
analysis
FIGURE 7.2 Force-Field Analysis for Plant Closing at General Motors
Reasons for Closing Reasons Against Closing
Need to cut costs Resistance from unions
Plant
Excess capacity Concern about worker welfare
closing
Outmoded production facilities Possible future needs
Management Challenge
• Local governments typically encounter strong

resistance from public employees when they
attempt to privatize public services.
–What advice could you offer a local government that
would help in overcoming its employees’ resistance to
change?
Areas of Organization Change
Organization Structure
People and Design Technology and
Abilities and skills Job design Operations
Performance Departmentalization Information
Perceptions Reporting relationships technologies
Expectations Authority distribution Equipment
Attitudes and values Coordination mechanisms Work processes/
Line-staff structure activities
Overall design Control systems
Culture Enterprise resource
Human resource planning (ERP)
management
Table 7.1 Areas of Organization Change
Organization Technology and

Structure and Design Operations People
Job design Information technology Abilities and skills
Departmentalization Equipment Performance
Reporting relationships Work processes Perceptions
Authority distribution Work sequences Expectations
Coordination mechanisms Control systems Attitudes
Line-staff structure Enterprise resource planning Values
Overall design (ERP)
Culture
Human resource
management
Reengineering in Organizations
• Business Process Change (Reengineering)

–The radical redesign of all aspects of a business to
achieve major improvements in cost, service, or time.
• The Need for Business Process Change
–Entropy is a normal process leading to system
decline.
• Results from maintenance of the status quo
• Puts the organization out of synch with its environment
• Starts the organization to consuming its own resources.
Reengineering in Organizations
Approaches to
Reengineering
Recognizing need Using a blend of

Starting with a clean
for change and top-down and
slate to open up the
acting on it with a bottom-up
process
sense of urgency involvement
Approaches to Business Process Change
• Recognizing the need for change and acting on

it with a sense of urgency.
• Starting with a clean slate opens up the process.
• Using a blend of top-down and bottom-up
involvement.
FIGURE 7.3 The Reengineering Process
Organization Development (OD)
• Organization Development
–A planned, organization-wide effort managed from the
top, intended to increase organizational effectiveness
and health through interventions in the organization’s
processes, using behavioral science knowledge.
Organization Development (OD) (cont’d)
• OD Assumptions
–Employees desire to grow and develop.
–Employees have a strong need to be accepted by
others within the organization.
–Individuals will influence the organization and the
organization will influence the attitudes, perceptions,
behaviors, and expectations of individuals.
Organization Development Techniques
• Diagnostic Activities
• Team Building
• Survey Feedback
• Third-Party Peacemaking
• Process Consultation
• Life and Career Planning
• Coaching and Counseling
Organizational Innovation
• Innovation
–The managed effort of an organization to develop new
products or services or new uses for existing products
or services.
Radical Incremental
Innovation Innovation
Technical Forms of Managerial

Innovation Innovation Innovation
Product Process
Innovation Innovation
FIGURE 7.4 The Innovation Process
Organizational Innovation:
Radical versus Incremental Innovations
• Radical Innovation
–A new product, service, or technology developed by
an organization that replaces an existing one.
–Radical innovation fundamentally changes the nature
of competition in an industry.
• Incremental Innovation
–A new product, service, or technology that modifies an
existing one.
–Incremental innovation does not significantly affect
competition in an industry.
Technical Versus Managerial Innovations
• Technical Innovation
–A change in the appearance or performance of a
product or service, or the physical processes through
which a product or service is manufactured.
• Managerial Innovation
–A change in the management process by which
products and services are conceived, built, and
delivered to customers.
• What challenges would a management team

face when implementing technical and
managerial innovations in tandem?
• How likely is this situation to occur?
Product Versus Process Innovations
• Product Innovation
–A change in the physical characteristics or
performance of an existing product or service or the
creation of a new product or service.
• Process Innovation
–A change in the way a product or service is
manufactured, created, or distributed.
Effects of Product and Process Innovation
on Economic Return
High Return
Innovation Innovation Application Application Innovation Innovation

Effect on Organizational Performance
Development Application Launch Growth Maturity Decline
Product Process
Innovations Innovations
Low Return
Phases of the Innovation Process
The Failure to Innovate
• Reasons for Failing to Innovate

–Lack of resources
–Failure to recognize opportunities
–Resistance to change
• Promoting Innovation in Organizations
–Using the reward system
–Having a supportive culture
–Encouraging intrapreneurship
• Inventors
• Production champions
• Sponsors
Learning Outcomes
1. Describe the environmental context of human resource

management, including its strategic importance and its
relationship with legal and social factors.
2. Discuss how organizations attract human resources,
including human resource planning, recruiting, and
selecting.
3. Describe how organizations develop human resources,
including training and development, performance
appraisal, and performance feedback.
Learning Outcomes (cont’d)
4. Discuss how organizations maintain human resources,

including the determination of compensation and benefits
and career planning.
5. Discuss the nature of diversity, including its meaning,
associated trends, impact, and management.
6. Describe labor relations, including how employees form
unions and the mechanics of collective bargaining.
7. Describe the issues associated with managing
knowledge and contingent and temporary workers.
The Environmental Context of
Human Resource Management
• Human Resource Management (HRM)
–The set of organizational activities directed at
attracting, developing, and maintaining an effective
work force.
• The Strategic Importance of HRM
–Human capital reflects the organization’s investment
in attracting, retaining, and motivating an effective
workforce critical for effective organizational
functioning.
The Legal Environment of HRM
Equal Employment Compensation Labor Health
Opportunity and Benefits Relations and Safety
Title VII of Civil Fair Labor National Labor Occupational

Rights Act of 1964 Standards Act of Relations Act of Safety and Health
1938 (FLSA) 1935 (Wagner Act) Act of 1970 (OSHA)
Pregnancy
Discrimination Act Equal Pay Act Labor Management
of 1963 Relations Act
of 1947
Age Discrimination (Taft-Hartley Act)
in Employment Act Employee
Retirement Income
Security Act of
Americans with 1974 (ERISA)
Disabilities Act
Family and Medical

Civil Rights Act Leave Act of 1993
of 1991 (FMLA)
Executive Orders
(Order 11246)
Equal Employment Opportunity
• Title VII of the Civil Rights Act of 1964

–Forbids discrimination in the employment relationship.
–Employers are not required to seek out and hire
minorities but they must treat fairly all who apply.
• Adverse impact
–Occurs when minority group members’ pass rate on a
selection standard is less than 80% of the pass rate of
the majority group.
Equal Employment Opportunity
• Equal Employment Opportunity Commission

–Federal agency charged with enforcing Title VII as
well as several other employment-related laws.
• Age Discrimination in Employment Act of 1967
–Outlaws discrimination against people older than
40 years of age.
• Pregnancy Discrimination Act
–Forbids discrimination against
women who are pregnant.
Equal Employment Opportunity (cont’d)
• Affirmative Action
–The commitment of employers to intentionally seek out
and to hire qualified or qualifiable employees from
racial, sexual, and ethnic groups, the disabled, and
military veterans that are underrepresented in the
organization.
–Various executive orders, especially Executive Order
11246, require federal contractors to develop
affirmative action plans and engage in affirmative
action in hiring veterans and the disabled.
Equal Employment Opportunity (cont’d)
• Americans with Disabilities Act of 1990 (ADA)

–Forbids discrimination on the basis of disabilities and
requires employers to provide reasonable
accommodations for disabled employees.
• Civil Rights Act of 1991
–Amended the original Civil Rights Act, making it easier
to bring discrimination lawsuits while also limiting
punitive damages that can be awarded in those
lawsuits.
Compensation
• Fair Labor Standards Act of 1938 (FLSA)

–Sets a minimum wage and requires overtime pay for
work in excess of 40 hours per week.
–Salaried professional, executive, and administrative
employees are exempt from the Act’s minimum wage
and overtime provisions.
• Equal Pay Act of 1963
–Requires men and women to be paid the same
amount for doing the same jobs; exceptions are
permitted for seniority and performance pay.
Benefits
• Employee Retirement Income Security Act

of 1974 (ERISA)
–Sets standards for pension plan management
and provides federal insurance if pension
plans go bankrupt.
• Family and Medical Leave Act of 1993
(FMLA)
–Requires employers to provide up to 12 weeks of
unpaid leave for family and medical emergencies.
Labor Relations
• National Labor Relations Act of 1935

(Wagner Act)
–Set up procedures for establishing unions and
requires employers to bargain collectively with unions.
• National Labor Relations Board (NLRB)
–Is the federal agency that enforces the NLRA.
• Labor Management Relations Act of 1947
(Taft-Hartley Act)
–Limited power of unions and increased management’s
rights during organizing campaigns.
Health and Safety
• Occupational Safety and Health Act of 1970

(OSHA) requires that employers:
–Provide a place of employment that is free from
hazards that cause death or serious physical harm.
–Obey safety and health standards set by the
Occupational Safety and Health Administration
(OSHA).
The Legal Environment of HRM (cont’d)
Emerging Legal Issues
Alcohol
Sexual AIDS in
and drug
harassment the workplace
dependencies
Attracting Human Resources
A systematized procedure for collecting

Job
and recording information about jobs
Analysis within an organization
A listing of the job’s duties; its working

Job
conditions; and the tools, materials, and
Description equipment use to perform the job.
A listing of the knowledge, skills, abilities,

Job
and other credentials the incumbent
Specification jobholder will need to do a job.
FIGURE 8.1 Human Resource Planning
Forecasting the Supply of Labor
Sources of Information
about the Available
Labor Supply
Internal Supply External Supply

Anticipated personnel changes
Replacement charts
State employment commissions
Government reports
Employee information system
College graduation records
Skills inventory
Recruiting Human Resources
• Recruiting
–The process of attracting qualified persons to apply
for jobs that are open.
• Internal Recruiting (Promotion from Within)
–Involves considering present employees as
candidates for openings.
–Can help build morale and reduce turnover of high-
quality employees.
–Can create a “ripple effect”—the disadvantage of
having to successively fill vacated positions.
Recruiting Human Resources (cont’d)
Advertising Executive search firms
Sources of
Campus interviews Union halls
External Recruits
Employment agencies Employee referrals
Walk-ins
• Realistic Job Preview (RJP)

–Is a successful method to ensure person-job fit.
The Selection Process
Pool of candidates complete application blanks
Initial screening
Remaining candidates complete test battery
Test scoring
Remaining candidates are interviewed by managers
References checked, final decisions made
Final candidates receive job offers
Physical exams may be required for employment
Selecting Human Resources
• Validation
–The process of determining the predictive value of
information gained from a selection device.
• Application Blanks
–Gather information about work history, educational
background, and other job-related demographic data.
–Must not ask for information unrelated to the job.
–Are used to decide if a candidate merits further
evaluation.
–Provide interviewers with candidate information.
Selecting Human Resources (cont’d)
• Tests
–Ability, skill, aptitude, or knowledge tests are
usually the best predictors of job success.
–Must be validated, administered, and scored
consistently.
–The testing process must be the same
for all candidates.
Selecting Human Resources (cont’d)
• Interviews
–Interviewer biases can be overcome and interview
consistency and validity can be improved by training
interviewers and using structured interviews.
• Assessment Centers
–Are used to select managers from current employees
for promotion.
• Other Techniques
–Polygraph testing, physical exams, drug tests, and
credit checks are used to screen prospective
employees.
Developing Human Resources
• Training
–Teaching operational or technical employees
how to do the job for which they were hired.
• Development
–Teaching managers and
professionals the skills needed
for both present and future jobs.
• Assessing Training Needs
–Determining training needs is
the first step in developing a
training plan.
Developing Human Resources (cont’d)
Common Training Methods
On-the-job Web-based
Role play and
Lectures and vestibule and electronic
case studies
training training
Training and Development Evaluation
• Training and development programs should

always be evaluated.
–Approaches include measuring relevant job
performance criteria before and after the training to
determine the effect of training.
Performance Appraisal
• Performance Appraisal
–A formal assessment of how well individual employees
are doing their jobs.
• Reasons for Performance Appraisal
–Appraisal validates the selection process and
the effects of training.
–Appraisal aids in making decisions about pay raises,
promotions, and training.
–Appraisal provides feedback to employees to improve
their performance and plan future careers.
Categories of Appraisal Methods
• Objective Measures of Performance

–Measure actual output (that is, number of units
produced), scrap rate, dollar volume of sales, and
number of claims processed.
• Opportunity Bias
–A measure of performance is “contaminated” (i.e.,
incorrectly assesses performance) if it is influenced by
an external variable that causes some persons have a
better chance to perform than others.
• Rainfall increases lawnmower sales but reduces lawn
sprinkler sales.
Judgmental Appraisal Methods
• Ranking Method
–Compares employees directly with each other.
–Difficult to do with large numbers of employees.
–Difficult to make comparisons across work groups.
–Employees are ranked only on overall performance.
–Do not provide useful information for employee
feedback.
Judgmental Appraisal Methods (cont’d)
• Rating Method
–Compares each employee with a fixed standard.
–Uses graphic rating scales of job performance
dimensions to be rated on a standard scale.
• Behaviorally-Anchored Rating Scale (BARS)
–Is a rating scale where each point on the scale is
associated with behavioral anchors.
FIGURE 8.2 Graphic Rating Scales for a Bank Teller
FIGURE 8.3 Behaviorally Anchored Rating Scale
Bias Errors in Performance Appraisal
• Recency Error
–The tendency of the evaluator to base judgments on
the subordinate’s most recent performance because it
is the most easily recalled.
• Errors of Leniency and Strictness
–Being too lenient, too strict, or tending to rate all
employees as “average.”
• Halo Error
–Allowing the assessment of the employee on one
dimension to spread to that employee’s ratings
on other dimensions.
“360-Degree” Performance Appraisal
• “360-degree” Feedback
–A process in which managers are evaluated by
everyone around them.
–Provides a richer array of performance information
on which to base an appraisal.
Performance Appraisal Feedback
• Performance Feedback
–Is best given in a private meeting between the
employee and immediate supervisor.
–Is more effective if managers are properly trained to
conduct feedback interviews.
• Focus of Appraisal Discussion:
–Assessed level of performance
–How and why the assessment was made
–How the employee’s performance can be improved in
the future.
Direct Compensation
• Forms of Compensation
–Wages are hourly compensation paid to operating
employees.
–Salary is paid for the total contribution of an employee
and is not based on total hours worked.
–Incentives are special compensation opportunities that
are usually tied to performance.
• Purposes of compensation
–Provide a reasonable standard of living.
–Provide a tangible measure of an individual’s value to
the organization.
Steps in Determining Compensation
Wage-level decisions:
• Organization strategy
• Availability of resources
• Wage survey data
• Unemployment rates
Wage-structure decisions:
• Internal equity
• Job rankings
• Job evaluations
Individual wage decisions:

• Experience
• Performance
• Seniority
Indirect Compensation:
Determining Benefits
Types of Employee
Benefits
Pay for time Life, health, and Service Cafeteria benefit

not worked other insurance benefits plans
Managing Workforce Diversity
• Diversity Defined
–When members of a group differ from one another
along dimensions such as age, gender, or ethnicity.
• Diversity as a Competitive Advantage
–Higher productivity; lower turnover and absenteeism
–Increased reputation as “good place to work”
–Better understanding of different market segments
–Increased creativity and innovation
Reasons for Increasing Diversity
Legislation and Changing demographics

legal action in the labor force
Increasing diversity and multiculturalism in organizations
Increased awareness that

The globalization
diversity improves the
movement
quality of the work force
Managing Workforce Diversity (cont’d)
• Diversity as a Source of Conflict

–Personnel actions (e.g., hiring, promotion, and firing)
being attributed to an individual’s diversity status.
–Misunderstood, misinterpreted, or inappropriate
actions among people of different groups.
–Fear, distrust, or individual prejudices.
Managing Diversity in Organizations
• Individual Strategies
–Understanding the nature and meaning
of diversity and multiculturalism.
–Developing empathy in understanding
the perspective of others.
–Developing tolerance of fundamental
cultural differences.
–Having a willingness to communicate
and discuss diversity and
multiculturalism issues.
Organizational Approaches
to Managing Diversity
Managing Diversity
in Organizations
Organizational Organizational Diversity Organizational

policies practices training culture
Managing Labor Relations
• Labor Relations
–The process of dealing with employees who are
represented by a union.
–Organizations prefer that employees remain nonunion
because unions limit management’s freedom.
–The best way to avoid unionization is to practice good
employee relations by:
• Providing fair treatment with clear standards in pay,
promotions, layoffs, and discipline.
• Providing a complaint and appeal system and
avoiding favoritism.
FIGURE 8.9 The Union-Organizing Process
New Challenges in
the Changing Workplace
• Managing Knowledge Workers
–Knowledge workers’ contributions to an organization
are based on what they know (as experts).
• Computer scientists, engineers, and physical scientists
–Knowledge Worker Management and Labor Markets

• Offering competitive starting salaries and sign-on bonuses.
• Making regular upward compensation adjustments to stay
competitive with external labor market rates.
• Providing retraining and training updates to prevent their
critical skills from becoming obsolete.
Managing the Changing Workplace
• Contingent and Temporary Workers

–Are not permanent or full-time employees
• Independent contractors, on-call workers, temporary, contract
and leased employees, and part-time workers.
• 1 in every 50 employed Americans held a temporary or
contingent position in 2011.
• Managing Contingent and Temporary Workers
–The strategic need to maintain flexibility in staffing
levels and to control labor costs requires:
• Careful advance HR planning.
• Understanding how to effectively utilize contingent workers.
• Assessing the real cost of using contingent workers.

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Learning Outcomes

After studying this chapter you should be able to:

1. Define decision making and discuss types of

Recognizing Identifying Choosing Putting the

• Decision-Making Process (cont’d)

Decision Making Decision Making Decision Making

The decision maker

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

• Your are captain of a container ship caught in a typhoon.

Are there multiple

Are the probabilities of the

Decision is risky. Decision is uncertain.

• Decision Making Under Certainty

When faced with a • obtain complete and …and end up with

Step Detail Example

Optimization—selecting the alternative that offers the

When faced with a • use incomplete and …and end up with

• How could a coalition lead to escalation of

Individual Managerial Organizational

Other economic agents

Forms of Group Decision Making

Interacting Delphi Nominal

• Forms of Group Decision Making

Lower Performance Outcome

• Be aware of the pros and cons • Have each group member

1. Identify the basic elements of organizations.

• Organization Structure and Design

Job Job Work

The extent to which the worker does a complete or

Task Significance The perceived importance of the task by the worker

Finance Marketing Operations Computers Printers Software

Home Business Educational

The grouping of activities to respond to and interact

Unity of Scalar Span of

• Tall Organizations • Flat Organizations

Tall Organization President

Flat Organization President

Step 1 Step 2 Step 3

Subordinate Subordinate Subordinate

Input Output Input Output Input Output

Managerial Liaison Electronic

• Electronic Information Technology

Neglect of social and

Recognition of and Belief in “one best way”

Core Technology Environment

Organization Size and Life Cycle

Unit or small-batch technology

Large batch/mass production

• Unit or small-batch technology and continuous

• Functional or U-form (Unitary) Design

• Conglomerate or H-form (Holding) Design

• Divisional or M-form (Multidivisional) Design

• Matrix design is useful when:

• Matrix Design Advantages

• Matrix Design Disadvantages

1. Describe the nature of organization change, including

• Steps in the Change Process

Uncertainty about the

The Change Process

Different perceptions Fear of loss of social

• People resist change because of: