Book On Organizational Behavior

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: www.pearsoned-ema.com
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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 identified 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
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Contents
Acknowledgements 7
Introduction 9
Module 1 The Basics of Organisational Behaviour and its Relation to 1/1

Management
1.1 Why Managers Need to Understand Organisational Behaviour and 1/2
its Theories
1.2 Values: The Building Blocks of Individual Differences 1/10
1.3 The Study of Personality and Employees’ Personal Traits 1/12
1.4 The Crucial Role of Job Satisfaction 1/20
1.5 Developments in the Study of Employee Work Attitudes 1/28
Module 2 Stress and Well-Being at Work 2/1

2.1 Introduction to Stress and Well-Being at Work 2/2
2.2 Understanding Job Stress and its Components 2/3
2.3 A Model of Causes and Consequences of Stress 2/4
2.4 Individual Approaches to Managing Stress 2/11
2.5 Organisational Programmes of Wellness and Job Stress Management 2/13
2.6 Downsizing: A New Form of Permanent Job Insecurity? 2/16
2.7 A Semi-Last Word on Downsizing 2/19
Module 3 Contemporary Theories of Motivation 3/1

3.1 Introduction 3/2
3.2 Content Theories of Motivation 3/4
3.3 Process Theories of Motivation 3/11
3.4 Cultural Differences in Motivation 3/20
Module 4 Organisational Control and Reward Systems 4/1

4.1 Why Organisations Need to Assess Employees’ Performance 4/2
4.2 Goal-Setting and Management by Objectives (MBO) 4/10
4.3 Rewards and Reward Systems 4/14
4.4 Components of Executive Compensation 4/19
4.5 A Comparison of Company Pay Practices 4/25
4.6 Individual and Group-Based Reward Systems 4/29
Module 5 Job Design and Employee Reactions to Work 5/1

5.1 Understanding Job Design 5/2
5.2 Making Use of Job Design for Individual Employees 5/9
5.3 The Team Approach to Job Design 5/13
Module 6 Understanding Work Group Dynamics and Group-Based Problem- 6/1

Solving
6.1 Describing Work Groups and their Characteristics 6/2
6.2 Work Group Composition, Cohesiveness and Norms 6/6
Organisational Behaviour Edinburgh Business School 5

Contents
6.3 Significant Aspects of Work Group Structure 6/12

6.4 From Statics to Dynamics: Work Group Development and Decision- 6/15
Making
6.5 Practical Guidelines for Managing Groups 6/21
6.6 Decision-Making in Teams: Deciding on the Extent of Participation 6/26
6.7 Work Groups in Competition and Conflict 6/28
Module 7 The Influence Processes in Organisations: Power, Politics, Leadership 7/1

and Entrepreneurship
7.1 An Example of Power 7/2
7.2 Uses and Abuses of Power: Playing Politics 7/10
7.3 Leadership: A Conundrum of Theory 7/14
7.4 The New Age of Entrepreneurs 7/26
Module 8 Organisational Design and New Forms of Service-Driven 8/1

Organisations
8.1 Making Sense of Organisational Anatomy 8/3
8.2 Organisational Structure: Understanding the Basics 8/13
8.3 Understanding the Responsive Organisation 8/27
8.4 Drivers of Growth in Customer Service 8/35
8.5 How Good Service Retains Customers 8/36
8.6 Organising Principles of Service Quality 8/40
8.7 Creating a Service-Driven Organisation 8/44
Module 9 Managing Transitions: Organisational Culture and Change 9/1

9.1 Organisational Culture: Its Meaning and Relationship to Successful 9/2
Strategy
9.2 Organisational Life-Cycle Theory 9/11
9.3 Organisational Change 9/13
9.4 Methods of Change in Organisation Development 9/23
Appendix 1 Answers to Review Questions and Worked Solutions to Case Studies A1/1
Appendix 2 Practice Final Examinations and Worked Solutions A2/1
Index I/1
6 Edinburgh Business School Organisational Behaviour

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 fine academic and
professional staffs at EBS, the Esmée Fairbairn Research Centre (TEFRC) and
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
first edition.

Introduction
The competitive pressures on organisations continue to mount and skilful man-

agements seek to strengthen their firms’ competitive advantages. The effec-
tiveness of organisations’ technological resources and their strategic initiatives
always depends on the quality and motivation of their work-forces. The con-
sistent theme through all of the modules in this revised text is the creation
and strengthening of organisational competitive advantage by strengthening the
manager’s grasp of human forces that are constantly in play in organisations.
As you read these modules, you will find an excellent balance between
theory and practice. The text introduces you to the theories that have created
solid advances in the field 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 firms. 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 Heriot-
Watt 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, financial 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, I’ll 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 influence 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 organisa-
tion. 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:

Introduction
shortened work cycle times, improved total customer service and new organisa-
tional designs that are not based just on the pursuit of manufacturing efficiency
and low unit costs.
The cases and their study questions are revised to reflect 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 manager’s job in the twenty-first 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 management’s 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 empower-
ment 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 dis-
cussed in Module 5. New materials in Module 6 include the nature of social
loafing, and the design of reward systems to increase work team productivity.
In Module 6 the Vroom–Yetton–Jago 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 significance 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 organisa-
tional culture and the nature of planned change; it stresses high-performance
organisational culture and the ‘life-cycle theory’ of organisations.
10 Edinburgh Business School Organisational Behaviour

Module 1
The Basics of Organisational

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

Module 1 / The Basics of Organisational Behaviour and its Relation to Management
Learning Objectives
By the end of this module, you will be able to:
• Distinguish organisational behaviour and management as different yet

related disciplines.
• Define organisational behaviour.
• Develop the characteristics of the manager’s job in the twenty-first 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 significance of various psychological traits of employees that
systematically influence 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 influence 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 prob-
lems you confront at work. Not only will you be gaining a broad view of this
highly applied discipline, but you will also find ways to alter your manage-
ment 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 impli-
cations of organisational problems. In this course you will become acquainted
with the latest developments in the field and you will have an opportunity
to see how well-known, global companies deal with the challenges of manag-
ing their diverse work-forces in highly competitive markets around the world.
Our aim throughout this course is to help you see how the field of organisa-
tional behaviour contributes knowledge of how organisations behave. In turn,
this knowledge can be turned into competitive advantages that can help firms
realise higher returns through the best use of their human capital. Let us begin
by developing a definition of the field 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
1/2 Edinburgh Business School Organisational Behaviour

to the effectiveness of any organisation. The field has three units of analysis:
the individual, the group and the organisation. A ‘micro’ approach to the field
emphasises the first 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, anthro-
pology and social psychology. The field 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 exten-
sive 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 field of management is defined as the process of planning, organ-
ising, leading, and controlling the human, material and financial resources of an
organisation. Management is best viewed as a process which is employed by
individuals(managers) who are responsible for achieving organisational objec-
tives through people. Managers are individuals who achieve results by super-
vising and motivating people in work organisations. Newer definitions of man-
agement have de-emphasised the ‘activities’ approach suggested above.
These more recent views of management focus more on the roles of ‘coach-
ing’, 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 significant 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 environ-
ment of employee empowerment which uses self-directed teams.
Managers are held accountable for achieving goals in these areas. As a con-
sequence, they often look for theories which help them interpret organisational
events and processes in behavioural terms. The field 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.

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 specific goods and services. Instead, they supervise the
work of subordinates who do produce products and services. A manager’s job
has three basic components. They are:
1 A technical component concerned with the efficient use of resources to

achieve output goals, and the application of technology to achieve produc-
tivity goals.
2 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.
3 A human component concerned with employee welfare. Examples in this
area include setting a programme to assist troubled employees, and design-
ing 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 first-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 problem-
solvers 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 defined in tech-
nical 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 sufficient
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 fields
of organisational behaviour and management.

1.1.2 New Perspectives on the Manager’s Job

As we have noted, the key concept in the manager’s job is ‘getting things done
through people’. In organisations of the twenty-first century, the manager’s
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 manager’s 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 financial resources of the company.
In his research, he found that only five per cent of a manager’s 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 manager’s job:
1 Managing individual performance (supervising).

2 Instructing subordinates (teaching and training).
3 Representing one’s staff (representation and advocacy).
4 Managing group performance (facilitation).
5 Planning and allocating resources (decision-making).
6 Co-ordinating interdependent groups (collaboration).
7 Monitoring the business environment (scanning).3
These seven managerial tasks are common to all management levels in com-
panies. 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 super-
visors, 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, effi-
ciency, responsiveness and flexibility. Organisational control structures empha-
sising command and control are giving way to those which stress participative
decision systems and employee empowerment.4 Managers who are only com-
fortable 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.

Table 1.1 Managers’ challenges in the twenty-first century

Past challenges Future challenges
Principle duties Give orders to subordinates and Encourage the development of
control their behaviour subordinates and their work teams
Training and development Reduce these costs by hiring workers Training and employee development
with requisite skills are continuous to achieve the goal
of a flexible and cross-trained work
force
Reward bases Seniority, rank and effort Merit-based individual and team
contributions to competitive
advantage
Influence base Hierarchical position Technical, interpersonal and
organisational expertise
Communication patterns and styles From top to the bottom in highly Diffusion-based so that information
formal terms goes rapidly to where the decision
has to be made
Decision-taking style Superior/boss centred and Team-based and participative
authoritarian
Approach to organisational change Resist change and cling to the status Embrace change and find ways
quo to improve strategic, competitive
processes
The speed of change in the manager’s job (as shown in Table 1.1) will increase
because:
1 The work-force is changing. Companies must deal increasingly with mat-

ters of work-force diversity, work-force skills and training and work-force
values and beliefs. Less restrictive labour regulations and immigration poli-
cies 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-first century understand diversity and
know how to optimise the fit between employees with diverse needs and
expectations and their jobs and work groups.
2 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 twenty-
first 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 organisation’s ability to
add value to products and services from the customer’s point of view.
3 Organisations are changing. Eroding trade barriers and instantaneous cap-
ital flows greatly increase competition and these forces prod companies to

search for new sources of competitive advantage. Thus, they downsize, re-
engineer, 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 find creative solutions to vexing organisational
problems. These complex forces tear away the traditional definition of the
manager’s 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 won’t give that extra five per cent when
a crisis occurs on the convention floor.’
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 official: ‘We no longer have a membership who are committed to union
values. They carry their cards, and that’s all.’
A marketing manager: ‘My employees refuse to work with the fellows from produc-
tion. 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 rep-
resent opportunities for managers to apply knowledge of organisational behav-
iour 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 influence 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 man-
ager, you should use objective methods to attack problems related to the
needs of employees and the interests of the organisation; these often conflict.
2 Knowledge of behavioural theories helps you understand new develop-
ments in the field of organisational behaviour. You must be an educated
consumer of new developments which might improve or refine your man-
agerial abilities.
3 An understanding of behavioural theories helps you to evaluate effec-
tively 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.

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 amplifies 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, co-
workers’ characteristics and equipment. O (organism) refers to the characteristics
of the person including personality, needs, attitudes, values and intentions. B
refers to the person’s 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 O B C
Stimulus Organism Behaviour Consequences
situation and actions 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 specifies a sequence for under-
standing the behaviour of individuals. It does suggest that differences in per-
formance are a function of numerous factors. Managers are concerned with an
employee’s performance (behaviour). They try to influence 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 employee’s 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.

1.1.4 Defining 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 benefits 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 under-
standing of how the organisation’s work-force can be a source of sustainable
competitive advantage. Your management philosophy would be incomplete
without values which reflect how work can be made more meaningful and chal-
lenging. 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 company’s
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 field of organisational behaviour focuses heavily on the connection
between employee behaviour, attitudes and the productivity of the organisa-
tion. Consider the following example:
René is a recently naturalised French citizen. He emigrated to France nine years
ago. For four years, he has worked for a distribution firm 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 René’s work. Indeed, René’s business
abilities are often singled out because he has found ways to save his employer
money through more efficient 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 centre’s manager is particularly pleased
because the plan saves money due to lower overtime pay, fuel and maintenance
costs. The manager hopes to keep René after he graduates, and there is a good
chance that he will be offered a promotion.
The example demonstrates the firm’s joint concern for employee needs (more
satisfied 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 prac-
tices and organisational processes. Within an organisation, productivity can be
increased in two ways. First a firm can acquire new technology and equipment
to produce goods and services more efficiently (this, of course, is the reasoning
behind the world-wide trend towards the roboticising of manufacturing). This
approach increases the capital intensity of the firm and the trade-off may be
fewer jobs and short-term downsizing. The more capital-intensive production

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 invest-
ments in training and development, leaner production systems that favour the
use of self-directed teams and organisational designs that improve sales oppor-
tunities 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 René. Your analyses will show how knowledge of organisational behaviour
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 specific 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 influence of family, social institutions and
culture, we find that our values develop into a coherent sense of self known as
our self-concept. Through adolescence we find 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 find
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. Instrumen-
tal 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 appro-
priateness of desired end states. Examples of instrumental and terminal values

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 Family safety Freedom Inner calm
Social status Equality Pleasure National security
Wisdom Friendship Happiness World peace
Beauty in art Equity Prosperity
and nature
Instrumental values
Ambition Competence Independence Self-control
Cleanliness Forgiving nature Obedience
Courage Imagination Politeness
Cheerfulness Intelligence Responsibility
Values often shape the individual’s views of authority and its rights and
obligations. French managers view authority as a right of office 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 deci-
sions 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 busi-
ness traditions encourage the exchange of gifts in business transactions. What
many American managers may consider to be payoffs and kickbacks may simply
be refined and accepted ways of doing business in other countries. In companies
with global business aspirations it is not unusual to find managers who are going
overseas for assignments to be trained in culture-based value differences. These
managerial seminars frequently emphasise the following principles:
1 Be open minded and view other peoples’ values as moral, traditional and
practical.
2 Do not prejudge the business customs of others as immoral or corrupt.
Assume that they are legitimate until proven otherwise.

3 Search for legitimate ways to operate within others’ ethical points of view;
do not demand that they fit into your value system.
4 Avoid rationalising questionable actions with excuses such as:
– This isn’t really illegal or immoral.
– This is in the company’s best interests.
– No one can find out about this.
– My company will back me up on this.
5 Refuse to do business when stakeholder actions violate the law or basic
organisational values.
6 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 defined as a relatively permanent set of psychological characteris-
tics that influence the individual’s behaviour. Our discussion will now turn to
several individual differences which demonstrate dependable relationships with
features of employee needs and organisational productivity. Individual differ-
ences are defined 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 employee’s
behaviour will create certain attitudes in his superiors and colleagues. In turn,
these attitudes may initiate behaviours which influence and ultimately diminish
organisational productivity.
We shall focus on locus of control, extroversion and introversion, Machiavel-
lianism 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 define 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 firm. 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 Kendrick’s office 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 doesn’t 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’.

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 defined as an indi-
vidual’s belief that one’s actions influence the outcomes one experiences in life.9
Notice that positive or negative outcomes are not specified in the definition.
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
one’s 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 a No matter how hard someone tries in school, they can still get poor grades.
b Doing well in school is a matter of studying hard.
2 a Receiving a pay rise is a matter of hard work; being in the right place has nothing to
do with it.
b Pay rises are a matter of getting noticed by your superior.
3 a There are some things that people should not attempt to change because they will
fail in the attempt.
b If a person is committed enough, he can create political change single-handedly.
4 a Getting ahead in today’s business world is a matter of persistence and hard work.
b Whoever gets ahead in today’s business world must have connections.
5 a When I believe I’m right about something, I feel as if I can convince anyone.
b It is extremely difficult to change people’s attitudes by talking to them.
6 a Managers often play favourites and give some subordinates larger rises.
b 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 externalis-
ers (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 oppor-
tunities for personal achievement. They are more motivated and better perform-
ers 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

Table 1.4 Characteristics of internalisers and externalisers

Internals tend to believe that Externals tend to believe that
Pay rises are based on hard work, achievement Pay rises are based on having the right job in
and initiative. the right place in the company.
An excellent performance record is the Teachers have favourites and give them higher
function of hard work and effective project marks.
completion.
A person addicted to drugs is willing to give Anyone, given the right circumstances, can
up control of his life. become addicted to drugs.
Good decisions are the result of tenaciously People’s attitudes cannot be changed easily by
searching for information. appealing to their logic.
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 fol-
lowing 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 influence
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 firm. 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 (pay-
for-knowledge) means that a portion of an employee’s 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 sus-
taining employee development, e.g., creating a larger pool of potential man-
agers inside the organisation. Managers should be careful to use participation,
especially when the development of employee skills is a key feature of a man-
agerial 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.

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 dissatisfied
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 significance 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 firm’s 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 firm, 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 indi-
viduals 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 defined as the need to obtain as much social stimulation as pos-
sible 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, fits our definition of extrovert.
Introversion is defined as avoidance of external stimulation in favour of inter-
nally 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 find 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 introversion–extroversion continuum. People experi-
ence both types of needs at different times, with varying intensity, depending
on the situations they confront. In general, we all, whether introvert or extro-
vert, 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.

1.3.4 How Can Organisations Use Information about Introversion and

Extroversion?
Some companies attempt to identify a job applicant’s 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 employee’s 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 introvert’s performance to drop off quickly. When extroverts are
confronted with dull or meaningless work, they are more likely to engage in irrel-
evant behaviour which undermines the productivity of co-workers. Managers
should consider these effects as they match individuals with job characteristics.
Table 1.5 Items for measuring introversion and extroversion

1 I’d rather curl up with a good book than go to a party. T or F?
2 I prefer to be around people who are funny and clever. T or F?
3 If I had a choice, I would take a cross-country bicycle trip for my vacation rather than a
Mediterranean cruise. T or F?
4 When I have to deal with a new situation involving other people, I usually jump right in.
T or F?
5 I greatly admire individuals who take bold public stands on socially controversial issues. T
or F?
6 When I’m in unfamiliar social situations, I generally feel self-confident and interested in
meeting new people. T or F?
1.3.5 The Machiavellian Personality

‘The end justifies the means’ is an old expression which translates to, ‘I’ll 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 Machi-
avellian 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 identifies 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 Influence 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 Mach-
V 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

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 Agree Strongly
disagree agree
1 I enjoy getting around people 1 2 3 4
by telling them what they want
to hear
2 I prefer to take action only 1 2 3 4
when I have sorted out the
ethically right decision
3 There are no situations that I 1 2 3 4
encounter in which lying is the
best course of action
4 I believe that most people have 1 2 3 4
a deceitful streak that comes out
from time to time.
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 officials 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 defined 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 affiliation and 3) need for power. McClelland states that the need
for achievement is defined by the following qualities:
1 Taking moderate risks by pursuing goals that are difficult but not impossible.
2 Needing immediate feedback on performance and goal progress.
3 Finding task activities and accomplishments to be intrinsically rewarding,
regardless of the financial or economic rewards.

4 Defining work in terms of approaching success instead of avoiding failure.

5 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 employee’s 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 Use need for achievement as one basis for screening job applicants.
2 Use it as a factor in promotion decisions.
3 Design jobs with goals that are at least moderately challenging.
4 Design rewards and feedback that are closely tied to performance behaviours
to create an achievement climate in the firm.
5 Reward employee creativity and institutionalise the role of ‘idea champions’
in the firm.
Need for Affiliation

The desire to have and maintain a strong social support system, and to give and
receive affection, is defined as the need for affiliation.17 Need for affiliation is
defined by the following qualities:
1 Reacting positively to work experiences which enhance belongingness, social

involvement and group morale.
2 Emphasising that all members of a work group be included in events which
may affect the morale and cohesion of the group.
3 Solving or confronting interpersonal conflicts which threaten esprit de corps.

4 Emphasising the importance of social rewards such as recognition, praise

and public acclaim.
5 Reacting positively to social rewards which are made contingent on excellent
performance.
How Can Managers Capitalise on Need for Affiliation in Employees?

Managers must be prepared to motivate employees with a high need for affil-
iation. Ways to help ensure high performance from these individuals include
allowing them to:
1 Be arbitrators of work-group disputes because they will take a personal

interest in returning harmony to the group.
2 Evaluate the social demands of a job and match employees with a high
need for affiliation to such jobs.
3 Be involved in community affairs which parallel work interests.
4 Develop and use as many forms of social rewards as possible in the firm.
Be sure the rewards are dependent on high performance.
5 Realise that a superior with a high need for affiliation may incorrectly
emphasise social harmony over productivity.
Need for Power

This socially acquired need defines behaviours oriented towards influencing
others and searching for opportunities to gain influence 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-confident 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 Reject job responsibilities in favour of personal concerns.

2 Create tense work relations among subordinates who become over-anxious
at work.
3 Are poorly adjusted to work and frequently look to palliatives such as drugs
or alcohol to cope with accumulating work stress.
4 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 subordi-
nates and colleagues. This kind of manager gains higher levels of performance
from subordinates by demonstrating his confidence in them. The manager finds
many opportunities to send this message to employees: ‘I have confidence in
you because I know you have confidence 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.

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 Employees who exhibit a socialised need for power should be selected and
promoted over employees oriented to personalised power.
2 Positions requiring socialised power should be made visible (given a high
profile) in the organisational hierarchy.
3 Managers with socialised power should take charge of groups where per-
formance and morale are low.
4 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-confidence will develop more quickly.
5 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 manage-
rial 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 finds 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 achieve-
ment 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

Table 1.7 Work preference of persons high in need for achievement, affiliation
and power
Need Work preferences Example
High need for achievement Individual responsibility Engineer who is encouraged
Challenging goals to find internal sponsors for
Quick performance feedback his new product idea
High need for affiliation Good interpersonal Member of a group which

relationships is rewarded through
Opportunities to improve group-based compensation
communication
High need for power Control of others Manager who aspires to head
Frequent attention by others special task force that must
Recognition through manage the firm’s move to a
promotions new location
concept. Instead, the construct is composed of facets which are extremely sen-
sitive 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 specifically, 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) satisfac-
tion with supervision and 5) satisfaction with promotions. Employees find that
the importance of any particular facet changes as work events unfold. Also,
it is possible for an employee to be very satisfied with one facet while being
unfulfilled in another. For instance, an employee may be very satisfied with
promotions yet find 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 influence 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.

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 career–job satisfaction relationship
Expectations
Everyone develops expectations about future jobs. As individuals search for jobs,
their expectations about work are influenced 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 firms
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, firms 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 indefinite employment. Likewise, organisations
see the value in internships because they reduce recruiting costs because they
provide an inexpensive opportunity to take a significant 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 influence employees’ levels of expe-
rienced job satisfaction. In turn, the quality of the organisational determinants of
job satisfaction noted below contribute significantly to sustainable competitive
advantage based on sound employment practices.

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
confident 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-confident than their confused counterparts
who do not participate in job-related decisions. Supervisors can readily influence
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 satisfied when their jobs require intellectual or physi-
cal effort. When employees are challenged, they become more physically and
intellectually involved in their work. Job challenge can initiate these two condi-
tions.
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-confidence 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 employee’s 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

comparisons are referred to as ‘social comparisons’ which result in perceived

equity or inequity. A typical employee social comparison is illustrated below.
My rise compared to Co-worker rise
My efforts and performance 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 satisfied with his
levels of extrinsic and intrinsic rewards. If, on the other hand, the employee
judges the comparison other’s 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 satisfied with their jobs, they report fewer ailments, e.g., heart disease,
headache, sleep disturbances, sleep disorders. Less anxiety, tension and stress
occur among satisfied workers. Job satisfaction improves employee resistance
to job stress and its physical symptoms (see Module 2). In fact, some reports
suggest that satisfied 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 satisfied employee may be absent from work. Equally relevant are
the reasons why a dissatisfied employee may choose to go to work. For instance,
the dissatisfied employee may fear being fired, 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 absen-
teeism rate also drives up indirect costs because the organisation must have more

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, cre-
ates more job dissatisfaction through perceived inequity. These effects all under-
mine 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 rela-
tionships in organisational behaviour. This is the job satisfaction–performance
relationship. Current thinking on this relationship is illustrated in Figure 1.3.
Intrinsic
rewards
Perceived equity for

Performance various rewards Job satisfaction
(mediates the relationship)
Extrinsic
rewards
Figure 1.3 The performance–job 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 influence 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
influence the level of satisfaction of employees. Employee characteristics also
interact with the work situation to influence job satisfaction levels.

1.4.4 How Organisations Can Measure Job Satisfaction

Managers monitor job satisfaction because it is an important indicator of the
organisation’s 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 five facets of job satisfaction which were mentioned
earlier. Each facet has a specific meaning for an employee and each can be a
powerful inducement to work. The JDI’s 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 facili-
tates 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 Slightly Satisfied Very Extremely
satisfied satisfied satisfied satisfied
My job security 1 2 3 4 5
The amount of pay for the 1 2 3 4 5
work I do
The working conditions 1 2 3 4 5
(heating, lighting,
ventilation, etc.) on this job
The opportunities for 1 2 3 4 5
advancement on this job
The technical ‘know-how’ 1 2 3 4 5
of my supervisor
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

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 If it describes your work Work on present job
N If it does NOT describe it Routine
? If you cannot decide 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 If it describes your pay Present pay
N If it does NOT describe it Adequate for normal expenses
? If you cannot decide 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 If it describes the job supervision you get Supervision on present job
N If it does NOT describe it Impolite
? If you cannot decide Praise for good work
Influential
Doesn’t 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 If it describes your promotion opportunities Promotion opportunities
N If it does NOT describe them Promotion on ability
? If you cannot decide 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 If it describes the people you work with People on your present job
N If it does NOT describe them Boring
? If you cannot decide 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.

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, absen-
teeism, 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 defined as the strength of an employee’s identifi-
cation 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 organisation’s actions. In other words, the
committed employee would defend the organisation’s reputation in the face of
criticism. It is also indicated by an employee’s willingness to give something of
himself to the organisation (such as developing a protégé by being a mentor).
When employees defend their employer and promote the organisation’s goals,
they are strengthening their organisational commitment. Frederick Ashley is
described in the narrative below. He demonstrates organisational commitment.
See if you can find examples of the components of organisational commitment
in Frederick’s story.
Frederick is unusual in the age of job-hopping and multiple employers. Frederick is

78 years old; he admits proudly that he’s 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’. ‘I’m sad to leave, I really am’, said Frederick as he rummaged
through the packing crates in his office. ‘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 company’s 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. ‘I’ve grown very fond of my
work, the company, and the people I’ve worked with over the last 60 years. I’ve
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. That’s how I got started, you know. I worked in the shop and then in the
office for thirty years before I moved to sales.’
‘I just need to take time off. Many times I’d show up at the office with a cold
or upset stomach.’ He doesn’t 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 I’d get up extra early to be the first one there. I guess that after a
while I got the reputation around the office of being an early bird.’

Frederick lives about five kilometres from the office. 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 didn’t 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. He’s 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 office.’ He confesses that he misses the weekday work
schedule and that he’s 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 isn’t 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
fluctuates 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 satisfied with his job but may not be committed
to the organisation. This partially explains why employees change employers
even when they may have been satisfied 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 employee’s 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 com-
mitment. Continued deregulation of various industries exposes companies to
competition from more efficient rivals. In turn, pressure builds on those com-
panies 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 downsiz-
ing. 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 Benefit the Organisation?

Committed employees are much less likely to leave their jobs. Organisational
commitment correlates inversely with employee turnover. Once employees iden-
tify with the goals and values of the organisation, they are less likely to leave,

even when they experience periods of job dissatisfaction. Employees with organ-
isational 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 per-
sonal 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 com-
petitiveness by downsizing rather than by improving the flexibility 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 defined 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 one’s life. Job-involved employees are likely
to view work as a major source of life satisfaction.26 Active job involvement
refers to an employee’s 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 employee’s 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 find 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 wel-
fare in conjunction with challenging tasks and participation, both of these
employee work attitudes are more likely to form.
2 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

manager thus focuses on the design of the employee’s job in order to find
ways to make it more meaningful and challenging.
3 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 fulfil these needs.
4 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.
5 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 field of organisational behaviour is a social science that develops know-
ledge 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 field 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, concep-
tual and human components of organisational functioning. The manager’s
job in the twenty-first century will focus on his coaching, integration and
conflict-resolution skills. Old job requirements such as giving orders, deter-
mining promotions and making autocratic decisions will fade in importance.
• The rate of change in content of the manager’s job is being increased by
work-force diversity, demands for better products and services, global capi-
tal flows and new organisational philosophies like employee empowerment.
• Values are enduring beliefs and they can be instrumental or terminal in
nature. Instrumental values reflect the means for achieving one’s 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 one’s 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 them-
selves as the cause of outcomes, while externals believe outcomes are created
by forces and events outside themselves.

• Extroversion and introversion refer to the strength of one’s need for exter-
nal sensory stimulation. Introverts prefer less external ‘social noise’ than
extroverts. These qualities can influence performance if a job is designed to
be either high or low in social stimulation.
• Machiavellism is the need to influence others to achieve one’s personal
ends. It predisposes the individual to manipulate others to achieve personal
gains in unstructured organisational circumstances.
• The socially acquired needs of achievement, affiliation and power are impor-
tant factors in understanding employee behaviour. Achievement motivation
is a primary cause of entrepreneurial behaviour. Affiliation 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 organisa-
tional 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 well-
being. 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 one’s job and affects the employee’s self-
worth 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 field of organisational behaviour has developed because managers need to
understand employee motivation and job satisfaction. T or F?
1.2 The field of organisational behaviour is best described as an applied discipline

that focuses on the issues of employee needs and organisational productivity. T
or F?

1.3 Organisational behaviour would not deal with factors that cause students to be
satisfied or dissatisfied 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 affiliation would be highly motivated to
improve harmony. T or F?
1.11 An individual’s 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 satisfaction–job 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 prop-
erties of organisations. T or F?
1.17 Job involvement is always present when an employee is satisfied with his job.
T or F?
1.18 The least important dimension of job involvement is the belief that the job
contributes to one’s 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?

Multiple Choice Questions
1.21 The internal perspective of human behaviour explains an employee’s actions in

terms of:
A job design.
B personal beliefs and value systems.
C organisational structure.
D organisational authority systems.
E peer relations and group dynamics.
1.22 Organisational behaviour is a field of study which places equal emphasis on:
A micro and macro issues such as employee motivation and organisational
design.
B productivity and quality improvement efforts.
C understanding the needs of employees and managerial requirements for
technical problem-solving.
D external environmental issues and managerial ethics.
E A and C.
1.23 Individual differences are best defined as:

A the fundamental components of the organisational behaviour modification
paradigm.
B primary constructs in the psychodynamic theory of personality development.
C basic aspects of personality which predict employee behaviour in the work
setting.
D A and B only.
E None of the above.
1.24 Individuals with an internal locus of control:

A display high anxiety and tension.
B tend to be restless and agitated on the job.
C prefer participative management systems.
D avoid authority figures.
E 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 dominance.
B achievement.
C affiliation.
D security.
E risk aversion.

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 con-
tingent on those goals.
C employees who willingly expressed their personal loyalty to him and valued
unit goals.
D A and B only.
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 influence 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 effec-
tively with their employees.
D Total quality management programmes can only be installed in organisa-
tions 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.

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
influence 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 manager’s job changed in the delayered and downsized organisa-
tion of the 1990s?
1.5 Discuss some of the factors that might shape a company’s 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 significance of job involvement in employees’ lives by completing this exer-
cise. The exercise is broken into three components: 1) the administration of a
questionnaire to at least five employees in your organisation, 2) conducting per-
sonal 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 respondent’s
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 respondent’s score, calculate an average score
for your sample of employees.
The personal interviews that you conduct with employees should address the
following questions:
1 What is your job title?

2 How long have you worked at this job?
3 What are the five key responsibilities that you have in your job?
4 What are the three aspects of your job that you like best?
5 What are two actions that the company could take to make you more
effective in your work?
6 If you could change your job in two ways, what would they be?

Table 1.10 Job involvement questionnaire

Instructions: Please circle the choice which most closely matches your opinion for each item.
Strongly Agree Disagree Strongly
agree disagree
1 Staying late to finish a job 4 3 2 1
doesn’t bother me
2 You can tell a lot about a person 4 3 2 1
by his work
3 I get most of my satisfaction 4 3 2 1
from my work
4 My days at work really fly by 4 3 2 1
5 I always arrive at work a little 4 3 2 1
early to get started
6 The most important things that 4 3 2 1
happen to me are related to
work
7 Sometimes I lie awake at night 4 3 2 1
thinking ahead about work
tomorrow
8 I’m a work perfectionist 4 3 2 1
9 I feel lousy when I fail at some 4 3 2 1
part of my job
10 I must admit that I am a 4 3 2 1
‘workaholic’
11 I would keep on working even if 4 3 2 1
I didn’t need the money
12 I get deeply involved in my work 4 3 2 1
Once you have gathered your questionnaire and interview information, answer
the following questions and prepare a brief written report of your findings. 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? RATION-

ALE: All employees usually understand their job responsibilities. Further,
these responsibilities should contribute to their personal growth in some
way.
2 Are the employee suggestions of ways to improve their personal effective-
ness 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.
3 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 responsibili-
ties.
4 How do you explain the average that you obtained for employees’ scores on

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 firms 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 specifically
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 officials. The law noted above specifically protects such individuals
from retaliation (termination, pay loss, job transfer, demotion, discipline or
harassment) by their employers for informing the federal officials or for giving
testimony in government-initiated suits against defence contractors. Further,
whistle-blowers can receive up to 25 per cent of the fine or penalty assessed
against the firm 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 official 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 filed 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

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 Mintzberg, H. (1975) ‘The Manager’s Job: Folklore and Fact’, Harvard Business Review
(July–August): 61.
2 Fondas, N. (1992) ‘A Behavioral Job Description for Managers’, Organizational Dynamics
(Summer): 47–58.
3 Kraut, A., Pedigo, P. R., McKenna, D. and Dunnette, M. (1989) ‘The Role of the Man-
ager: What’s Really Important in Different Management Jobs’, Academy of Management
Executive (November): 286–93.
4 Kreitner, R. and Kinicki, A. (1995) Organizational Behavior, 3rd edn. Homewood, IL:
Irwin Publishing Co., 8–11.
5 Rokeach, M. (1975) The Nature of Human Values. New York: Free Press, 5.
6 Tung, R. (1991) ‘Handshakes Across the Sea: Cross-Cultural Negotiating for Business
Success’, Organizational Dynamics (Winter): 30–40.
7 Ibid.
8 Hodgson, K. (1992) ‘Adapting Ethical Decisions to a Global Marketplace’, Management
Review 81: 53–7.
9 Rotter, J. (1966) ‘Generalized Expectancies for Internal vs. External Locus of Control
of Reinforcement’, Psychological Monographs 80: 1–23.
10 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: 212–15.
11 Organ, D. and Hammer, C. (1982) Organizational Behavior, 2nd edn. Plano, Tex:
Business Publications, 46–60.
12 Gartner, W. (1985) ‘A Conceptual Framework for Describing the Phenomenon of New
Venture Creation’, Academy of Management Review 10: 696–706.
13 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, 39–56.
14 Eysenck, H. (1967) The Biological Basis of Personality. Springfield, IL: Charles C. Thomas,
Inc., 1–53.

15 Cooper, R. and Payne, R. (1967) ‘Extroversion and Some Aspects of Work Behavior’,
Personnel Psychology 20: 45–67.
16 Christie, R. and Geis, F. (1970) Studies in Machiavellianism. New York: Academic Press.
17 McClelland, D. (1961) The Achieving Society. Princeton, NJ: Van Nostrand.
18 McClelland, D. (1962) ‘Business Drive and National Achievement’, Harvard Business
Review 40: 99–112.
19 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: 88–109.
20 Wanous, J. (1980) Organizational Entry: Recruitment, Selection, and Socialization of New-
comers. Reading, Mass: Addison-Wesley.
21 Smith, P., Kendall, L. and Hulin, C. (1975) The Measurement of Satisfaction in Work and
Retirement. Chicago: Rand McNally.
22 Loquist, L. and Davis, R. (1975) Adjustment to Work: A Psychological View of Man’s
Problems in a Work-Oriented Society. Chicago: Rand McNally.
23 Porter, L., Steers, R., Mowday, R. and Boulian, R. (1974) ‘Organizational Commitment,
Job Satisfaction and Turnover Among Psychiatric Technicians’, Journal of Applied
Psychology 59: 603–9.
24 ‘Learning to Cope’, The Economist, 6 April 1996: 15–16.
25 Steers, R. (1981) Introduction to Organizational Behavior. Glenview, IL: Scott-Foresman.
26 Rabinowitz, S. and Hall, D. (1977) ‘Organizational Research on Job Involvement’,
Psychological Bulletin 31: 265–88.
27 Miceli, M. and Near, J. (1995) ‘Relationships among value congruence, perceived
victimization and retaliation against whistle-blowers’, Journal of Management 20: 773–
94.

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

Module 2 / Stress and Well-Being at Work
• Enumerate the features of a successful company stress-management

programme.
• Conceptualise the relationship between job stress, job insecurity and contin-
uing 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 intensified the chronic effects of work overload.
Respondents identified other organisational stressors:
1 Unfair and demanding bosses or managers (25 per cent).
2 Unsupportive and abrasive co-workers (18 per cent).
3 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 benefits, 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
offices and they collapse into chairs in the lobbies and promptly fall asleep.
Surveys of Japanese managers and office 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.

While these global results are depressing (do you feel stressed out by these
dreary research findings?), there are many examples of work systems and organ-
isational 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 envi-
ronments 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 reflection 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 Adap-
tation 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.
Exhaustion 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.
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

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 infinitely 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 flights 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 con-
front 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: envi-
ronmental, 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

Causes of Stress Consequences of Stress
Environmental factors Individual Physiological symptoms

Economic uncertainty differences Headaches
Political uncertainty Perception High blood pressure
Technological uncertainty Job experience Heart disease
Locus of control
Type A behaviour
Organisational factors
Task demands Psychological symptoms
Role demands Sleep disturbances
Interpersonal demands Experienced Depression, anxiety
Organisational structure stress Declines in job satisfaction
Organisational leadership
Organisation's life-cycle stage
Behavioural symptoms
Productivity level
Attendance pattern
Individual factors Quitting the job
Family problems Accidents
Financial problems 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 . . .
flexibility . . . human capital’.5 The problem is that governments do not do
it very efficiently 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 profit. 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 firms in these nations have simply

found greater returns in building plants in foreign markets. The added costs
noted above reflects 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 break-
throughs and its attendant knowledge obsolescence. Organisations find com-
petitive advantage in improvements that are technology based and some of their
employees will find 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 sophis-
ticated 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 tech-
nological uncertainty. However, organisations become more efficient 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 flow, 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 conflicts that arise between the employee’s personal
values and supervisory and organisational values. Conflicts 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 employee’s
poor job understanding and the uncertainty of not knowing where to start
on a newly assigned job. Here’s 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 whistle-
blowing).7

Once security engineer Glenda Miller questioned the reliability of an employee

identification system to be brought on-line at a TVA-run power plant in Alabama,
she knew she was in for trouble when the plant’s 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 system’s reliability she was
fired for being unfit 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 Miller’s 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 officials say that
they are aware of utility companies that are abusing the rules to harass whistle-
blowers but that it is difficult to prove that psychological exams are not necessary.
NRC officials are rightly concerned, because they feel the operators harass whistle-
blowers 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

employee’s 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 affiliation 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 financial 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.

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 employee’s work. Divorce, ageing parents,
children’s misbehaviour and dysfunctional personal relationships can all under-
mine the employee’s performance on the job. These stressors cannot be left at
the office door; they often seep into the employee’s relations with his work
group, the company’s 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 financial 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 lower-
interest debt. As consumer debt mounts, personal financial advisory services
proliferate along with personal bankruptcies. These personal problems find 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 office 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 influence 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 confident because of their job seniority, are much less likely

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 defined 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 Work long, hard hours under the conditions of constant deadline pressures
and chronic role overload.
2 Often take work home and are unable to relax at weekends or on vacations.
3 Compete constantly with themselves by setting high standards for perform-
ance and productivity to the point of being driven and obsessed.
4 Become frustrated by the work situation, are impatient, easily irritated with
the work efforts of others and misunderstood by co-workers and superiors.
Table 2.1 Classical profiles of type A and type B behavioural patterns

Type A behavioural pattern Type B behavioural pattern
Measures success by quantity of results Is mild-mannered
Is always active and moving Relaxes without guilt
Walks rapidly Is not concerned about time
Talks rapidly Is patient
Eats rapidly Does not brag
Does two or more things at once Plays for fun, not to win
Cannot cope well with leisure time Has no pressing deadlines
Is obsessed with numbers and measures of performance Is never rushed
Is socially aggressive
Is highly competitive
Experiences constant time pressure
Recent research on Type A and Type B behaviour profiles (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 profiles 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

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 stres-
sors. While the links between stress and physical symptoms such as increased
heart rate, blood pressure and breathing rates are poorly understood, nonethe-
less, 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, resent-
ment 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 aflame 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
question’s symptom is true for you. Scale: 1, only rarely; 2, sometimes; 3, often; 4, frequently; 5,
always.
1 I have difficulties concentrating on the job.
2 I find myself considering the benefits of quitting.
3 I’m more withdrawn at home.
4 When I wake, I dread going to work.
5 I’ve been missing a lot of work lately.
6 My job is expanding into my leisure hours.
7 I’ve become more irritable with some of my co-workers.
8 I don’t feel refreshed after the weekend.
9 I’m often bored at work even though I’ve got lots of work to do.
10 Lately I’ve been using alcohol and drugs to unwind from the pressures of work.
Scoring: 10–20: You are doing OK. 21–30: Think about the value of preventive action and some
life changes. 31–40: 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.

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 fid-
geting 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 mod-
erate, but long lasting, performance will also deteriorate due to the problem of
cumulative stress. This last point explains why hospitals rotate medical person-
nel from emergency department duty and military units rotate personnel from
duty assignments with a high potential for hostilities.
High
Job Performance
Low
Low Stress Level High
Figure 2.3 The stress–job 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

squash balls. While there is no conclusive research that shows that pro-
longed 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 fitness 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 flow
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 first 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 relax-
ation response does not require a theological or religious orientation. How-
ever, if you regularly pray or meditate, you probably encourage the relax-
ation response. The relaxation response reverses the stress response in the
human mind-body system. When it is practised, the individual sits peace-
fully 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 breath-
ing 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.
3 Diet. We are what we eat. Diet plays a significant, 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.
4 Opening up. We all experience traumatic events in life. A healthy response
to these moments or periods of personal crisis is to confide in others. It
may not be easy to discuss difficult personal traumas with others, but self-
disclosure 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.

5 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, financial and family counselling, physical therapy, medical
treatment, surgical intervention and stress debriefing. Organisations often
make these services available to employees on a confidential basis through
an Employee Assistance Programme (EAP). EAPs help promote early detec-
tion of stress reactions to avert permanent physical and psychological dam-
age 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 flexibility 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 first, creating competitive
advantage from managerial flexibility in helping employees handle personal
conflicts 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 Pennsylvania’s
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
identified 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 office by 8 a.m. on Mondays.
While she kept up her performance, she told herself, ‘OK I’ll do the best I can,
but you’re 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, ‘[I’m] more of an
ice queen.’ She cares for her two children without any guilt or sense of distraction
at work. Despite the boss’s different views, she helped her subordinate ease
her concerns by designing a job-sharing programme that has delighted her

subordinate, raised her loyalty to Merck and prevented the occurrence of a host
of performance problems.
Build respect based on trust and respect. A financial 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 first.’ The gesture fostered intense
loyalty in the employee. As she was preparing for a long-awaited vacation
her boss’s 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 reflect a supervisor’s 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 fit and healthy employees have
spent large sums of money on exercise programmes and fitness centres. Through
these efforts, managements hoped to lure sedentary employees away from their
desks and into exercise programmes to make them more fit and to lower health-
care 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 incen-
tives, like discounts on health insurance premiums, the firms hope to lure the
couch potatoes into more active and healthy lifestyles.
There is general agreement that it is very difficult to calculate the benefits
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 Corporation’s ambitious wellness programme once provided free
weight-loss classes and state-of-the-art fitness 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 fitness 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

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 company’s 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
benefits 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 officials feel that
employees do not abuse the system.
The J&J and Quaker Oats programmes are strictly voluntary and both com-
panies state that they maintain strict confidentiality on workers’ health profiles.
J&J stores its employees’ health data on a separate computer that is not hooked
up to the company’s mainframe system. In spite of these safeguards, some legal
experts are concerned that companies will use the data to eliminate employ-
ees who have been evaluated as poor health risks. Companies counter-argue
that they are trying to combat specific 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 finding, 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 work-
out centre for blue-collar workers. Our last example is from Applied Materials
Company which broadened the definition of ‘exercise’ to increase employee
participation. Under the company’s 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 pro-
gramme 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.

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 party’s presidential nomination,
framed the debate this way, ‘We’ve 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 firm 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.
Influential economists and government officials 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 tele-
phones 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 repre-
sent the company’s 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 five hours of
use per month to the Internet. America On-Line, Prodigy and Microsoft have all
fired back with equally attractive offers. Meanwhile, AT&T’s 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, ‘it’s 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 flush 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 firms that once thought they had a firm
grip on financial services and pension-related business lines.

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 Lockheed-
Martin 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 America’s 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 Gen-
eral Motors have seen smaller companies and start-up operations grab chunks
of market share with more efficient, technologically superior methods. Some of
these large firms are trying to mimic some of the frugal ways and adaptive-
ness 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 fired,
• 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

and tried new manufacturing methods and management strategies. Increasingly,

GM is fighting back, not with intrapreunership, but with outsourcing of all non-
core 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 fiercely resist job losses through outsourcing.
2.6.5 Restless Shareholders

Proponents of shareholder rights argue that the only responsibility of top man-
agers is the maximisation of shareholder wealth. Therefore, downsizing, re-
engineering 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 Kmart’s sales have risen only $6bn annu-
ally while WalMart’s rose nearly $60bn. Kmart’s 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 difficulty 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&T’s local phone services, data outsourcing and Internet access have
forced AT&T to increase staffing. Analysts are chiding AT&T by saying that the
company will not be profit-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 clarified its down-
sizing 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 Jan-
uary, 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 indefinitely. 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&T’s downsizing confusion has been a plunge
in employee morale to its lowest point ever. AT&T’s regular attrition rate is
8–10 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, ‘It’s tense here. Lots of workers are confused by this
downsizing.’

2.7 A Semi-Last Word on Downsizing

Holman W. Jenkins Jr., the Editor of the Wall Street Journal’s 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 firm-specific knowledge, is on
the wane and it is clearly threatened by downsizing. Recent widespread lay-
offs indicate that employees with highly firm-specific work experience and
job knowledge do have something to fear as downsizing rolls through their
industries and firms. 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 find 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 profits 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 fixtures in industries that confront deregu-
lation, restless shareholders, low-cost foreign competitors and ever-shortening
product and service life-cycles. In a similar fashion, employees are finding that
they must shoulder greater responsibility in their own pension planning as
defined benefits plans are scrapped and replaced by defined contributions plans.
In this environment, employers are telling their workers that ‘We’ll make a
contribution for you to a pension plan, but you’ll be responsible for making
wise investment decisions so that these assets will grow and provide you with
a secure retirement.’ Finally, health insurance benefits are no longer a presumed
benefit 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
find 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 profits 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, flexible and instant contributors to

any organisation that they work for. In strategy terms, these individuals have
developed a personal source of competitive advantage that employers cannot
easily find 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 firm’s competitive
advantage. And, in this respect, they are highly sought after (and compensated)
by companies that recognise their value.
Employees who resist acquiring flexible, 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 flexible after they experience a major economic and emotional
jolt such as downsizing. Becoming more versatile and developing one’s own
knowledge-based competitive advantage can be very tough to accomplish when
debts pile up and families experience stress induced by the breadwinner’s 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-efficacy, entrepre-
neurial 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 fight or flight 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 per-
formance 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 distres-
sors on the job.
• Distress is a negative physical and psychological reaction to a stressor.
• Environmental stress factors originate from economic, political or technolog-
ical 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 final 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 relation-
ships which induce General Adaptation Syndrome.

• 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 person’s 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 con-
sistent, 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 competi-
tiveness, impatience and hostility.
Review 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 conflict

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

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 pro-

grammes and suggest those features that may be most useful from the employ-
ees’ 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 city’s 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 city’s bustling service
industries. Although he vowed to study hard in all of his computer courses,
he had found it very difficult 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.
Sam’s 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 difficult for their employers to arrange
to find a qualified 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 Sam’s 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

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 Nora’s discomfort at work, neither she nor Sam had counted on the
financial 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 Nora’s 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 finish.
By now Sam’s temporary job had lasted for a month. It consisted of routine
plumbing work on a major office 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 son’s mark because failing
the course might mean that he would be held back for a year. Nora had said
that she couldn’t change his mark and he would have to take up the matter with
the school’s principal. The boy’s father had blocked her exit from the classroom.
A security guard had heard the father’s threatening remarks and he called the
police. While the boy’s 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 boy’s parents, particularly his father.
As Sam saw the pain on his wife’s 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 over-
come their difficulties? What recommendations would you make to them?

∗
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 profitable 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
five 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 flabby 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 firm 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 it’s 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 official 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 couldn’t go any lower,’ says one executive. ‘But I’d have to say it’s
even lower today.’ Adds a former manager: ‘The top executives are willing to
sacrifice 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 cor-
porations. 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 efficiency, 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 year’s first
quarter, employers announced an average of 3106 pink slips per day.
* John A. Bryne, (1994) ‘The Pain of Downsizing’, Business Week, 9 May, 60–3 and 66–8.

The sight of so many bodies on the corporate scrap heap is sparking a com-
plex debate – about profits and loyalty, and about the benefits 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 profitable
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. That’s 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 efficiency don’t 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.
Today’s corporation is no longer a secure or stable place. It’s an uncertain,
turbulent environment where managers often find their compassion and human-
ity in conflict 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 company’s
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 efficiency and survival, many of America’s 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 Isn’t

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 first quarter of 1994, announced layoffs totaled 192 572, or more than 3100
per day.

Table 2.3
Company Staff cutbacks Company Staff cutbacks
IBM 85 000 Proctor & Gamble 13 000
AT&T 83 500 Phar Mor 13 000
General Motors 74 000 Bank of America 12 000
US Postal Service 55 000 Aetna 11 800
Sears 50 000 GE Aircraft Engines 10 250
Boeing 30 000 McDonnell Douglas 10 200
Nynex 22 000 Bellsouth 10 200
Hughes Aircraft 21 000 Ford Motor 10 000
GTE 17 000 Xerox 10 000
Martin–Marietta 15 000 Pacific Telesis 10 000
Du Pont 14 800 Honeywell 9 000
Eastman Kodak 14 000 US West 9 000
Phillip Morris 14 000
The Cost-Cutter: He’s 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 office by 6.45 a.m. and leaves at 7
p.m. He can’t remember a Sunday in the past 20 years when he hasn’t worked
at home or in the office.
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 answer-
ing machine at his Stamford (Conn.) home because every evening it was filled
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 fighter group, Thrasher insists that
the tough choices he’s 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 officer of Nynex’ New York Telephone
unit. Top management concluded that if it continued to run the business the

same way, the company’s 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 I’m breaking a social contract we have with our employees,’ Thrasher
says – but then dismisses the notion. ‘That’s 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
company’s 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 first 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 company-
wide 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. He’s relentless.’
WEEKEND HUDDLE. Thrasher wanted to examine the company not by divi-
sion, 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 GTE’s 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 inefficiencies 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 find and bill only
$900 000 in previously unbillable telephone calls. There was plenty more. ‘Think

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 first came up with a list of 85 ‘quick wins’ – easy fixes 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 specific changes, from consoli-
dating work centers to simplifying procedures for approving customer service.
Change doesn’t 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 company’s $6 billion in operating expenses.
HUGE RETURN. On three consecutive days last December – ‘the most excruci-
ating 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
Thrasher’s fixes, 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 didn’t reflect 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 don’t get it,’ he says. ‘What we’ve got to do is find them and
get them out of the business.’
That’s tough talk. ‘This is tough, ugly work,’ he says. ‘The stress is palpable,
I’m vilified throughout the company. People look upon me as the principal
to the downsizing. That’s a tough thing to carry around. Hell, I’d 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 difficult 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, he’s hardly a popular figure 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.

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 doesn’t management trust us to do this ourselves?’
His job, he says, is to allay such fears – but he can’t 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. ‘I’m 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 five 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, he’s afflicted 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 confidentiality
filter on my brain,’ he says.
Along with his partner, Jeffery A. Bowden, Catchings first 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 project’s five major
phases, from ‘direct process observation’ in the first 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. ‘I’m also part of taking a
frustrated, comparatively unsuccessful 70 000 employees and transforming their

environment so they can be more productive. I think I’m 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 won’t 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 company’s personal computer network, Karen is
facing new and tougher demands as a result of Thrasher’s efforts.
She joined Nynex in 1969 during the company’s 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.’
Thrasher’s 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 staffing. ‘When they started talking about
another round of downsizing, people were a little more anxious because they
feel they’re already stretched thin. Now we’ll 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 50–60 hours a week, from 8 a.m. to
7 p.m. every weekday, at Nynex White Plains (NY) office. Wherever she goes
these days, she carries a beeper and a cellular phone and checks her voicemail
every hour. ‘It’s a different mentality,’ she says. ‘My weekends and holidays are
not reserved.’ On a recent biking vacation through California’s wine country,
she called the office 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 unpre-
pared. 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 (Cal-
ifornia) consulting firm. She was skeptical at first. ‘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 Thrasher’s reengineering changes take hold. It is a
quick-and-dirty roundup of today’s managerial commandments, stressing team-
work, 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,’

she says. ‘But there’s a big middle section that seems willing to change, and
then there’s a small percentage at the top that’s 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. ‘I’m 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 I’ve never been tested before.’
The Victim: The Living Hell of Life on the Firing Line

Not everyone shares Karen’s 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 company’s values have changed,’ the manager
says. ‘There are now right people and wrong people here, and I don’t believe
in that.’
Fearful of retribution, this employee doesn’t want to be identified. But Pat, as
we’ll 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 he’s a ‘brilliant, if ruthless executive. As an officer of the company,
he’s very focused and clearly sees the possibilities.’ But this Nynex veteran fails
to see Thrasher and other top managers sharing the pain. ‘The officers all have
golden parachutes. They’re in charge of their own fates. We’re not involved.
We’re 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 isn’t
that much different from firing employees outright with severance pay. ‘Even if
people won’t be fired this time, they’re still frightened of the future. It affects
their self-esteem and their pocketbook. And most people aren’t 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 manager’s life has been devoted will never
recover from the bloodletting. Pat recalls taking hours to walk to work in the

aftermath of a major snowstorm – a degree of commitment employees won’t 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 they’re 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 profitability 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 profits, 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
significant 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 indus-

tries that seek to gain competitive advantage through extensive downsizing?
References
1 Northwestern Life Insurance Company, (1992) Employee Burnout: America’s Newest
Epidemic. Minneapolis, MN: NWNL.
2 Miller, K. (1992) ‘Now, Japan is Admitting to It: Work Kills Executives’, Business Week
(August 3): 17.
3 Selye, H. (1956) The Stress of Life. New York: McGraw-Hill.
4 Cooper, C. (1985) ‘The Stress of Work’, Aviation, Space, and Environmental Medicine
(July): 628.
5 Editorial, (1996) ‘Learning to Cope’, The Economist, 16 April 1996: 15–16.
6 International Institute for Management Development, (1996) World Competitiveness
Yearbook, Lausanne.

7 Kerber, R. (1996) ‘Was Therapy Used to Punish Nuclear Workers?’, Wall Street Journal
(March 20): B1, B3.
8 Murphy, R. (1986). ‘A Review of Organizational Stress Management Research’, Journal
of Organizational Behavior Management (Fall–Winter): 215–27.
9 Howard, J., Cunningham, D. and Rechnitzer, P. (1976) ‘Health Patterns Associated
with Type A Behavior: A Managerial Population’, Journal of Human Stress (March):
24–31.
10 Brief, A., Schuler, R. and Van Sell, M. (1981) Managing Job Stress. Boston: Little,
Brown, 94.
11 ‘Heart Disease, Anger Linked Research Shows’, (1989) Lincoln Journal, 17 January: 4.
12 Beehr, T. (1986) ‘The Current Debate About the Meaning of Job Stress’, Journal of
Organizational Behavior Management (Fall–Winter): 8–15.
13 Sullivan, S. and Bhagat, R. (1992) ‘Organizational Stress, Job Satisfaction and Job
Performance, Where Do We Go From Here’, Journal of Management (June): 361–4.
14 Benson, H. (1974) ‘Your Innate Asset for Combating Stress’, Harvard Business Review
52: 49–60.
15 Ornish, D. (1990) Dr. Dean Ornish’s Program for Reversing Cardiovascular Disease. New
York: Morrow.
16 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: 280–7.
17 Shellenbarger, S. (1996) ‘Enter the New Hero: A Boss Who Knows You Have a Life’,
Wall Street Journal (23 April): B1.
18 Jeffery, N. M. (1996) ‘Wellness Plans Try to Target the Not-So-Well’, Wall Street Journal,
(20 June): B1, B5.
19 Duff, C. (1996) ‘Is Buchanan’s Take on Layoffs Too Pat?’, Wall Street Journal (5 March):
A2.
20 Cauley, L. and Lipin, S. (1996) ‘Bell Atlantic, Nynex Reach Accord for $23b Merger of
Equals’, Wall Street Journal (22 April): A3, A5.
21 Schellhardt, T. (1996) ‘David in Goliath’, Wall Street Journal (23 May): R14.
22 Jenkins, H., Jr. (1996) ‘Here’s to Human Capital’, Wall Street Journal (2 April): A 15.
23 Keller, J. (1996) ‘AT&T Faces Slow Going in its Effort to Slash Jobs’, Wall Street Journal
(17 May): A3, A5.

Module 3
Contemporary Theories of
Motivation
Contents
3.1 Introduction 3/2
3.1.1 What Stimulates Human Behaviour? 3/2
3.1.2 Is there a Distinction between Motivation and Performance? 3/3
3.1.3 Are there Different Types of Motivation Theory? 3/4
3.2 Content Theories of Motivation 3/4
3.2.1 A Question of Needs: Maslow’s Hierarchy 3/4
3.2.2 Applying the Need Hierarchy 3/6
3.2.3 Herzberg’s Two-Factor Theory of Motivation 3/7
3.2.4 Comparing Maslow’s and Herzberg’s Models 3/10
3.3 Process Theories of Motivation 3/11
3.3.1 Equity Theory: Social Comparisons in the Work Setting 3/11
3.3.2 New Research Light on Equity Theory Applications 3/12
3.3.3 Understanding the Basics of Expectancy Theory 3/13
3.3.4 Applying Expectancy Theory 3/16
3.3.5 Extending Expectancy Theory to the Individual and the Organisation 3/16
3.4 Cultural Differences in Motivation 3/20
3.4.1 Principles of Behaviour Modification 3/20
3.4.2 Making Sense of Schedules of Reinforcement 3/23
3.4.3 Behaviour Modification in Perspective 3/25
3.4.4 Understanding the Role of Punishment in Management Practices 3/27
3.4.5 Setting up a Behaviour Modification Programme 3/31
Summary Points 3/32
Case Study 3.1: Promoting Employee Productivity 3/37
Case Study 3.2: Motivating Employees at Cypress Semiconductor 3/38
Learning Objectives
• Identify the elements that make up employee motivation.

• Clearly distinguish motivation from performance.
• Explain the various levels of human needs.

Module 3 / Contemporary Theories of Motivation
• 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 modification 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 modification 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 guid-
ing 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 deficiency that pushes one’s behaviour. Examples of
needs are hunger, thirst and belongingness. A motive pulls one’s 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 behav-
iour 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

Table 3.1 Understanding needs, behaviours and motives

Need Behaviour Motive
Pay rise to pay for summer Increased work output High performance on the job
holiday No absenteeism to obtain merit pay rise
No lateness
Improved co-operation with
co-workers
Higher work quality
Better customer service
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 pre-
pares 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 employee’s tenacity in the face of obstacles to performance and goal
accomplishment. When the project manager disagrees with the engineer’s cost
analysis, does he give up or does he refine 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 person’s behaviour on the job. Motivation, on the other hand, is only
one of several factors that influence performance. For instance, an engineer’s
performance is reflected in the quality of his designs, the number of patents
he obtains and the customers’ satisfaction with the new product innovation
that reflects 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) difficulty 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.

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
specifies those factors in individuals which stimulate, direct, sustain and stop
behaviour. Therefore, a content theory of motivation answers the question: ‘What
specific 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
first content theory of motivation to be examined is Maslow’s hierarchy.
3.2 Content Theories of Motivation
3.2.1 A Question of Needs: Maslow’s Hierarchy
Abraham Maslow believed that motivation could be explained by organising

human needs into five 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 definitions
and organisational examples, the five levels of Maslow’s hierarchy are shown in
Table 3.2.
Table 3.2 Maslow’s hierarchy of needs

Need level Description of the level Organisational example
Highest-level needs
Self-actualisation The need to reach one’s fullest An engineer uses all of his
potential design skills to create a new
subcomponent
Esteem The need to feel good about Company promotes deserving
oneself and one’s abilities; and managers and recognises
to be respected by others and to employees with awards
receive their approval
Belongingness The need to experience social Having and sustaining good
interaction, friendship and love relations with co-workers,
supervisors, being a member of a
cohesive work team and being a
part of social functions at work
Safety Need for security, stability and a Having good job benefits, safe
safe work environment working area and job security
Physiological Food, water, shelter and clothing Guaranteed minimum pay level
to ensure survival that is sufficient to provide basic
necessities
Lowest-level needs

Physiological needs are the lowest level of needs in the hierarchy; they include
food (hunger), water (thirst), shelter (warmth) and sex (reproduction). In today’s
world these needs rarely dominate us. Real hunger (starvation) in developed
nations is rare. Mostly our first-level needs are satisfied. 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 satisfied first. For example,
your concern about a business meeting will abruptly disappear if you arrive
home to see your house in flames. 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 phys-
iological needs are met, people want guarantees that their safety needs will be
satisfied 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 fulfilment 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 fulfils the same job security need by attending a
course in marketing research at the local university. Because the company’s 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 Maslow’s 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 higher-
level needs which were considered by Maslow to be personally infinite, 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 compo-
nent identified as social status, which is defined 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 inter-
nal 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 dissat-

isfaction and low performance. As employees become more competent on the

job, they often experience enhanced self-efficacy. Self-efficacy is defined as per-
sonal confidence 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-efficacy and social status.
Self-actualisation is the final level of the hierarchy. This need is defined as
the desire to fulfil oneself by making maximum use of talents and experience:
in other words, living up to one’s potential. People sometimes describe it as
their desire to fulfil their potential through the activities they pursue. As noted
for esteem needs, self-efficacy 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 self-
actualise 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.
Maslow’s hierarchy assumes that physiological needs must be satisfied before
higher-order needs can be satisfied. There are several other points which are
crucial to a complete understanding of Maslow’s hierarchy, as follows:
1 A satisfied need ceases to motivate behaviour at that need level. For

instance, when an employee decides that he has sufficient insurance cov-
erage for himself and his family, part of his security or safety need is
met.
2 Unsatisfied employee needs lead to undesirable outcomes at work. Unsat-
isfied needs create perceived inequity for employees. When this condi-
tion persists, employees experience job dissatisfaction and they respond by
reducing their performance, coming to work late, not coming to work at all
or leaving.
3 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 higher-
order needs. All human beings self-actualise in some way. However, only
some employees self-actualise on the job.
4 Needs are not usually satisfied completely. Individuals can satisfy more
of their lower-order needs than their higher-order needs. In organisations,
lower-order needs are satisfied largely by monetary rewards. In contrast,
higher-order needs are satisfied 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 five years or so, concern shifts to the establishment of a professional
identity in the firm and in the employee’s chosen profession (external component

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 one’s 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 satisfied. The implication is that motivation and need satis-
faction are anticipatory in nature. Much of employee job satisfaction is based
on the belief that future job situations have great potential for meeting higher-
order needs. Managers must seek to guide and direct employee behaviour that
meets organisational needs and individual needs simultaneously. The quality
of an organisation’s 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 Maslow’s 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 satisfied, there
is no decline in the importance of higher-order needs as they are satisfied.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 satisfied, 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 Herzberg’s Two-Factor Theory of Motivation

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

the reasons these professionals gave for positive or negative job satisfaction and
motivation differed systematically. Herzberg’s conclusions are summarised in
Figure 3.1.
MAXIMUM Hygienes only get you

halfway there!
Job WORK
Satisfaction
Range PEER RELATIONS ENVIRONMENT
PAY JOB SECURITY
SUPERVISION CO. POLICIES
NEUTRAL JOB SITUATION
Job WORK ITSELF

DIS- PROMOTION
Satisfaction CHALLENGES
Range
ACHIEVEMENT
PROF. GROWTH
I QUIT! RESPONSIBILITY
STATUS RECOGNITION
HYGIENES MOTIVATORS
Figure 3.1 Herzberg’s 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 sufficient 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 sufficient 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 specific features of their work. The
hygienes are defined as components of job context. Because of this quality, some
motivation experts refer to them as contextual factors because they emphasise

the elements of the environment surrounding the job and the employee. When
they are not present, the employee’s 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 physi-
cal 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 satis-
faction and performance. According to Herzberg, employees soon take hygiene
improvements for granted.3 However, if the hygienes are removed due to organ-
isational 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 dis-
tributed five per cent of profits as semi-annual bonuses. The firm 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 office personnel its decision to eliminate their bonuses due
to the poor financial performance of the company. Consequently several skilled
salespeople left the firm in the next six months.
Bonus loss was perceived by office 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
first 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 employee–job
interaction, and are job-centred characteristics. Often they are called intrinsic
job factors or content factors. When they are present and hygienes are accept-
able, 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 flows.
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.

Furthermore, accounting and human resources would now be responsible for

training new employees for Ian’s department.
Several motivators were removed from Ian’s job. His autonomy and respon-
sibility were reduced sharply by the committee’s 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 perform-
ance, 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 moti-
vators 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
employee’s job.
Benefits of Herzberg’s Work

Herzberg’s work has influenced thinking in organisational behaviour and man-
agement. Its most enduring benefit 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 Herzberg’s 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 Maslow’s and Herzberg’s Models

The work of Maslow and Herzberg is different yet related. Herzberg is con-
cerned 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. Maslow’s lower-order needs resemble hygiene factors
because they sustain individuals to trigger the search for personal growth.
Maintenance factors (Maslow’s 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 (Maslow’s higher-order
needs). Thus, hygienes are necessary but not sufficient to ensure employees’
personal growth through work. In the larger view, Herzberg’s model is a spe-
cific application of Maslow’s hierarchy to work. It answers some very practical

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 oversimplifies
the nature of job satisfaction.4 Critics of Herzberg’s 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 performance–job 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 promi-
nent 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 briefly, to the extent
that employees feel that their rewards are inadequate, they experience or per-
ceive 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.
Employee’s rewards compared to Others’ rewards
Employee’s inputs (efforts) 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

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 Change work inputs and reduce performance efforts (to eliminate negative
inequity).
2 Change the outcomes received (ask for more responsibility to reduce positive
inequity).
3 Exit the circumstances (leave a job or request a transfer).
4 Change the people who are used for comparison.
5 Mentally distort or alter the comparison (rationalise that the inequity is only
temporary and will be resolved in the future).
6 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 confirm 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 motivat-
ing 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 filtered by employees through the equity com-
parison noted above. An employee’s felt inequity is dependent on his inter-
pretation 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 sacrificing 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

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.
2 In making reward allocation decisions, anticipate that certain employees
will feel both positive and negative inequity (entitleds and benevolents).
3 In advance, tell employees about salary ranges, pay increases and promotion
opportunities.
4 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).
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
influenced 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 finance. 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 five 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 firm. 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 Tristan’s level of motivation and enthusiasm
for the project. He was not successful until he sent Tristan to the head of the
internal auditing division, André Worthington. André had been a broker at one
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 André’s point
with Tristan. Soon Tristan was highly motivated by the project and he found his
interest in the commodities markets on the rise.

Tristan had a motivational problem. His project abilities were high, but he
was uninterested until André pointed out the connection between the successful
completion of the project and the creation of a new division which would
require a new controller’s 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 Tristan’s
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 Tolman’s 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 first describe the theory, then describe
its components, give examples of each component, and finally apply the ideas
to Tristan’s story.
Components of Expectancy Theory

Valence is defined 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, co-
workers and superiors all influence 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 first-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
first-level outcomes and are the direct result of achieving, or not achieving, first-
level 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 first-level outcomes lead to second-
level 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

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 first-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 instrumen-
talities signals lowered levels of employee effort and performance.11
Expectancy is the subjective belief that a given level of effort will lead to a first-
level outcome on the job. Expectancies are judgements about the relationships
between given levels of effort and various first-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 first-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 first-level outcomes.
Figure 3.2 shows all of the concepts discussed so far. In the figure, the
employee exerts effort to achieve a first-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 self-
fulfilment for a job well done. This is intrinsic motivation. A second reason
that the employee in the figure exerts effort is his belief that success at the first
level (performance) will yield a valued second-level outcome (instrumentality is
strongly positive).
WORK FIRST-LEVEL SECOND-LEVEL OUTCOMES

ENVIRONMENT OUTCOME
Promotion
Pay rise
Excellent report New high-status title

delivered on time
Effort and it saves the Purchase a new town house
company £50 000
Become member of
prestigious club
Expectancy Ability Instrumentality Valences
Figure 3.2 The expectancy theory of employee motivation

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, I’ll never get to be a chartered accountant’). Notice in the figure
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 sufficient 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 first-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 Paul’s judgement on this), then the
project should be completed by the desired date.
Referring to the model in Figure 3.2, André becomes an important compo-
nent of Tristan’s work environment. André pointed out the connection between
the project and Tristan’s 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 André,
Paul cleared a pathway for Tristan from effort to performance, and from per-
formance to rewards. He raised Tristan’s 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

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 individual’s need for achievement is a personal trait which systemati-
cally influences 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 perform-
ance instead of effort, then his instrumentalities will be high and positive. If
the achieving employee believes the organisation does not equitably reward per-
formance, then he will probably leave. Remember, every frustrated employee
with a high need for achievement is a potential entrepreneur!
SELF-EFFICACY
NEED FOR ACHIEVEMENT

INDIVIDUAL
FACTORS
LOCUS OF CONTROL
SELF-ESTEEM
EFFORT PERFORMANCE VALUED EMPLOYEE

OUTCOMES
ROLE AMBIGUITY
ROLE CONFLICT
PERFORMANCE APPRAISAL
ORGANISATIONAL
SYSTEM
FACTORS
REWARD SYSTEM
JOB DESIGN SYSTEM
Figure 3.3 Individual and organisational factors in motivation
Locus of control has systematic effects on the motivational process. It repre-

sents the employee’s beliefs about whether his behaviour influences 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 opportu-
nities to control significant features of their jobs. Organisations tend to develop
complex reward systems which distribute extrinsic rewards exclusively. Employ-
ees often believe that rewards are not distributed equitably (i.e., the system does

not recognise performance as the sole basis for assigning rewards) in their com-
panies. 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 sys-
tems 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 Maslow’s hierarchy) also influence 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-fulfilling prophecy because the
employees fail at the task and this justifies their negative self-images.
Organisational Factors and Motivation

Numerous organisational factors influence employee motivation. Let us consider
those that have been the focus of systematic research.
Role ambiguity is an important motivational influencer. It is defined 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 conflict leads to inconsistent work expectations. The essence of role
conflict 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 difficult to preserve the quality requirements dictated by
higher management. Supervisors are often sources of role conflict. Employees
often report to more than one supervisor. If they cannot agree on what the
subordinate is to do, role conflict emerges. In essence, the employee is in the
‘damned if I do, damned if I don’t’ position.
When role conflict and role ambiguity are both high, the accuracy of employee
perceptions about expectancy and instrumentality deteriorates. Employees experi-
ence wide fluctuations in instrumentalities under these conditions. One day they
may feel confident about the relationships between work standards and valued
second-level outcomes such as promotions and pay rises. The next day supervi-
sors 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 per-
formance appraisal are: 1) informing employees about where they stand rel-
ative to performance, 2) developing information to make personnel decisions,

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 per-
ceive 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 instrumen-
talities 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 influences key facets of expectancy theory. Most
employees prefer more control rather than less control over their work. Employ-
ees 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 fulfilling. 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 del-
egate 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 experi-
ence 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 modification. This is a process theory which describes the role of the
environment in shaping the behaviour of employees.

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) Maslow’s hierarchy, 3) Herzberg’s two-factor theory and 4) expect-
ancy 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 relation-
ships with peers are classified 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 con-
trast, Muslim managers believe their performance and success are determined
by God.14
Behaviour modification is an environmental theory of motivation. This means
that behaviour modification de-emphasises the role of the individual in the moti-
vation process and emphasises instead the role of the environment. Concepts
such as Maslow’s hierarchy and Herzberg’s two-factor theory are not empha-
sised. Whereas Maslow’s hierarchy posits that a person is motivated by the need
for ego gratification, behaviour modification predicts that employee behaviour
occurs because of the learned connection between behaviour and rewards. In
behaviour modification, ego needs have little to do with motivation. Instead, it
emphasises the relationship between behaviour and its consequences.
Behaviour modification 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 modification (B Mod)
so that you can begin applying it to problems in your own organisations.
3.4.1 Principles of Behaviour Modification

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 defined
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.

Table 3.3 Key concepts in B mod

Key concept Definition
Operant conditioning Reinforcement which modifies behaviour through its
consequences
Law of effect Tendency to repeat behaviours which cause favourable
consequences, and not to repeat behaviours which cause
unfavourable consequences
Positive reinforcers Favourable or pleasant consequences
Negative reinforcers Unfavourable or unpleasant consequences
Neutral reinforcers Consequences which are not favourable or unfavourable
Positive reinforcement Strengthening a behaviour by occurrence of a pleasant
consequence
Negative reinforcement Strengthening a behaviour by removing an unpleasant
consequence
Punishment Weakening a behaviour by occurrence of an unpleasant
consequence
Extinction Weakening a behaviour with occurrence of a neutral
consequence or removal of a positive consequence
Behavioural shaping Successively closer and closer approximations of desired
behaviour
Schedule of reinforcement Frequency with which reinforcement accompanies behaviour
Stretching the ratio Altering the rate of reinforcement
Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations. St. Paul, MN: West
Publishing Co.
CONSEQUENCE CONSEQUENCE
PRESENTED REMOVED
POSITIVE
PLEASANT CONSEQUENCE EXTINCTION
REINFORCEMENT
NEGATIVE
UNPLEASANT CONSEQUENCE PUNISHMENT
REINFORCEMENT
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

cease participating because a neutral occurrence takes place (you are ignored
by the chairman). Punishment occurs when an unpleasant consequence is pre-
sented. 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. Let’s 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 difficult 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 firm. 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 super-
visory reprimands. Negative reinforcement is abundant in most organisational
employment policies. As a preventative measure, various forbidden behaviours
are specified in an employee handbook. Along with those behaviours, a variety
of organisational sanctions are also specified. Together the forbidden behav-
iours 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 behav-
iour. 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.

Managers can help employees learn new skills by using careful performance
feedback and applying liberally praise and recognition as the employees’ behav-
iour 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 other’s 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 infinite 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 Influence 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 (fixed or variable). When consequences occur after a certain
number of behaviours, the reinforcement is called a ratio schedule (again, fixed
or variable). As the table shows, four types of partial reinforcement schedules
are used in organisations.
Characteristics of Partial Reinforcement Schedules

The fixed ratio schedule links consequences to a given number of behaviours.
This schedule produces a very high behavioural response rate. For example,
firms 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 num-
ber 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 cus-
tomer inquiries, while at another time the reward may occur after the employee
successfully handled only six. The variable ratio schedule would average out to

eight behaviours to generate a reward. This schedule produces extremely resis-

tant behaviours once they are well learned. The response rate for the behaviours
reinforced with this schedule remains constant and high.
Table 3.4 Schedules of reinforcement

Schedule Description Example
Continuous Consequence follows each Co-worker comments each
response time an employee comes to
work late.
Partial Consequence does not follow
every response
Types of partial reinforcement
schedules:
Fixed Ratio (FR) A fixed number of After testing 25 units, a
behaviours must occur before technician is eligible for
reinforcement occurs a bonus of one on each
additional unit tested
Variable Ratio (VR) A variable number of A service technician might
behaviours (around some get rewarded after handling
average number) must occur five accounts then he might
before reinforcement be rewarded again after
handling seven accounts
Fixed Interval (FI) After a given amount of time Co-workers get together for
has elapsed, reinforcement a tea break at 10 a.m. and
occurs. 2 p.m.
Variable Interval (VI) After a variable amount of In one instance, a superior
time (varying around an disciplines an employee
average time) has elapsed, after two days; in the next
reinforcement occurs. instance, he lets four days
elapse before he disciplines
the employee.
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 first
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 teller’s 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 sched-
ules, let’s see how good you are at identifying them. Please follow the instruc-
tions below for Identifying Reinforcement Schedules.
Instructions: Please read each description and then indicate the type of rein-
forcement schedule in operation.

1 Two hours of time off if clerks are error-free in their work of matching
register funds to the paper record of sales for five working days.
2 Giving a £20 bonus to hourly workers if electricity bills are reduced by 5
per cent.
3 Dividing all profits above 6 per cent among employees.
4 Giving employees the use of a company car for four hours if they are not
absent from work over a one-month period.
5 The time clock on the wall where employees punch in and out of work.
6 Pay day every Friday.
7 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 fixed 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 five days. No change in accuracy was detected.
Is Stretching Ratios or Intervals a Way to Use Fewer Rewards?

Definitely 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 first, 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, financial rewards should not
be administered through stretching reinforcement schedules. This would only
lessen employee motivation through increasing distrust of management.
3.4.3 Behaviour Modification in Perspective

The major benefit 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

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 influence. 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

Supporters believe Opponents believe
It focuses on observable employee behaviour It undermines employee respect and dignity
instead of intangible individual differences It makes organisations more manipulative and
No manipulation occurs when employees exploitative
participate in the behaviour modification It makes employees dull and dehumanised
It improves employee instrumentalities extensions of the machines or systems they
Employees receive higher quality feedback operate
about their performance It oversimplifies work behaviour and erodes
employee creativity
B Mod systems can be designed to assist workers in obtaining higher per-

formance levels and more significant 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 work-
ing with their supervisors. This is the team approach to improving performance.
The consistent interaction of employees and supervisors on the issue of per-
formance 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 simplified 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

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 specific
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 per-
formance 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 influence substantially expectancy, instrumentality and
valences for both first-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 asso-
ciated 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 organisa-
tions. 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
definition of punishment is: ‘to impose a penalty on a criminal or wrongdoer

for an offence’. What manager wants to view his employees as criminals or

himself as their judge, jury and executioner? The definition 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 difficult 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 Phillip’s department where she oversees the firm’s soft-
ware 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 office.
Sheila triumphantly surveyed the work area and decided to take the afternoon off.
What Has Happened in this Episode?

At first glance, you may conclude that Sheila was punished for her poor perform-
ance and attendance. Wrong! Phillip was punished and Sheila was negatively
reinforced! The strength of Phillip’s reprimanding behaviour has been weakened
because he was publicly punished by Sheila. The strength of Sheila’s accusatory
behaviour was strengthened because she was able to avoid an unpleasant con-
sequence (Phillip’s reprimand). This analysis illustrates one of the difficulties 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 conse-
quences are subjective and emotion laden, what one person perceives as pun-
ishment may turn out to be positive or negative reinforcement from another’s
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, produc-
tion 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 define successful job performance
in terms of escaping punishing consequences! Opponents cite the following
objections to the use of punishment in organisations:18
1 For it to be effective, managers must closely monitor employee behaviour.
2 Punishment never eliminates undesirable behaviour. It only suppresses it
temporarily. When the punisher is removed, the undesirable behaviour
returns.

3 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 Alternatives to the use of punishment

Alternative Description
Extinction 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
Re-engineer the work environment so If employees waste time in the break area,
undesirable behaviour cannot occur install a window so the supervisor can easily
observe employee activity in the area
Reward behaviour which is physically Rather than discipline employees for untidy
incompatible with undesirable behaviour work areas, reward them for cleaning their
workplaces
Be patient and allow time for undesirable When a manager states ‘It’s OK to make a few
behaviour to disappear mistakes because we learn from them’ we are
observing this amiable philosophy
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, dead-
lines, production quotas and performance reviews. Employees can readily learn
new behaviours from unpleasant encounters with these naturally occurring pun-
ishers.
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 figure. 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

PUNISHMENT
SUBORDINATE
IS:
rapid understands incorrect

behaviour
intense
equitable learns correct behaviour
Supervisor observes focused

undesirable behaviour is less defensive
private
informative does not feel threatened
not followed does not focus on mistreatment

by rewards
Figure 3.5 Effective use of punishment
1 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.
2 Punishment must be intense and immediate. There should be no mistake
about the undesirable behaviour. The punisher should be of sufficient inten-
sity 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.
3 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.
4 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.
5 After corrective action has been taken, the employee’s value to the organ-
isation must be reaffirmed. 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.
6 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.

3.4.5 Setting up a Behaviour Modification Programme

Hundreds of firms have used B Mod successfully in their operations.19 These
efforts have common features. Below you will find 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 employ-
ees understand the basic requirements of their jobs. The completion of this
step also helps educate managers as to the responsibilities of their subordi-
nates.
2 Define performance behaviours and set performance goals. Management
must precisely define 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 specified
in numerical terms easily understandable by all employees.
3 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 deficiency
of 40 per cent would thus be identified through the baseline audit. This
example shows that a baseline audit is simply a quantified beginning point
for initiating a B Mod programme. Based on the programme’s success tar-
get, the results from the baseline audit show the extent of the behavioural
deficiency to be eliminated.
4 Select powerful and abundant reinforcers to reward excellent perform-
ance. 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.
5 Use continuous reinforcement to encourage new performance behaviours.
Praise and recognition are the most useful rewards in the beginning of the
programme.
6 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 experi-
ence a performance problem, they should not be criticised. Use teamwork
and coaching to solve the problem.
7 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.
8 Stretch the ratio or interval to move employees to a sustained level of
performance.
9 Review and evaluate the programme to identify and measure target
goals such as cost reduction, employee attendance, safety and improved
productivity. In other words, find ways to expand the programme concept.
This will ensure employee equity as more departments develop their own
programmes.

Some Reminders about Initiating a Behaviour Modification 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 Moderate to high trust must exist between employees who will be affected
by the programme and their supervisors.
2 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.
3 Employees must have control over the pace of their work. B Mod does
not work well when employees’ work is machine paced.
4 Employee ability cannot be a cause of the problem.
5 Employees must have complete understanding of successful performance
behaviours that they can measure and record.
6 Employees must get regular feedback about their progress towards per-
formance goals. They should be able to control the feedback generation
process, i.e., they should keep their own performance records.
7 Supervisors must be trained and committed to the B Mod programme.
This means they must understand how to use the principles underlying B
Mod.
Summary Points
• Motives initiate, sustain and channel behaviour. Motivation progresses
through a sequence of need, behaviour and goal attainment.
• Maslow’s hierarchy consists of two general levels: physiological needs and
psychological needs. These levels are also referred to as lower and higher-
order needs. Individuals can progress up the hierarchy as their careers
advance or as they grow older or both. Ideally, employees become increas-
ingly concerned with higher-order needs as their careers lengthen.
• Herzberg’s 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 specifies the relationships between effort, performance and

rewards. The theory articulates the significance of expectancy, instrumental-

ity 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 modification (B Mod) is a process theory of motivation and
learning which specifies 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 rein-
forcement schedules. Partial reinforcement schedules have variable effects
on behaviour.
• Behavioural shaping is a process which induces closer and closer approxi-
mations 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 modification suggest that the application of its prin-
ciples 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 modification programme requires careful consid-
eration 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
3.1 According to Maslow’s 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?

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 sufficient for sustaining levels of employee
motivation. T or F?
3.7 Content theories of motivation address the how and why of motivated behav-
iour. 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 compo-

nents of the expectancy model. T or F?
3.10 The organisational reward system has minimal influence on the high performer’s
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?

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 affiliation 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 benefits.
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 modification
E Vertical job loading

3.25 The schedule of reinforcement which is least effective at strengthening employee

behaviour is the schedule.
A fixed ratio
B variable ratio
C fixed 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 office.
D ignore the staff member in question.
E take the whole matter to your supervisor and ask her what to do.
3.27 The best action to take against an employee who endangers his co-workers is:
A no discipline, instead let his co-workers be mad at him.
B termination or give him the sack.
C discipline him using a fixed interval schedule.
D ignore the problem and hope that it goes away.
E take the matter up with your supervisor.
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 Maslow’s hierarchy and Herzberg’s 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. Briefly
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?

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 office, 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.
‘It’s like an invisible barrier that we have created to allow us one hour of
quiet time early morning. We don’t have offices with doors that can be closed’,
says Nigel Andrews, staff manager for general accounting.
Employees in Lanchaster’s offices and regional divisions are getting used to
the fact that they can’t phone accounting between 8 a.m. and 9 a.m. each day.
Initially, there was considerable confusion about accounting’s responsibilities
to other corporate divisions and departments. It seemed that the policy was
not widely understood nor accepted. During the AMP hour, employees aren’t
involved in meetings, processing data, running accounting errands, debugging
programs or any other distracting activities. Nigel maintains that so far account-
ing 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 pro-
gramme. The accounting staff is flexible. 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 first 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 per-
sonnel?
2 How might the AMP programme influence motivation and job satisfaction
of employees in other departments?

Case Study 3.2: Motivating Employees at Cypress

Semiconductor ∗
T. J. Rodgers, CEO, says: ‘Most companies don’t 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 Cypress’s 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 specific date, enter them into a database, and report whether or not they
completed prior goals. Cypress’s 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
aren’t) 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 conflicting goals, sort out priorities,
organise work and make mutual commitments about what’s 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 organ-
isation 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, 84–98. Copyright by the President and Fellows of Harvard College, all rights reserved.

execute. On Wednesday morning, our eight vice presidents receive goal print-
outs for their people and the people below them – another conflict resolution
mechanism.
‘On Wednesday afternoons at my weekly staff meeting, I review various
database reports with my vice presidents. We talk about what’s 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 we’ve refined the goal system and used it more extensively, I’ve developed
some general principles. First, people are going to have goals they don’t 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 specific
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 fixed.
‘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 people’s printouts and prepare brief,
factual evaluations. At year end, managers have a dozen such objective reviews
to refresh their memories and fight the proximity effect. Managers shouldn’t
expect outstanding performance unless they’re prepared to reward outstanding
performers. Yet evaluation and reward systems remain an organisational black
hole for three reasons. First, managers aren’t very scientific 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

equity both have a place in the incentive mix, but confusing the two makes for
mushy logic, counter-productive results and dissatisfied 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. It’s 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 cir-
cumstances 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 Lawler, E. E., III and Suttle, J. L. (1972) ‘A Causal Correlation Test of the Need
Hierarchy Concept’, Organizational Behavior and Human Performance, 7: 265–73.
2 Herzberg, F., Mausner, B. and Snyderman, B. (1959) The Motivation to Work, 2nd edn.
New York: Wiley.
3 Herzberg, F. (1966) Work and the Nature of Man. Cleveland: World Publishing Company.
4 Dunnette, M., Campbell, J. and Hakel, M. (1973) ‘Factors Contributing to Job Dissat-
isfaction in Six Occupational Groups’, Organizational Behavior and Human Performance,
235–51.
5 Lawler, E. E., III, (1973) Motivation in Work Organizations. Monterey, CA: Brooks-Cole
Publishing.
6 Korman, A. K. (1971) Industrial and Organizational Psychology. Englewood Cliffs, NJ:
Prentice Hall.
7 Stacy Adams, J. (1965) ‘Inequity in Social Exchange’, in L. Berkowitz (ed.), Advances
in Experimental Social Psychology, 4th edn. New York: Academic Press, 267–300.
8 Huseman, R., Hatfield, J. and Miles, E. (1987) ‘A New Perspective on Equity Theory:
The Equity Sensitivity Construct’, Academy of Management Review 12: 222–34.
9 Tolman, E. and Honzik, C. (1930) ‘Introduction and Removal of Reward and Maze
Performance of Rats’, University of California Publications in Psychology 4: 257–75.
10 Vroom, V. (1964) Work and Motivation. New York: Wiley.
11 Stahl, M. and Harrell, A. (1983) ‘Using Decision Modeling to Measure Second Level
Valences in Expectancy Theory’, Organizational Behavior and Human Performance 22:
23–34.

12 Hofstede, G. (1980) ‘Motivation, Leadership and Organization: Do American Theories

Apply Abroad?’, Organizational Dynamics 9: 42–63.
13 Adler, N. (1991) International Dimensions of Organizational Behaviour, 2nd edn. Boston:
Kent Publishing Company, 18.
14 Hines, G. (1981) ‘Cross Cultural Differences in Two-Factor Theory’, Journal of Applied
Psychology 58: 313–17.
15 Locke, E. (1977) ‘The Myths of Behavior Mod in Organizations’, Academy of Management
Review 2: 533–53.
16 Fry, F. (1974) ‘Operant Conditioning in Organizational Settings: Of Mice and Men?’,
Personnel 51: 17–24.
17 Hammer, M. (1971) ‘The Application of Behavior Conditioning Procedures to the
Problems of Quality Control: A Comment’, Academy of Management Journal 14: 529–32.
18 Solomon, R. (1964) ‘Punishment’, American Psychologist 19: 239–53.
19 Lockwood, E. and Luthans, F. (1984) ‘Contingent Time Off: A Non-financial Incentive
for Improving Productivity’, Management Review: 48–52.

Module 4
Organisational Control and Reward

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

Module 4 / Organisational Control and Reward Systems
Learning Objectives
• 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, financial and non-financial rewards.
• Describe the significance of distributive and procedural justice in perform-
ance 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 firm 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 firm’s strategic success.
4.1 Why Organisations Need to Assess Employees’ Performance

An organisation’s performance appraisal system is defined 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 Employees need to understand the behavioural requirements of the job.
2 Employees’ work is evaluated for its contributions to company goals.
3 Employees need to know where they stand with the organisation in terms
of their performance.
4 Employees’ motivation to do a good job is increased by the performance
appraisal system.
5 Valid information about performance levels of employees should be used
to make decisions about salary increases, promotions, bonuses and training
needs.

6 Employees need a clear understanding of what the firm 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 firm is unconcerned with treating them fairly. Table 4.1
summarises some of the more important effects of performance appraisal from
both the firm’s and the employee viewpoint.
Table 4.1 Effects of performance appraisal

For the organisation For the employee
Performance improvement Need fulfilment (security, social, self-esteem)
Validation of the selection system Job satisfaction
Employee counselling Organisational commitment
Training and development Job involvement
Clarification of job expectations Satisfaction with supervisors
Help in goal-setting Satisfaction with pay
Development of employee potential Achievement of promotions
Manpower planning Greater responsibility
Documentation of existing performance Personal career goals
Improved customer service Improved self-efficacy
Product and process improvement
4.1.1 Performance Appraisal Issues and Practices

Few managers would question the firm’s need to assess the performance behav-
iour of its employees. The process of assessment must produce results which are
fair, timely and accurate. Managements hope that actual performance and mea-
sured 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 difficult 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 mea-
surement problems that crop up in performance appraisal systems. They include
deficiency, unreliability and invalidity. Deficiency 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.

Deficiency problem
Performance overlooked
by the evaluator
Reliability problems
1. Situational factors
affecting the evaluator,
such as mood or timing
True Unreliability of the evaluation.
Deficiency
Assessment Invalidity
2. Disagreement between
evaluators or inconsistent
methods.
3. Temporary personal
factors, such as fatigue
or ill health of the person
Actual Measured being evaluated.
performance performance
Validity problem
Poorly defined task performance
causing invalidity.
Figure 4.1 Actual and measured performance
Unreliability stems from numerous origins, many of which are related to prob-
lems within the evaluator(s). Reliability refers to the constancy and stability of
performance appraisal results under the same evaluators and similar circum-
stances 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: con-
sistency, 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 require-
ment 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.

Because of the problems noted in the table, it requires some effort on the part
of the firm to remove personal biases, prejudices and idiosyncrasies of managers
from the evaluation of work performance.
Table 4.2 Errors in performance appraisal

Type of error Definition
Personal bias A stereotype or bias which influences a superior’s rating
upward or downward.
Halo effect Rating an employee on one trait based on their evaluation on
other traits.
Recency error The emphasis on recent performance examples in making
performance assessments.
Central tendency error Assigning average ratings to all employees resulting in little
variation among ratings.
Strictness or leniency errors Supervisor ratings based on the belief that employees do not
measure up, or that all employees measure up.
Similarity error The supervisor has a performance quality in himself which he
looks for in subordinates.
Forcing the rating to match Deciding on an overall rating first and then going back to
other criteria adjust ratings on individual dimensions to justify the overall
rating.
Table 4.3 Forms of validity

Type of validity Definition and example
Content validity 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.
Empirical validity 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.
Construct validity The performance appraisal system logically derives from a model or
theory of performance behaviour and motivation. A firm develops
its appraisal programme from the expectancy theory of motivation.
Convergent validity Multiple measures of the same performance dimension yield
equivalent scores. Observation methods correlate highly with paper
and pencil measures of performance.
Discriminant validity Measures of performance using the same method produce different
scores for different aspects of performance.
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

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 measure-
ment 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 firms, 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 significantly. Since rater errors are normally distributed, the
use of more raters will increase the frequency of ratings near the distribution’s
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 competitor’s score is determined by the aver-
age 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 per-
form 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 sys-
tematic 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 defining 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

clear specification of the employee characteristics and experiential qualifications

(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 difficult 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 programmer’s job be the repair or replace-
ment of computer modems? Such ‘territorial’ questions must be answered to
define the content of a job. The analyst has several options he can use to address
job content problems. He can:
1 determine the common skills and qualifications required to do the job;
2 isolate the work tasks which occur at the same place and time because of
task co-ordination required by the technology;
3 use externally accepted qualities to cluster tasks based on professional defini-
tions (accountant or engineer), union demands, and licensing examinations;
4 use the traditions of the firm which define 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 specific 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’ confidence 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 fixed and inflexible set of perform-
ance 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

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 NO
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....................................................................
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 firms 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

Below
Employee Characteristic Excellent Good Average average Poor
1. Dependability 5 4 3 2 1
2. Co-operativeness 5 4 3 2 1
3. Customer courtesy 5 4 3 2 1
4. Willingness to accept responsibility 5 4 3 2 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

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 fixed 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 first 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 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.
6 You could expect this assistant to ask another employee how to use the computerised
inventory report.
5 This assistant would be unaware of reordering dates for items in inventory.
4 When asked by the manager, this assistant could be expected not to know which
products are : currently out of stock.
3 This assistant can be expected not to know the names of products in the store’s
inventory.
2 This assistant does not know where the store’s inventory is located.
1 This assistant does not ask where the store’s inventory is located.

In Table 4.4 each level of performance is defined 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 perform-
ance. 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 behav-
ioural examples) versus the traits of employees. The strong behavioural empha-
sis reduces the chances for extraneous employee traits or peripheral job require-
ments to find their way into the employee’s evaluation. In addition. BARS apply
to a closely grouped, or specific 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 firm.
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 significance 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 difficult.
Thus, it would be difficult 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 signifi-
cance of goals in channelling employee behaviour towards organisational goals.
The behavioural framework for a work-based theory of goal-setting was articu-
lated by Edwin Locke, who describes the relationship between employees’ goals
and work performance.2
Goals are defined as those end states which reduce the intensity of needs
and motives. His theory proposes that clearly specified, difficult 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 conflicting 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 five motivational and behavioural steps. First, incentives for
performance and channelled employee behaviour are provided by the organisa-
tional environment. Here the organisation, through its managers, specifies what
must be accomplished. Further, the organisation should make clear the rewards
(intrinsic and extrinsic) which go with goal accomplishment. The second com-
ponent of the model highlights the importance of the goal-setting process. Note

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 Aspects of the goal-setting process

Environmental → Goal-setting → Goal attributes → Employee → Outcomes
issues process intentions
Specify results Mutually Specific Accept the goals Work
expected established Measurable Commit to the performance
Explain rewards Employer- Achievable goals Job satisfaction
which are centred Resource-based Job motivation
available Or framed as ‘do
Time-specific
your best’
‘SMART’
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 ele-
ment 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 speci-
fication of the relationship between intrinsic and extrinsic rewards and the goals
in question. The fifth element in the model specifies the employee and organ-
isational 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. Employ-
ees 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 Employee’s 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 office plan for achieving the
goal. He seeks employee input into sub-goal specification (participative goal-
setting process). During his contact with subordinates, he explains his incentive
plan and establishes goals that have the properties of clarity, difficulty and
limited number. The process yields high commitment and acceptance of the
goal because of reward specification 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.

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 specified 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 lead-
ing proponent of the organisational process for several decades.3 He advocates
MBO as a process which develops self-control in managers since these individ-
uals 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 firms and employees are embodied in
the theory of goal-setting. The result is the MBO cycle which rests on several
assumptions.
1 Employees perform better when they know what is expected of them and
how they contribute to the effectiveness of the organisation.
2 Most employees prefer self-determination at work.
3 Employees can be motivated further by well-timed formal and informal
feedback about their work methods and results.
4 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 briefly 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 organisation’s 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. Define the employees’ jobs in terms of content, authority and responsi-
bility. From the organisational standpoint this must be done to avoid duplication
of effort and resources. From the employee perspective, this step clarifies job
duties so that employees can see how their goals interlock up the chain of
command.
Step 4. Articulate goal difficulty, clarity, number and feedback. Here the
employee initiates the superior–subordinate dialogue on goals by developing
a set of goals for the next time period. Subordinates and superiors must be
thoroughly trained in the proper specification of goals.

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 revi-
sion of goals. The MBO cycle must be flexible 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 firm’s 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 2 3 4
ANALYSE the mix of PLAN goals, strategy, DEFINE the ARTICULATE goal
people, jobs, work communication and employees' jobs in difficulty, clarity,
methods and external training terms of content, number, feedback
demands authority and
responsibility
7 6 5
make FORMAL review of goal make INFORMAL review of reach MUTUAL
achievement and rewards goal achievement, methods AGREEMENT about goals,
to be obtained and probable rewards, and work methods, goal
REVISION of goals and measurements and time
methods if necessary 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 refined 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 Top management support, commitment and involvement must precede

MBO systems design, and continue throughout the life of the programme.
2 MBO must have a strong relationship with routine managerial activities
and responsibilities. The MBO system must buttress the basic aspects of the
firm’s technology, products, and services.
3 MBO must emphasise organisational and personal development goals. The
successful manager always ensures that the MBO system permits employ-
ees to achieve higher-order need satisfaction for important areas such as
professional competence and growth.

4 The firm 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 firm will not
derive the motivational and performance benefits of MBO.
5 The firm must tailor the MBO system to meet the needs of departments
which have different technologies and products. If MBO is not ‘customised’
to fit departmental needs, the programme will lack integration and the value
of MBO information at the organisational level will be questionable.
6 Managers must avoid over-emphasis on the number of goals and how
quantified they are. The ‘80–20 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 quantified goals.
7 The benefits 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.
8 Equal emphasis should be placed on discussion and evaluation. Over-
emphasis on discussion leads to uninspired goals while over-emphasis on
evaluation leads to perceptions of manipulation and overcontrol.
9 MBO works best when it is flexible 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 firm and its members.
4.3 Rewards and Reward Systems

Rewards strongly influence 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 experi-
enced levels of job satisfaction and motivation. How the rewards are perceived
can easily outweigh the actual rewards distributed by the firm. The reward sys-
tem has a heavy influence 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. Per-
ceived inequity causes job satisfaction with pay to plummet. The first 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 defined 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

in the distribution channel for important organisational information: and doing

work which requires a number of skills and activities. Examples of jobs or occu-
pations with high levels of intrinsic rewards include physician, politician, judge,
research scientist, design engineer and architect. These occupations involve a
set of varied and significant 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 lim-
ited to very specific behaviours. Since assembly workers are isolated from the
final product they help produce, they receive very little feedback concerning the
results of their work.
Extrinsic rewards are given to the employee by the firm 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-financial 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 com-
pensation). Indirect compensation refers to rewards that are given because of
the employee’s 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-financial compensation. The forms
of such compensation are legion, with managers concocting some very creative
systems of non-financial compensation. Examples of these rewards include pre-
ferred office 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 influencing motivation and performance.4
Since 1980 the field of organisational behaviour has generated considerable
research on the significance and effects of intrinsic rewards on employee behav-
iour 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 final reason for separating intrinsic and extrinsic rewards lies in the fact that
firms have much more control over extrinsic rewards. The company can create

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 benefits. Table 4.6 below shows
common intrinsic and extrinsic rewards that are available to employees.
Table 4.6 Intrinsic and extrinsic rewards in organisations

Intrinsic rewards Extrinsic rewards
Direct compensation Indirect compensation Non-financial rewards
Participation in Basic salary or wage Job protection Preferred office locations
decision-making Performance bonuses programmes Choice parking spaces
More responsibility Stock options Time off with pay Impressive titles
Opportunities for personal Overtime and holiday pay Preferred lunch hours
growth Own secretary
More interesting work Cellular phone, fax
Variety of job activities machine
4.3.2 Distributing Rewards in Organisations

All firms are interested in the effective distribution of extrinsic rewards. Various
guidelines for distributing rewards have been developed by firms. 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, firms 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 non-
performance-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 firm under-
values 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 benefits, eligibility
for job change and transfer and redundancy. When seniority becomes a sub-
stitute for performance in the allocation of rewards, managers soon learn that

it is encouraging tenacity versus performance and achievement. This of course

eliminates perceived equity for high performers. They leave the firm in due
course and the ranks of the mediocre performers increase.
Downsizing and re-engineering changes in organisations are undermining the
significance of seniority as a basis for distributing rewards. Since firms 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 Influence

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 influence employers’ decisions. Most often, managements develop a
reward policy which blends the reasons noted above. This will lead to severe
conflicts in reward policies which employees quickly notice.
How do firms determine the value of their jobs?
The most organised way to develop an effective reward system is to develop a
job classification 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 qualified for a position. A chartered public
accountant needs a special certification indicating that he has successfully
completed so many hours of technical training.
2 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.
3 Physical requirements include health, strength, stamina, height and weight.
Although some of these requirements have been dropped for certain jobs,
many job classifications still contain physical specifications.

4 Responsibility refers to the job’s impact on the organisation. It can be

measured by the number of people supervised, size of budgets, and value
of equipment managed.
5 Working conditions are those environmental factors which affect work per-
formance. Temperature, noise, lighting, vibration and humidity are exam-
ples of this factor.
A typical job classification 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 firm has an objective basis for distributing rewards based
on the demands of the job. This system gives the firm a partial basis for deter-
mining wage and salary rates through compensation surveys. Similar firms 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 firms give pay rises, they find
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 organisation’s reasons for giving pay rises. Executives
believe their compensation is based on company profits and potential for profits
(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 influence 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 financial 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 profits,
market share, cost effectiveness, and company productivity are seldom used as
a basis for determining the pay rises of executives.

Table 4.7 How employees rank reasons for pay rises in their firms
Factors believed to Top man- Exempt Non- Hourly Hourly
cause pay rises agement salaried* exempt non-union union
salaried**
Worker productivity 4 7 5 3 9
Company’s profits 1 2 3 5 7
Company’s potential 2 3 4 4 5
profits
Fairness of pay among 6 5 6 6 8
employee groups
Pay increases by top 5 6 8 7 4
industry competitors
Salary surveys 3 1 1 1 6
Difficulty in filling 7 8 7 10 10
position
Union agreements 9 10 10 8 2
Union demands 10 9 9 9 1
Cost-of-living index 8 4 3 2 3
* Not paid for overtime. ** Paid for overtime.

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 effective-
ness 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 com-
pensation packages are not based on internal job evaluations like those that
apply to lower level employees. Instead, these pay packages reflect industry
practices and the compensation programmes of rival firms 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) benefits, 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 firms of comparable
size both inside and outside the industry to arrive at an amount for executives’
base salaries.

Table 4.8 Comparing the numbers in 2000: Executive pay in selected industries
Retail Manufacturing Commercial Construction Gas & Finance &
banking Electric Insurance
CEO’s salary 1.0 1.0 1.0 1.0 1.0 1.0
Chief operating .70 .70 .70 .70 .65 .70

officer (second in
command
Chief financial officer .60 .55 .60 .60 .55 .56

(third in command
Annual bonuses are designed to motivate executives to maximise net income

and the majority of industries and their member firms 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 firm
owned by its employees – ESOP); 2) the corporation is a not-for-profit (hospital,
charitable foundation) or 3) the industry and its firms are closely regulated
(power generation).8 For instance, in the US financial 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 specified
period of time. The incentive to the executive is to maximise the value of the
firm’s shares so that exercising the option yields a substantial profit 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 five times annual base salary two years
earlier.10 . The issue for shareholders in this dramatic rise is whether or not a
firm has a higher market value if its top executives have substantial personal
wealth tied up in company stock. Towers Perrin, a benefits consulting company,
found that in 1995 higher-performing firms (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 benefits. Exec-
utives typically receive higher benefits 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.

4.4.1 What Are the Current Trends in Executive Compensation?

Trend 1: Strengthening the link between executive compensation and the market
value of firms. 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 officers encourage their boards to support corporate diversifica-

tion to spread business cycle risk over a portfolio of company subsidiaries.
While the corporation may be no more profitable once it’s diversified, the
executives are paid more because the size of the company is a much better
predictor of executive compensation than is its profitability.
2 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 company’s stock.
3 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.
4 Profitability is a good predictor of executive compensation only when the
executive owns the business.
5 The political features of firms 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 CEO’s
proposals for changes in executive compensation.
Trend 2: Executive compensation rises much faster than employee wages.

According to the Wall Street Journal’s 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
firms, William Mercer, Inc., a salary and benefits consulting firm, 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 benefits
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

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 week’s free lunches at her AT&T plant in Pennsylvania.
After considering her stagnant wages in relation to Mr. Allen’s 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 officers 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 Britain’s 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 firms. 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’ fixed price.
In Britain, CEO compensation has risen over the £1m level. This has happened
despite Cedric Brown’s (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 five-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.

Trend 5: More emphasis on the firm’s net income. Corporate boards are
placing more emphasis on the firm’s earnings, which accents the executive’s
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 firm’s rising net income. Table 4.9 shows this effect in
America over time.
Table 4.9 Elements of executive pay in America: 1988–2001

Proportion of compensation
1988 1994 1999 2000
Annual salary .4 .4 .2 .2
Annual bonus .2 .3 .3 .3
Long-term incentive .4 .3 .5 .5
In the twenty-five years covered by the table, the annual salary component
of compensation for the top three executives profiled in Table 4.9 has declined
by a remarkable 67 percent. During the same time period, the annual bonus for
executives has stayed relatively flat 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 1990’s executives and shareholders
seemed to prefer to emphasise the long term maximisation of the firms’ 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 fluctuations 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 firm (prevents disgruntled CEOs from financing a start-up competitor
with the profits 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 firms surveyed
by the Coopers and Lybrand accounting firm indicate that they held merit
increases to below four percent for 1997–1999.15 The survey found that reductions
in merit increases were contemplated by: 1) 25 percent of large firms with more

than 1500 workers; 2) 18 percent of mid-sized firms with 500–1499 employees

and 3) 19 percent of small firms with fewer than 500 employees. The companion
trend advocated by firms in each category is the widening use of pay-for-
performance.
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 benefits programmes. Since pay-for-performance is a component of
the annual bonus for employees, these payments do not drive up the com-
pany’s 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-for-
performance trend will continue in firms 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 firms. Service companies
with many clerks and office 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 firms to pay
effective employees more than their peers who perform poorly.15 By uncou-
pling merit pay and COL increases, a company makes clearer to employees the
connection between job performance and pay.
Delayered and downsized firms are also exhibiting more reliance on pay-for-
performance. Annual bonuses are making their way down the chain of com-
mand. Increasingly, managers and employees in delayered and downsized firms
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 specific performance goals. If the goals are
achieved, programme participants reap substantial increases in direct compen-
sation. The programmes, and their clear goal focus, are often used to replace
profit-sharing programmes that have poor line-of-sight. Firms using pay-for-
performance usually guarantee to employees that their total annual compensa-
tion cannot fall below a ‘floor’ level. Increases in pay are closely tied to the
achievement of pre-established goals in the firm’s strategy plan. Firms recognise
that the broader use of the annual bonus makes the firm’s compensation strategy
a stronger contributor to sustainable competitive advantage.
Delayered and downsized firms rely more on part-time employees and tem-
porary workers. Many companies report that they are able to avoid payment of
benefits and better match their work-force requirements to business conditions.
In America, this approach is more highly favoured by firms with less than 500
employees which represents about 95 percent of all employers. At first glance
it may appear that the temporary employee is at a substantial disadvantage in
this circumstance. However, many firms 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 recruit-
ing, 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’.

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 Benefits

Such systems allow employees to select a package of fringe benefits designed for
their individual needs. Also called ‘flexible benefits packages’, these programmes
are designed to match the demographic characteristics of a firm’s work force.
In the plan, management places upper limits on how much the organisation
is willing to spend on fringe benefits. Some employees take all of the fringes
in cash while others purchase specialised medical coverage and other benefits
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 firms with cash flow
problems. However, such plans do give employees greater flexibility 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 interchange-
ability. Some firms 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 firms
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, firms 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

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 firms, 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
reflects 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 overes-
timate the pay of their superiors and underestimate their rewards. Pay secrecy
exaggerates pay perceptions and creates the condition of chronic, perceived dis-
tributive injustice. Managers may not want to make individual pay decisions
public, but open salary information can increase the motivation benefits 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 benefits. Thus, open-
salary 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 procedu-
ral 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

human resources decision making systems. Hiring, selection, training, promo-

tion, 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 Examining reward practices in firms

Reward practice Employee perspective Implementation issues
Cafeteria-style fringe Creates balance between family needs Installation costs and administration
benefits and benefits package are increasingly outsourced to other
providers
Lump-sum pay Nice to receive a large bonus, but it may Likely to be abandoned during business
not be clear to the employee what he or downturns. Can upset shareholders
she did to earn it
Skill-based compensation A good incentive for learning new Works best if skill gains are measurable,
job-related skills. It shows that the firm documented and verified. Do not tie this
values a skilled and cross-trained work compensation to external educational
force or management training programme
achievement
Accumulating time off Helps balance family, work, child and Strengthens organisational commitment
elder care demands on employees and loyalty. More difficult to implement
in self-directed teams
The all-salaried team A workable plan if team performance Easier to implement as union influence
is fairly measured and teams are declines. Validity of the team appraisal
empowered system must be high. Can reinforce
360-degree PA
Open-salary information Greater perceived pay equity and Computer-based and outsourced
job satisfaction with work and with control system make implementation
supervision easy. Requires stable pay brackets and
market-based, fair starting salaries
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,

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.
2 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.
3 Does the plan improve communication? An effective pay plan should
encourage greater understanding of company mission, goals, and perform-
ance measures among employees.
4 Does the plan make payments to employees when it should? Incentives
should be paid promptly when employees achieve pre-established perform-
ance levels and they should be withheld when results are substandard.
5 Is the company performing better as a result of the plan? The company
should see improvements in its strategic and financial performance. Thus,
market share should improve and costs should be under more firm control.
Any pay or incentive plan which meets these five tests should be developed
and spread throughout the firm. 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 per-
formance 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 confident that valued rewards will quickly follow performance. Line-
of-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 unit’s strategic goals. And, some of their compensation is
based on the unit’s 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.
2 To the extent possible, the incentive system and benefits programmes
should be adjusted for individual differences among employees in the
work force. Flexible benefits programs are a step in the right direction
because they adjust the mix of fringe benefits to meet the needs of employee
groups in the work force. Flextime, parental leave, child care and elder care
programmes and educational benefits are new examples of benefits which
are greatly valued by employees and they greatly appreciate the opportunity
to configure their work benefits in a system which matches their personal
needs.

3 Incentive programmes should match the type of work performed by the

employees and the structure of their firm. If a company uses extensively
small work groups which make their own decisions about production and
work group affairs, the pay system should reflect the importance of group
decision-making and collaboration. A gainsharing program would be appro-
priate 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.
4 The pay system should be consistent with the culture of the firm. 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.
5 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 administra-
tion ensure that employees come to expect procedural justice in their pay
and benefits packages. This means that employees believe that the organisa-
tion’s practices in the pay and benefits areas are realistic, uniformly applied
and subject to review if an employee questions pay or benefits outcomes.
4.6 Individual and Group-Based Reward Systems

Our focus thus far has been on the properties of individual-based reward sys-
tems. There are many instances, however, when company goals depend on team-
work 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 per-
formance are equitably rewarded. In this section we will consider two types of
group-based reward systems: 1) cost-savings plans, and 2) profit-sharing plans.
What Are Group-Based Reward Systems?

Group-based reward systems are overlaid on individual-based reward systems.
The group-based portion has specific 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 specific aspects
of group-based performance. The size of the bonuses is usually a function of
job level, seniority, and job difficulty. Companies which develop such systems
usually label them as cost-savings or profit-sharing programmes.

4.6.1 Cost-Savings Plans

The first 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. Gain-
sharing programmes can be powerful motivational systems if they are coupled
with managed innovation in the firm. 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 com-
mittees which focus on finding 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 specific
period of time. Usually the bonus is 25-50 per cent of the savings made during
the first 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 benefit 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 briefly noted below.
1 Gainsharing programmes work best when a dependable history of labour

costs exists in the firm. 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.
2 Seasonal product demand makes gainsharing programme establishment
more difficult since base production rates will vary because of the seas-
onality.
3 The market may have to absorb additional output if the reduction in costs
leads to an expansion of output.

4 The company should have a history of labour–management co-operation.

Dependable labour and production formulae which determine bonuses are
always based on trust between labour and management.
5 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.
6 Top management must be committed to the concept of productivity enhance-
ment 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 impor-
tance 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 firms 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 firm’s competitive strategy. Man-
agers who are inclined to think of their reward systems in strategic terms often
agree that a strong psychological contract with employees can be a significant
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 firms that offer excellent incentives attract
and hold the best people and their employees report high levels of job sat-
isfaction and a willingness to remain with the company (lowered turnover).
2 Motivation and performance. If employees report that incentives are mean-
ingful and they are given in a timely fashion, then firms find 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.

3 Skill development. If rewards are tied to cross-training and skill-building,

team members will acquire the needed skills and the company’s work-
force will be more adaptable and flexible. Increasingly, companies pursuing
competitive advantage based on customised service perform ‘wall-to-wall’
employee training. In spite of the difficulties of precisely measuring neces-
sary skill levels, firms pursuing this strategy claim that skill development
and training are indispensable in their battles for market share and customer
satisfaction.
4 Organisational culture. Linking incentives to key company values can cre-
ate a source of competitive advantage that is hard for rivals to copy. Incen-
tives 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 firm.
5 The reinforcement and definition 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.
6 Cost. Incentives can account for up to 50 percent of the cost of goods sold. In
service-driven firms, this percentage can go much higher. Incentive system
costs should reflect the company’s strategic and competitive successes. The
pay-at-risk concept reflects 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 firms that rely heavily on
self-directed teams. For instance, these questions apply to the design of a reward
system in a team-driven firm.
1 How can the value added to output by self-directed teams be measured?
2 How can a clear pathway between a team’s performance and its rewards
be created?
3 How should a firm reward employees and departments that provide support
and service to self-directed teams?
4 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 firms which rely on self-directed teams. A program called the Rucker
Plan of group incentives can be used by firms.20 Sharing a philosophical base
with the Scanlon Plan (see above), the Rucker Plan can be easily modified to
cover self-directed teams.

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 circum-
stances 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.
2 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)
3 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 SVP = £25m
2 COM = £11m
3 VA = £14m
4 COL = £6m
5 LCVA = 6 / 14 = .4286
6 EPI = 1.00 / .4286 = 2.333
For the bonus period in question, the following business data were generated
SVP = 2.8 VA = 1.5
COM = 1.3 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 year’s 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 benefits of the Rucker Plan are noted below. Compare them to the
benefits and characteristics of the Scanlon Plan as they were described above.

1 The Rucker Plan conforms to current economic thinking that stresses the
measurement of profit 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 labour’s contribution to economic surplus.
2 Once a company’s employees understand and accept the Rucker Plan they
will have ideas for raising labour’s value added. The Rucker Plan stresses
the use of problem-solving at the team level which fits well with the use of
empowerment in delayered and downsized firms.
3 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 firm that uses the Rucker Plan
is more free to develop a customised system of team-based participation to
generate value-added suggestions.
4 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, financial control, product
engineering and R&D to shorten product development cycles. When teams use
these systems they can push the firm ahead of its rivals in the battle for market
share resulting in higher profit margins and lower unit costs. These benefits
raise the sales value of output for a firm using the Rucker Plan faster than a
rival which does not adopt a system of team-based incentives.
The firm’s cost of materials (COM in the Rucker Plan) can be influenced
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 firm 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 firm’s goods and services. Line-of-
sight 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.

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
firm’s 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 firm’s renewed
competitive advantage. To be successful, a Rucker Plan needs to be established
in a firm that values its work-force and practises empowerment. The immediate
effects of downsizing and delayering may traumatise a company’s work-force in
several significant 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

Delayering and company Team/employee consequence Feature consequence
downsizing
Reduction in number of More responsibility for work Fewer candidates for senior
middle managers process control management positions, less
systems know how
Changes in job rankings Employees must: 1) accept Work-force with low morale
(value of the job to the firm) lower pay; 2) ‘re-apply’for a and commitment. Undone
position 3) consider or accept projects, drop in customer
a job transfer satisfaction
Automation and Job termination with modest Short term problems in

computerisation of routine severance package. Wider system integration and lower
jobs span of control for remaining customer satisfaction
managers
Reduced slack resources Longer work hours and Lowered ability to ramp up
throughout firm pressure to raise output with production and service
constant or declining costs
Management becomes Successive downsizing Declines in customer

addicted to ‘cost reduction schemes result in chronic satisfaction may lead to
band aids’ instead of the work overload and job stress. lowered marketshare.
strategic repositioning of the Repeated reorganisation Co-ordination problems
firm triggers burnout 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 Herzberg’s

Two-Factor theory of motivation and job satisfaction (see modules 2 and 5).
Downsizing and delayering disrupt the attainment of the lower-order need sat-
isfaction 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 symp-
toms 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 empow-
erment 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 firm has downsized and delayered, the following conditions should be
met before a Rucker or gainsharing plan is installed.
1 The firm has returned to profitability and no future wage freezes are
planned;
2 The management team is stable;
3 Self-directed teams are working and members have completed training in
TQM, process control, and team building (Module 9);
4 The company is not being positioned for sale or spinoff;
5 Outsourcing of non-essential functions has been completed;
6 The firm 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 firm’s 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 ‘greenfield’
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 service-
driven business model. The wrenching effects of downsizing and delayering are
avoided and the work-force never experiences the chronic deficits 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 fits the service-driven basis for competitive advantage suggested
in Figure 4.5.

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

Outsource non-critical activities (human
driven strategy to raise market share and
resources processes such as payroll
create a lean company structure to control
administration, recruitment, benefits
costs (employees are bundled into work
control, tele-marketing and other non-
teams and are trained in customer
core sales functions)
service, TQM and teamwork skills)
Phase III. Cementing a new basis for competitive advantage
Installation of new practices in a

responsive firm that improves customer Rising share price,
service based on market-based improved market
performance measures. Self-directed share and lower unit
teams deliver front-line service costs
Begin developing Complete installation

and installing the of Rucker Plan and
Rucker Plan pilot test policies
Figure 4.5 How the Rucker Plan fits in a plan to strengthen competitive
advantage in the firm
4.6.5 Profit-Sharing Plans

The rationale for the profit-sharing approach is that all employees contribute
to the success of the firm, so all should share in the increased profits. The
popularity of profit-sharing plans varies in direct proportion to the health of
the economy. When sales are strong and costs are stable, organisations do well
financially. These conditions create executive interest in profit sharing. Such
programmes may be short-lived when inventory builds, sales flatten, costs rise,
and profits fall.
The sense of partnership between management and labour has prompted
numerous firms to adopt such plans, and many boast of their success with
profit-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 profit-sharing. Let us examine this.

The Lincoln Electric Company was founded in 1896, and is the largest man-
ufacturer of electrodes and arc welding equipment in the United States. The
2000 company employees share approximately 80 per cent of the company prof-
its each year. The formal profit-sharing plan was introduced in 1934 and has
operated continuously ever since. Bonuses are determined by the following fac-
tors: 1) overall company profits, 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 firm has a strict policy of promotion from within. Through
a company-wide network, employees sit on committees designed to solve pro-
duction 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
offices with furnishings which are functional rather than symbols of an execu-
tive’s 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 assembly-
line for six months so that they fully understand all aspects of production.
The company has an interesting system to ensure product quality. All pro-
duction 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 fix 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 profitability 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 first time.
Many firms have successfully overlaid gainsharing or profit-sharing plans on
their compensation systems. These firms have also reaped benefits in the areas of
labour–management 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 benefits of profit-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 organi-
sational goals, communicate performance expectations to employees, and
create informed data for making human resource decisions.

• Validity and reliability are the two most important properties of a perform-
ance appraisal system. Performance appraisal content and empirical validity
are the two measures which are most important to organisations. Reliabil-
ity is generally a function of the number of dimensions in a performance
appraisal system, uniform administration procedures and the level of under-
standing 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 specific 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
specific, 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 classified as extrinsic or intrinsic. Intrinsic rewards occur as
the work unfolds, and employees experience them as challenge, personal
growth, work meaningfulness and work significance. Extrinsic rewards are
environmentally based and they can be further classified as direct, indirect
or non-financial compensation. Extrinsic rewards are usually the subject of
published organisational policies.
• Extrinsic rewards can be distributed to employees based on their: 1) per-
formance, 2) effort, 3) seniority, or 4) difficulty of replacement. Organisations
often adopt pay policies which reflect 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 benefits, 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. Procedu-
ral 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.

• 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 profit-sharing plan.
• New guidelines for altering pay systems stress: 1) matching the pay system
to the organisation’s strategic goals so that competitive advantage is created
or extended; 2) adjusting the pay plan to reflect the extent of diversity
in the work force and 3) ensuring that the pay system fits with other
firm characteristics that are strongly related to the company’s 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 firms cannot expect to sustain improvements in service quality
nor keep highly trained personnel unless they adopt group-based incen-
tives. 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 motiva-
tion 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 influenced 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 accel-
erated 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 firms 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 firm 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 first measurably improve their productivity
or add value to the services that they deliver. Such incentive plans are not
inherently inflationary because the firm first 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

economy with many delayered firms 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
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

system’s 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 filtered 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-financial compensation. T or F?
4.16 Separation of extrinsic rewards and intrinsic rewards helps managers gain ben-
efits from goal-setting. T or F?

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 influences perceptions about the reasons organisations give pay
rises. T or F?
4.20 Skill-based compensation can lead to a more flexible 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 influence a profit-sharing programme. T or F?
4.24 Group-based incentive programmes work in the long run because they empha-
sise intrinsic rewards over extrinsic rewards. T or F?
4.25 Reduction in the number of job classifications in a firm 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 firm covers all employees by an individual stock ownership plan (ISOP) and
the firm 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 firm employing a

Rucker Plan should have no effect on levels of employee motivation for per-
sonnel 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 satisfied.
T or F?
4.30 Which of the following choices does not represent a use for performance
appraisals?
A Evaluation of employee work behaviour.
B Making promotion and other reward decisions.
C Ascertaining staff development needs.
D Making termination and demotion decisions.
E Selection of likely candidates for a job from an applicant pool.

4.31 Two managers evaluate the same employee’s performance using the same
system and rating items but obtain different results. Which of the following
choices applies to this appraisal system?
A unreliable.
B biased.
C invalid.
D insufficient.
E inaccurate.
4.32 Which of the following forms of performance feedback is most likely to improve
employees’ performance?
A The feedback is not recorded in some way.
B The feedback is constructive and specific.
C The feedback is threatening and coercive.
D The feedback is put into writing.
E 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 Uses specific behavioural statements which are related to core performance
areas in the job.
B Uses bipolar forced rating scale items.
C Has a clear definition of the performance dimension measured.
D Uses input from employees in the system design process.
E Emphasises job behaviours versus job attitudes.
4.34 Which of the following choices is not a feature of good practice in goal setting?
A More than 10 in number.
B Challenging.
C Related to personal development.
D Goals are feedback-linked.
E Difficult.
4.35 Which of the following choices is not a strength of group-based and participa-
tory reward systems?
A Performance feedback can be channelled to individuals and to their groups.
B Work group members become more competitive with each other.
C Peer recognition.
D Member commitment and performance increase.
E Team members can be identified and prepared for leadership roles.
4.36 Which of the following choices represents why extrinsic rewards should be
separated from intrinsic rewards?
A Extrinsic rewards are more important than intrinsic rewards.
B Employees value them differently and they are influenced by job context
and job content factors.

C Employees do not believe that they have more control over intrinsic rewards
than they do over extrinsic rewards.
D Firms try harder to influence and control intrinsic rewards than they do
extrinsic rewards.
4.37 Which of the following choices is a typical reason for giving pay raises in firms?
A Performance and effort.
B Seniority or tenure on the job.
C Equal treatment for groupings of employees.
D The power and influence of groups in the organisation.
E All of the above.
4.38 Which of the following choices represents a goal of a well designed company
pay practice?
A Integrate improved productivity and quality of work life issues.
B Provide rewards to the most senior employees.
C Influence the number of and availability of extrinsic rewards only.
D Generate data which can then be used in human resources decisions.
E 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 firm?
A Shorten the period between bonuses even if the size of the gainsharing
bonus declines substantially.
B Anchor gainsharing bonuses to tangible improvements in productivity and
service quality delivered by self-directed teams.
C Firmly connect the gainsharing bonuses to the firm’s strategic goals.
D Make all changes in the incentive system based on the results of salary
surveys done in the industry.
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 first 30. Which choice below represents the compensation system being
used?
A Piecework.
B Pay-at-risk.
C Commission.
D Rucker Plan.
E Individual Merit Plan.

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 man-
agers 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 profit-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 down-
sizing?
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 field and
convention preparations. Nine employees made up the steering committee. This
group revised all of the job descriptions for the fifty 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:

– 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 feed-
back 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 find
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 Electric’s Mobile Communications Business was in trouble.
General Electric’s CEO Jack Welch directed John Trani, then general manager of
GE Mobile to fix 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, 21–7. Reprinted with permission of Training. Copyright 1993. Lakewood Publications,
Minneapolis, MN. All rights reserved. Not for resale.

layoff and cost cutting were only short-run moves, he fretted over ways to raise
performance to simultaneously regain a portion of the subsidiary’s competitive
advantage. Using a consultant named Tim Ross, who was a specialist in group-
based 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 configure 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 prof-
itability 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 configura-
tion 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 subsidiary’s performance. If profits rose above
a given level, the employees shared in the profits 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 first-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 qualified 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 sugges-
tions into the ‘blackhole management hierarchy’, employee teams called ‘Win
Teams’ were given the power and the budgets to implement the ideas them-
selves.
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 confined 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 final approval to implement an idea.

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 company’s culture.
Due to the company’s re-emphasis on its core business (i.e., making mobile
radios), the Winshare programme and earlier cost cutting schemes, the subsidiary
returned to profitability in 1986. Ericsson, a Swedish maker of mobile commu-
nications equipment was attracted to GE Mobile Communications because of
its increased competitiveness and its rapid return to profitability under Trani’s
programmes. Making Jack Welch an offer that he couldn’t refuse, he sold 60
percent of GE Mobile to Ericsson and the new joint venture was renamed Eric-
sson GE. The benefit to Ericsson was a significant 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 profitable joint
venture had sales of $1.1bn in 1992 and the Lynchburg plant employs over
2000 employees. Apparently employee involvement and identification with the
company has not slipped in spite of GE’s 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 confidence 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 doesn’t 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 five or six ways that managers can improve
cost control and product quality through alterations in reward systems?
References
1 Luther, A. and Teel, K. (1977) ‘Performance Appraisal: A Survey of Current Practices’,
Personnel Journal (May): 245–7.
2 Locke, E. (1968) ‘Toward a Theory of Task Motivation and Incentives’, Organizational
Behavior and Human Performance: 157–89.
3 Drucker, P. (1954) The Practice of Management. New York: Harper & Row.
4 Herzberg, F. (1966) Work and the Nature of Man, Cleveland, OH: World Publishing.
5 Daniel, T. and Esser, J. (1980) ‘Intrinsic Motivation as Influenced by Rewards, Task
Interest, and Task Structure’, Journal of Applied Psychology: 566–73.

6 Fisher, C. (1978) ‘The Effects of Personal Control, Competence, and Extrinsic Reward
System on Intrinsic Motivation’, Organizational Behavior and Human Performance: 258–
73.
7 Ungson, G. and Steers, R. (1984) ‘Motivation and Politics in Executive Compensation’,
Academy of Management Review: 313–23.
8 Milkovich, G. and Newman, J. (1990) Compensation, 3rd edn. Homewood, IL:
BPI/Irwin, 530–534.
9 Vaitkus, L. (1999) (Ed.), IOMA’s Report on Salary Surveys, 2.
10 Towers-Perrin, Annual Study of US CEO Compensation Practices, 1995.
11 Lubin, J. (1996) ‘The Great Divide’, Wall Street Journal (April 11): R1, R4, all rights
reserved.
12 Hausman, T. (1996) ‘Seconds Behind’, Wall Street Journal (April 11): R4, all rights
reserved.
13 Lynn, M. (1996) ‘SmithKline Boss tops “overpaid” list’, Sunday Times, Section 2: 1,
4–5.
14 Vaitkus, L., op. cit., 3.
15 Ibid, 4.
16 Hammer, W. and Hammer, E. (1976) ‘Behavior Modification and the Bottom Line’,
Organizational Dynamics (Fall): 3–21.
17 Greenhaus, J. (1988) ‘Here Come Richer Pay Plans’, Fortune, (19 December): 50–8.
18 Perry, N., Black, R. and Black, J. (1994) Organizational Behavior, 5th edn. New York:
Harper Collins, 228–30
19 Lawler, Edward, III (1987) ‘The Design of Effective Reward Systems,’ in W. Lorsch
(Ed.), Handbook of Organizational Behavior, Englewood Cliffs, NJ: Prentice Hall, 255–271.
20 Heyel, Carl (Ed.), The Encyclopedia of Management, 2nd edn. New York: Van Nostrand
Reinhold, 1973, 895–900.
21 Henderson, R. (1989) Compensation Management, 5th edn. Englewood Cliffs, NJ: Pren-
tice Hall, 363–364.

Module 5
Job Design and Employee Reactions

to Work
Contents
5.1 Understanding Job Design 5/2
5.1.1 How Jobs Were Designed before QWL 5/2
5.1.2 Is Scientific Management Declining as a Job Design Philosophy? 5/4
5.1.3 Horizontal Increases: The Roles of Job Enlargement, Job Rotation 5/4
and Cross-Training
5.1.4 Job Design and Herzberg’s Two-Factor Theory 5/4
5.1.5 The Psychology of Employee–Job Interactions 5/6
5.2 Making Use of Job Design for Individual Employees 5/9
5.2.1 Job Design Principles 5/9
5.2.2 Assessing Managers’ Interests in Job Design 5/11
5.3 The Team Approach to Job Design 5/13
5.3.1 How Managers Design Self-Directed Teams 5/14
5.3.2 Companies which Have Used the Self-Managed Work Team Concept 5/15
5.3.3 Merging Self-Directed Team and Empowerment Concepts 5/17
5.3.4 Employee Empowerment Spreads Participative Decision-Making in 5/19
the Organisation
5.3.5 Limits to Participation in Organisations 5/22
Summary Points 5/23
Case Study 5.1: Alton’s Experiment with Changes in Job Range and Depth 5/27
Case Study 5.2: Building Cross-Cultural Work Teams 5/29
Learning Objectives
• Explain why levels of employee motivation and performance are related to
how jobs are designed.
• Describe the difference between jobs which fulfil 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’.

Module 5 / Job Design and Employee Reactions to Work
• 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 specific 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 dis-
satisfaction 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 management’s
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 pri-
mary focus of organisational improvement programmes. However, there may be
significant implications for QWL in company programmes concerned with self-
directed 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 pay-
offs such as improving a competitive advantage like product innovation, lowered
warranty claims and improved customer service before, during and after pur-
chase. 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 scientific 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 efficiency. The primary tools of the scientific management
approach to job design were time and motion studies, differential piece-rate pay
systems and the scientific selection of workers who possessed traits and abilities

that closely matched the requirements of the simplified jobs in the scientific
management scheme. The effects of scientific management on employees and
the design of work systems are noted below.
1 Limited social interaction. Due to speed requirements, noise and arrange-

ments of equipment, workers may find it hard to talk or interact during
work.
2 Low skill requirements. When jobs are designed through scientific man-
agement they are specialised to keep training costs low.
3 Machine pacing. The level of output is adjusted by altering machine rates
rather than changing employee activities.
4 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.
5 Task specialisation. All jobs have only a few steps and partially completed
products are moved from one production step to the next.
6 Low employee creativity and ingenuity. Jobs based on scientific manage-
ment use only a limited portion of the employee’s capacities
7 Tools and methods are pre-specified. Efficiency experts determine the best
way to accomplish work so that efficiency and production are maximised.2
While scientific 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 stan-
dard production rates at the expense of job control by employees. As organisa-
tions 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 efficiency decreases. Scientific management often
creates physical work arrangements which leave employees feeling isolated and
cut off from their co-workers. Craftsmanship, pride in the finished product and
product quality can all be sacrificed 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 pro-
grammes 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 scientific 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 floors. These changes induced further worker alienation and man-
agement continued to apply scientific management principles to regain efficiency
and control over employees and the work rules which governed their behav-
iour on the job. The vicious circle described above has largely been broken in
companies that have adopted TQM programmes and self-directed teams. The

relationship between these programmes and QWL will be explored throughout

this module.
5.1.2 Is Scientific Management Declining as a Job Design Philosophy?

With time, managers have realised that job designs which rely solely on scien-
tific management will not sustain the growth of the organisation nor will such
designs create challenging work for today’s highly mobile knowledge work-
ers. 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, sci-
entific management is no longer viewed as a universally applicable method for
rationalising all production systems. It still has its advocates and its benefits.
However, as the model of efficiency based on manufacturing principles has given
way to measures of customer satisfaction, job design methods have shifted from
the simplicity of scientific 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 scientifically 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 Herzberg’s Two-Factor Theory

The frontal assault on scientific 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 influence 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

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 dissatisfied 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 satisfiers. (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 proce-
dures, quality of supervision and the quality of interpersonal relations with
superiors, peers and subordinates.
Herzberg’s work stimulated organisational efforts to improve job designs
over the simplified and specialised designs created by the use of scientific
management. Herzberg has advanced a number of ‘principles of job design’
which are briefly noted in Table 5.1.
Table 5.1 Herzberg’s principles of job design

Principles Examples
1 Give employees as much control over the A manager allows repairmen to order parts
mechanisms of task completion as possible. and maintain inventories.
2 Hold employees accountable for their A manager conducts semi-annual, formal
performance. feedback sessions with subordinates
concerning goal achievements.
3 Within limits, let employees set their own The company installs a flexible hours work
work pace. policy.
4 Design jobs so employees experience A manager gives employees the authority
accomplishment. to handle customer complaints personally.
5 Design jobs so employees learn new skills A company offers a seminar to teach
and work procedures. managers approaches to quality control.
Herzberg argues that reducing hygiene factors is unproductive if a firm 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 trans-

actions and maintains an up-to-the minute record of the purchase history of all
the firm’s clients. For the last five years Adrian has seen his responsibilities grow
to include management briefings 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 firm. The firm’s 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.

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 Adrian’s 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
Chief of surgery
Machine maintenance man
Chief executive officer
Department head
Prime minister
Hospital nurse
Director of a research
Chemical plant supervisor
laboratory
JOB RANGE
Professor
Assembly-line worker
Judge
Medical records clerk
Computer technician
Rubbish collector
Civil engineer
LOW
LOW JOB DEPTH HIGH
Figure 5.1 Job depth and job range
Criticisms of Herzberg’s theory.

Herzberg’s work broke new ground for addressing job design problems. How-
ever, criticisms of his work surfaced in reported research.5 The theory was ques-
tioned on methodological and psychological grounds. For instance, researchers
questioned Herzberg’s use of the critical incident method which he used to ask
respondents to describe those factors that they connected to being either satisfied
or dissatisfied with their jobs. Researchers note that humans tend to blame exter-
nal 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,
Herzberg’s prescriptions undermine current trends in organisations to greater
employee participation and empowerment. The unanswered questions about
Herzberg’s 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 Employee–Job Interactions

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

using only technical data produced by the results of scientific 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 influence 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 definitions
of each core job dimension. Skill variety, task identity and task significance are
examples of job range. Autonomy and feedback represent job depth while social
opportunities represent the employee’s 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 CRITICAL PSYCHOLOGICAL PERSONAL AND WORK

(JOB CONTENT FACTORS) STATES OUTCOMES
Skill variety
Task identity Experienced High internal work motivation

meaningfulness of work
Task significance High quality performance
Social opportunities
Autonomy Experienced responsibility High job satisfaction

for work outcomes
Feedback Knowledge of results of Low absenteeism and turnover

work activities
Growth
Need
Strength
Figure 5.2 The job characteristics model
Critical Psychological States

Skill variety, task identity, task significance and social opportunities influence
the experienced meaningfulness of work, which means having a job that has
a significant impact on the individual, his co-workers, his employer and oth-
ers. Autonomy determines experienced responsibility for work outcomes while
feedback creates knowledge of results of work activities. These two conditions

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 identifiable outcome (e.g., being responsible for all steps of
product assembly).
Task significance: The degree to which the job has a substantial and lasting influence 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 deter-
mines knowledge of results, which is defined as receiving information about the
quality of one’s work as the task unfolds.
The critical psychological states are employee reactions to the job content fac-
tors. They represent the employee’s 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 employee’s growth need strength
has a moderating influence on the relationship between the employee’s 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 influences
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 deci-
sions which can lead to advancement) whose job has low growth potential. He
will exhibit low internal work motivation, erratic or low performance, job dis-
satisfaction and perhaps absenteeism (see Figure 5.2). This individual’s job is a
definite candidate for job design because the employee’s orientation to achieve-
ment 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 prob-
ably 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.

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 oppor-
tunities 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 fulfil their growth needs through the proper design of their jobs.
The job characteristics model has advantages over Herzberg’s 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 employee’s 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 scientific 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.

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 influence 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.
2 Employees should be given an opportunity to learn new skills. The
employees need to have an opportunity to expand their work aptitudes
and competencies.
3 Employees should be able to influence the scheduling of work. An exam-
ple is a flextime 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.
4 Each job should be given some unique qualities which differentiate it
from other jobs. This means the job should fit the personality of its holder.
5 Employees should have control over job resources. For repairmen, this
may mean letting them service their own equipment or maintain their own
parts inventories.
6 Personal accountability should be increased. This means employees should
be held accountable for the outcomes they achieve at work.
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 flextime system and the delegation of author-
ity 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 first. 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 10-
hour 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.

Job-Sharing.In job-sharing, two employees fill 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 filling
the position. The organisation also may benefit from lower fringe benefits costs,
although the administration of fringe benefits 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 fit between the employee’s personal needs
and the organisation’s 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 office setting.
Some workers fear that they may lose promotion opportunities and that their
salary rises may be less than those of their office-based colleagues. From the
organisation’s viewpoint, telecommuting may encourage employees to slack off.
To the extent that these issues are resolved, telecommuting will become more
common because it does significantly reduce for the organisation the costs of
supporting an employee.
Flextime. In flextime, employees determine when they arrive at work and
when they leave. Employees in flextime systems typically work a set of core
hours each day, perhaps 10 a.m. to 2 p.m., and they must work a specific 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 depart-
ments. The benefits claimed for flextime 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 traf-
fic congestion at work facilities. Employees do respond favourably to flextime
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 influencing 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

job depth quality of job design expands the number of available intrinsic
rewards.
2 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.
3 Job design offers opportunities for initiating other changes. A successful
job design effort encourages more flexible employee attitudes and employees
can become more innovative in their work.
4 Job design helps organisations better satisfy employee needs. Scientific
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 profitable even
with employee job dissatisfaction and high turnover.
2 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 profits are robust due to expanding sales. When
storm clouds gather on either of these horizons, the first organisational
casualty is often the job design programme. Downsizing and re-engineering
programmes designed to reduce costs may quickly undo the benefits of a
job design effort.
3 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 signifi-
cant 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.
4 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. Fur-
ther, 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 restruc-
turing have lowered both forms of resistance. Additionally, the globalisation

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 flows from socio-technical systems theory which represents a sys-
tematic effort to reconfigure the way organisations integrate employees and the
technologies they use to accomplish work. The general framework for socio-
technical 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 tech-
nical/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 scientific 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 estab-
lish work-pacing and social interaction. The introduction of mechanical methods
for gathering coal focused on task specialisation and inflexible work routines
and led to the break-up of the tightly knit teams of miners. The technologi-
cal 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 conclu-
sion 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
sufficiently identifiable and significant that members find the work of the
group meaningful.
2 Each worker in the group possesses a number of the skills required for com-
pletion of the group task, and so the flexibility 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.
3 The group is given autonomy to make decisions about the methods by
which the work is carried out, the scheduling of various activities, the

assignment of different individuals to different tasks and, sometimes, the

selection of new group members.
4 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 interac-
tion 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 effec-
tiveness 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. Mem-
bers 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 per-
formance, 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. Self-
directed 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 design-
ing 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) cre-
ation of high performance norms, 2) minimising or channelling group conflict
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 self-
directed teams.
1 The team should be relatively small (8–20 members) so that group member-
ship may be psychologically meaningful.
2 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.
3 The pay system should be structured so that individual pay is determined
by team performance.

4 The role of the supervisor should be changed from vertical liaison with
higher management to horizontal integrator of other work teams.
5 The team should be given the authority to plan, organise and control a
defined 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 self-
managed teams, semi-autonomous work groups, empowered teams or cross-
functional teams. The integrating principles among them is that they are a
permanent part of the organisation’s structure and their members have substan-
tial responsibilities for a variety of team management and team work process
decisions. In sum, the teams assume responsibilities formerly handled by super-
visors 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 Evaluate each other’s performance, using peer appraisals.
2 Cross-train each other until all members are familiar and competent to
perform all related jobs assigned to the team.
3 Schedule work and assignments within the team, which could be based on
flextime or four-day 40-hour work arrangements.
4 Divide work assignments to fit the needs of team members.
5 Monitor team performance, make corrective changes in work processes and
equipment utilisation and report the results of these activities to higher
management.
6 Apply TQM principles and service quality improvement activities to all
phases of the team’s 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 GM’s 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)
officials, 2200 new employees were added. Union conditions attached to re-
opening the plant required the joint venture to offer ‘compelling reasons’ for
rejecting a candidate and that an arbitration process be established to handle

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.
2 A four-day orientation programme for new employees includes team con-
cepts as well as principles of cross-training.
3 New employees sign a contract which specifies the principle of job security.
4 Examples of status such as management-only dining rooms and parking
facilities were removed.
5 Top management advanced the principles of trust and respect through the
mechanism of self-managed teams.
6 A suggestion system with a rapid feedback system was installed and 95 per
cent of all suggestions are accepted in some form.
7 Jobs were integrated to eliminate excessive job specialisation and to facilitate
repairs and product quality.
8 Recognition and financial incentives for successful suggestions were team
based and meaningful.
9 Wage compression in self-managed teams allowed team leaders to earn only
$0.40 more per hour than team members.
10 Plant management shared with self-managed teams information about plant
performance, product quality and plant safety.
11 A philosophy of integrated manufacturing which utilised standardised
work, just-in-time inventory management, preventative maintenance per-
formed by self-managed teams and job-centred quality control.12
Once these 11 principles were installed at NUMMI, the performance compar-

isons 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 5000–7000 dur-
ing 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 coefficient 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 com-
panies have helped spark interest in the current re-engineering tidal wave which
is sweeping through organisations in the manufacturing and service sectors.
Researchers have identified several elements of lean production systems which
rely on team-based work systems. They are shown below.

1 Elimination of buffers or inventory, including extra workers.

2 Quality and efficiency are seen as positively related, with quality pre-
eminent.
3 Emphasis on ability to change quickly from one product to another.
4 Multi-skilled workers with a good understanding of the production process.
5 Higher level of training.
6 Commitment to retain highly trained workers.
7 Compensation that is partly contingent on corporate, plant and/or individ-
ual performance.
8 Reduction of status barriers.
9 High-commitment work practices.12
Experts on lean production systems and organisational re-engineering con-
cluded 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 com-
prehensive information display system that makes it possible for everyone in
the plant to respond quickly to problems and to understand the plant’s over-
all situation. Workers respond only when there exists some sense of reciprocal
obligation, a sense that management actually values skilled workers, will make
sacrifices 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 first-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 organisa-
tions 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-confidence in their work. Quite often, empower-
ment occurs in the context of self-directed team work designs. The organisational
foundations for employee empowerment and self-managed teams can be found
in Likert’s ‘System 4’ organisation (see Table 5.3). This organisational design
provides the rationale for work-force empowerment because it lays the ground-
work 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 tech-
nology and they find that such innovations create pressure to overturn old work
systems based on specialisation and principles of scientific management. Old,
inefficient 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

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 Decentralised, empowerment-based

hierarchical control systems Systems 4 control structure
Executive Executive
Middle manager Middle manager
Supervisor Team
Supervisor plan and schedule work Team leader
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 improve-
ments may fail if employees do not meet three prerequisites for empowerment.13
The first is the capability to become psychologically involved in participative
activities. In cultures which value hierarchically based authority systems, inno-
vative 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 moti-
vation 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 deci-
sions. A paradox is apparent here. Autonomy and initiative (internal locus of
control) are building blocks for empowerment, but an internaliser’s motives for
such actions may undermine his team’s decision philosophy and work design.
Thus, in highly effective self-managed teams there is always a dynamic tension
between the autonomous member’s needs for individuality and the team’s 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

prerequisite to empowerment is the capacity to see the relevance of participation

for one’s own well-being. Often, this requires that team members take a long
view of the development of personal proficiencies and job skills. Members of
empowered self-directed teams need to believe that the organisation is com-
mitted 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 profit-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 employee’s
standpoint, participation has three important features:
1 Psychological involvement. When employees are involved in making work-
related 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.
2 Motivation to contribute. Participation encourages employees to make per-
sonal contributions to their organisations. When the organisation’s social
system meets the employee’s belonging needs, and the technical work sys-
tem 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. Com-
pliance is a one-way passive response from employees. Participation is a
two-way process which links the various levels of the organisation’s hier-
archy together. When motivation to contribute is widespread, employees
create ideas and ‘push them up the hierarchy’.
3 Acceptance of authority. When employees experience the greater control
through participation, they become more willing to accept delegated author-
ity. Often they come to expect that more authority is delegated to them.
When employees can decide how to get work done, they have more owner-
ship of their jobs. When acceptance of authority is embedded in an emphasis
on teamwork, employees come to depend on their team members more. This

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 identified by articulating the differences between
Likert’s ‘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 non-participative organisation The participative organisation
(System 1) has: (System 4) has:
1 Leadership which does not value or instil Leadership that instils confidence and trust.
confidence and trust. Superiors and Superiors and subordinates freely discuss
subordinates do not solicit each other’s problems.
opinions.
2 Motivation systems which operate only on Motivational systems which tap the full
lower-order needs. Motivation may be hierarchy of needs and their related
based on threats of job loss. rewards.
3 Communication which only flows Communication which flows in all directions
downward and it is subject to distortion with clarity and accuracy.
and inaccuracies.
4 Subordinates who are not involved in Subordinates who are highly involved in
goal-setting. goal-setting.
5 Decision-making which is concentrated at Decision-making which occurs at all levels.
the top of the organisation.
6 Control processes which are centralised. Control processes which are dispersed and
emphasise self-control.
7 Performance standards which are low and Performance standards which are ambitious
pursued passively. and pursued with energy.
Considerations for Managers who Wish to Use Participation and Empowerment

Effectively
Managers must be willing to meet certain organisational and personal prerequi-
sites 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, self-

directed teams. Clearly, empowerment and self-directed teams cannot be
installed under emergency or crisis conditions.
2 Managers must believe in, and practise the principles evident in the System
4 organisation. This necessitates a profound shift in the manager’s 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.

3 Managers must firmly believe that employees have or that they can develop
a high growth need strength. This belief is central to successful empower-
ment programmes.
4 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.
5 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.
6 Employees must use common organisational terminology when they are
given the task of solving problems participatively. In some respects, exten-
sive departmentalisation (the grouping of similar tasks together) in an organ-
isation undermines participation.
7 Managers and employees must accept the fact that programmes of empow-
erment, 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 profitability (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 organ-
isation 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. Benefits of Scanlon Plans include greater employee participation,
wider acceptance of changes in work procedures, increased output and efficiency
and better worker-management relations.

5.3.5 Limits to Participation in Organisations

Organisational arrangements and control systems can make the use of empow-
erment, self-directed teams and participation expensive and time consuming to
install. Some organisations may have good reasons for avoiding these innova-
tions. Some of the logic of this avoidance is summarised below.
1 The industry in which the firm is located has high entry barriers and
its customers are very loyal to the industry’s firms 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 firms 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 staffing 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 sufficient 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 insufficiently strong growth need strength; there-
fore 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 find it very difficult 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 company’s 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 profits during the 13-day strike. The success of the
strike was a strong blow to the company’s plans to lower costs by shifting
production work to vendors.
9 Installation of participation and empowerment is often accompanied by lay-
offs of lower and middle managers. While the lay-offs may reduce costs,
they may also deplete the organisation’s managerial resources. If a company
enjoys robust demand for its goods and services, it may have trouble filling
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 firmly linked to a well-articulated strategic plan.

In summary, participation, empowerment and self-directed teams are key

methods for increasing competitive advantage through more effective employ-
ment management practices. These innovations rest on the System 4 organ-
isational pattern and the changes necessary to support self-directed teams.
Organisations can increase their competitive advantage by adjusting their work-
force practices based on the principles of participation, empowerment and self-
directed 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.
• Scientific management is the traditional approach to job design which breaks
jobs down into their elements and recombines the core elements to create
the most efficient job design. It always results in more specialised and
simplified jobs. It is often associated with employee alienation, turnover,
absenteeism and lowered production quality.
• Herzberg’s 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 Herzberg’s
theory has been criticised on research grounds, it was the first significant
departure from scientific 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 (Herzberg’s 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 significance, social
opportunities, autonomy and feedback.
• Employee growth need strength is an individual difference composed of
achievement, interest in work, challenge, desire for independence and per-
sonal 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 employee’s 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 adopt-
ing this type of job design to exploit new forms of competitive advantage
based on improvements in the design of work.

• Empowerment is the sharing of decision-making power by the organisa-

tion 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 responsi-
bility.
• 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 pro-
ductivity gains.
Review Questions
5.1 Scientific 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 scientific management is used as

the basis for job design. T or F?
5.4 Herzberg’s hygiene factors contribute to long-run job satisfaction, motivation

and performance. T or F?
5.5 Job depth is significantly influenced by adding to a job’s content. T or F?
5.6 Job range can be positively influenced 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 Herzberg’s 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 employee’s

personality. T or F?
5.11 Providing employees with more job-related feedback will increase their experi-
enced job responsibility. T or F?

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 profit-sharing. T or F?
5.18 Scientific 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?
5.20 All of the following are principles of scientific management except:

A time and motion studies.
B decision-making responsibility assigned to empowered teams.
C piece-rate pay or individual incentive systems.
D simplification of work and training requirements.
E using job-based performance skills to select job applicants.
5.21 A weakness of scientific management is that:

A it underestimates the significance of worker ingenuity and work creativity.
B it gives too much authority to employees who may not be ready to handle
it.
C it doesn’t 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 significant training and development costs.
5.23 Job enrichment is most closely associated with:

A Taylor’s scientific management.
B McClelland’s socially acquired needs.
C Herzberg’s two-factor theory.
D Maslow’s need hierarchy.
E Vroom’s expectancy theory of motivation.

5.24 When an insurance claims processing clerk is given the responsibility and signa-
ture authority to handle certain types of claims work, her job has been:
A enlarged.
B enriched.
C horizontally loaded.
D simplified.
E re-engineered.
5.25 The degree to which an employee’s job requires completing a whole task or a
related sequence of tasks is called:
A autonomy.
B skill variety.
C task identity.
D feedback from the work itself.
E task significance.
5.26 Enlarging a job is most closely related to which of the following job content
factors?
A skill variety.
B autonomy.
C task identity.
D task significance.
E feedback from the job itself.
5.27 The key moderating concept in the job characteristics model is:
A need for achievement.
B locus of control.
C growth need strength.
D job involvement.
E emotionality.
5.28 Which of the following is typically not a cause of problems in job redesign
efforts?
A Targeting employee skill deficiencies for improvement through training and
development.
B Rapid changes in technology.
C Failure to consider employee needs in the redesign effort.
D Failure to consult with union membership prior to starting the redesign
programme.
E Redesign programme cutbacks caused by falling revenues.

5.1 What are the reasons for failure in job designs based on scientific management?
Outline four elements which would correct some of the problems associated
with job designs based on scientific 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 flextime influence job depth? How might a flextime system
improve organisation–employee relations?
Case Study 5.1: Alton’s 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 firm has 300 field repairmen who install
and service equipment. These individuals are all graduates of Alton’s technical
training programme. Lately, the repairmen have been complaining about many
features of their job. The director of field 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 Alton’s competitors.
A job design expert was retained by Alton to study the problems in the design
of the repairmen’s job. The director of field services told the expert that Alton’s
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 The company assigns each repairman weekend duty once every two months.
Frequently the repairmen will not show up for weekend calls.
2 The salary level, fringe benefits and vacation benefits for repairmen are
consistent with the industry.
3 The repairmen get along quite well although most of their work is done
alone.
4 Instructors in the company’s training programme have noted that repairmen
are describing their jobs in increasingly negative terms.
5 Customer dissatisfaction with some leasing and servicing contracts has been
growing.
6 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.

The job design expert decided to interview some repairmen. He talked with
50 employees from all of the field territories. A summary of their comments
follows.
– ‘We can’t order parts. Management does the ordering, and it’s often too
infrequent and the parts come too late.’
– ‘We aren’t able to carry non-routine parts. Management prefers to special-
order 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 fixes 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 equip-
ment. 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 company’s work rules prevented them from delivering the
best service and they felt this reflected badly on them as individual employees.
They felt satisfied with employee benefits 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 chal-
lenged 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,
specificity 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 Repairmen should have full authority to order routine and non-routine

parts.
2 Repairmen should go directly to engineering for technical assistance.
3 Repairmen should handle their own vehicle and equipment maintenance
up to £500 in annual repair costs.
4 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 office.
5 Repairmen should process customer accounts up to £1000 in repair work.
6 They should maintain their own quality control reports.
7 They should help select new applicants and take turns at instructing in the
annual training seminars.

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 field services
had good reason to be pleased. Little change was noted for the repairmen in
Liverpool and Birmingham. However, the London repairmen showed significant
progress in several key areas. These are summarised below.
1 Absenteeism had dropped by 10 per cent.

2 Job satisfaction and job involvement were up 25 per cent.
3 Vehicle maintenance costs had not risen during the period, and repairmen
reported less lost vehicle time.
4 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 dissatisfied with their jobs?
2 Does the growth need strength of the repairmen play a role in the expert’s
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
doesn’t know how to build them,’ Mr Trompenaars tells the Derdians. ‘It’s 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.

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.
What’s 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 flock 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 flooring.
‘Yesssss!’ the Derdians say in a chorus. But they don’t 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 didn’t
understand us’ he tells them. But fellow expert Kakan Kalmerno isn’t about
to be deterred by strange habits. He is taking charge. As he briskly practises
making a paper tower, Mr Kalmerno says firmly 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 won’t use rulers as long as
women are around but don’t 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 don’t
figure 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 we’d 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?

References
1 Smith, D. K. (1975) The Functions of Work. New York: Omega Publishing: 383–93.
2 Walker, C. and Guest, R. (1952) The Man on the Assembly-Line. Cambridge, MA:
Harvard University Press.
3 Herzberg, F., Mauser, B. and Snyderman, B. (1959) The Motivation to Work, 2nd edn.
New York: Wiley.
4 Ivancevich, J. and Matteson, T. (1987) Organizational Behavior and Management. Plano,
TX: BPI.
5 Dunnette, M., Campbell, J. and Hakel, M. (1973) ‘Factors Contributing to Job Dissat-
isfaction in Six Occupational Groups’, Organizational Behavior and Human Performance:
235–51.
6 Hackman, J. R. and Oldham, G. (1976) ‘Motivation Through the Design of Work: A
Test of a Theory’, Organizational Behavior and Human Performance: 250–79.
7 Hamilton, C. (1987) ‘Telecommuting’, Personnel Journal (April): 91–101.
8 Ivancevich, J. and Glueck, W. (1983) Foundations of Personnel, 3rd edn. Plano, TX: BPI.
9 Griffin, R. (1982) Task Design: An Integrative Approach. Glenview, IL: Scott–Foresman.
10 Trist, E. and Bamforth, K. (1951) ‘Some Social and Psychological Consequences of the
Long-Wall Method of Coal Getting’, Human Relations: 3–38.
11 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.
12 Pfeffer, J. (1994) Competitive Advantage Through People. Cambridge, MA: Harvard
Business School Press, 69–76.
13 ‘How Does Service Drive the Service Company?’, (1991) Harvard Business Review
(November–December): 146–58.
14 Likert, R. (1961) New Patterns of Management. New York: McGraw-Hill, 6, 103.

Module 6
Understanding Work Group

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

Module 6 / Understanding Work Group Dynamics and Group-Based Problem-Solving
Learning Objectives
• 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 min-
imise 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 efficient.
• Recognise the symptoms of social loafers and select the best corrective
actions for them.
• Adopt a useful managerial strategy for handling intergroup relationships.
• Diagnose conflict between groups and suggest approaches for handling
conflict.
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 financial success of companies is tied to the
ability of work teams to deliver more new products to the market with ever-
rising 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
company’s 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 find them in organisations.

6.1.1 Types of Groups in Organisations

As organisational tasks become more complex and urgent, managers must find
new ways to develop communication and co-ordination within and between
work groups. The manager’s complete range of organisational skills is chal-
lenged 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 flexible and
responsive to increasingly demanding customers.
What Is a ‘Group within the Organisation’?

A work group is defined 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 specific
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 group’s 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
Volvo’s 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 satisfied 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 organi-
sational 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.

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 flow 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 organ-
isation. 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 organ-
isation. 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 firms have developed cultures
of excellence based on project team work. The general characteristics of such
systems are noted below.
1 The life span of the typical project team is kept short. Texas Instruments
sets up teams with life spans of less than four months.
2 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.
3 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.
4 Follow-up is swift in that immediate links with higher management are
forged at the time the project team is organised. Upper management’s task
is to find business applications for the project team’s work.
5 Support staff is not assigned to the project team. This prevents it from
becoming ‘ossified’ in bureaucratic procedures. In most cases, team members
should develop expertise in gaining organisational support for expanding
team activities.
6 Communication and project documentation are informal in that the project
team’s focus is not allowed to shift from problem characteristics to the
team’s 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 develop-
mental 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

the existence of the firm during its start-up. Thus, entrepreneurs should try to
operate their fledgling businesses like project teams. Interestingly, as companies
flourish, the lessons learned through project team successes are forgotten. Large
successful firms, 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 individual’s belief
that membership creates a pathway to the satisfaction of important needs. It
then follows that the more individual needs group membership satisfies, 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 causing group formation

Factors Workplace example
1 Interpersonal attraction
a. Proximity Clerks in a mailroom form an informal T.G.I.F. club
(Thank God Its Friday).
b. Physical attraction Young engineers join an expensive health club
in the hope of meeting attractive people of the
opposite sex.
c. Attitude similarity Students who believe the university should have
more intramural sports form a protest group.
d. Economic and social similarity Chief executive officers of banks are asked to sit
on the boards of other banks.
e. Race and gender similarity Female Indian engineers form a career interest
group to discuss employment problems
experienced by minorities.
f. Perceived ability of others Employees with athletic ability organise a
corporate sailing team.
2 Activities of the group Employees organise a darts club to compete in a
tournament.
3 Goals of the group Employees organise a fund drive to raise cash for
AIDS research.
Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations. St. Paul, MN: West.
Interpersonal attraction is defined 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 exemplifies 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 individual’s 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 firm because he thinks his high work standards will be

matched by other engineers in the firm. 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 flock 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 find 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 attrac-
tion 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 attractive-
ness.1 Group activities and goals function to help attract members who find
the group’s 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 reac-
tions to membership experience are based on similarities and differences among
members. This phenomenon is known as group composition, which is defined
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 conflict and 2) it increases a group’s potential problem-solving capacity.1
When groups have members who vary on numerous qualities, they are less sus-
ceptible to their members’ biases and they can sustain effective group processes
that ensure the thorough analysis of decision alternatives.

6.2.1 Cohesiveness: The Social Adhesive in Work Groups

An important result of group composition is cohesiveness. It is usually defined
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

A cohesive work group tends to An incohesive work group tends to
Perform well if its goals conform to Perform poorly regardless of its or the
organisational goals organisation’s goals
Have energetic members who are motivated Have members who are indifferent to group
by the group’s goals effort and goals
Have less absenteeism Have high lateness and absenteeism
Have members who celebrate the group’s Have members who are indifferent to the
success and lament its failures successes and failures of the group
Have members who value highly group Have members who are indifferent to group
membership membership
Resist transfer Seek transfer
Become homogeneous over time Remain unchanged in terms of member
characteristics
Source: Adapted from R.C. Dailey, 1988. Understanding People in Organizations St. Paul, MN: West.
Can Managers Influence the Causes of Cohesiveness?

Managers can raise cohesiveness by controlling work group composition. The
manager must match a group’s task to the characteristics of employees who will
make up the work group. The more seamless the match between member qual-
ifications 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 group’s size is also a factor in cohesiveness and performance.
Generally, the larger a work group the greater its potential for interpersonal
conflict and disagreement which detract from task accomplishment. Time con-
straints, the importance of members’ acceptance of the group’s 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 influence the clarity of group goals and activities. Members
generally find 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 confidence
concerning the likelihood of task success.
Managers also must institutionalise the role of disturbance handler in hetero-
geneous groups which have capacities for high performance but also for inter-
personal conflict. The disturbance handler can facilitate agreement and move the

work group beyond the negative effects created by personality-based conflict.

Similarly, the manager needs to establish ground rules for handling interpersonal
conflict in heterogeneous groups with potential for strong performance.
Cohesiveness and performance can also be influenced 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 influence 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 influence 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
High
2. Low group performance 3. High group performance
Group
Performance
1. Low to moderate group performance
Low
Low Cohesiveness High
Figure 6.1 Cohesiveness, goals and work group performance

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 department’s
ability to ship orders within 24 hours of receipt. The firm maintained its ordering
process on a manual card system which was accessed by highly trained employees
at a centralised location in the firm. The company was very proud of the unit’s
low error rates and high customer satisfaction.
Due to increased work-loads and a company-wide effort to computerise oper-
ations, data-processing experts were asked to install an electronic, decentralised
data-processing system which they hoped would speed up order processing, ship-
ping 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 cohe-
siveness coupled with extreme variance between departmental goals and company
goals for systems automation created a conflict which the department eventually
won. The company backed down to restore order and realign departmental and
company performance goals. Had the firm 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
group’s standards for members’ behaviour. Norms exist in any work group and
exhibit several common properties.
1 Norms streamline and summarise the influence process to make the work
group more efficient at policing member behaviour. If a strong norm about
performance exists, group members will quickly censure members’ behav-
iour that does not conform to the norm.
2 Norms apply to member behaviour and not to their thoughts. This means
a group member can privately disagree with the group’s 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.
3 Norms develop for those behaviours which influence levels of member
effort and group goals. These two areas are at the core of any work group’s
existence and it follows that the work group will have explicit meaning for
norms which symbolise effort levels and group goals.

4 Norms develop over time and they are resistant to change. This prop-
erty 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 suc-
ceeding 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 specific work groups,
but in the wider organisational analysis they are important symbols of
organisational culture.
5 Some members have more right to deviate from work group norms than
other members do. Usually, the higher the person’s 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 group’s system of norms cre-
ates the basis for conformity, or the conscious adjustment of behaviour to the
group’s 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 Managerial principles for controlling work group norms and member
conformity
1 Create a desire to remain in the group. Cohesiveness is an important benefit valued by
members, so acknowledge employee expressions of esprit de corps.
2 Show how high standards for group achievement meet individual needs and trigger
rewards at the group level.
3 Specify the importance of giving up individual gains in favour of group success. The
manager must be a role model for this.
4 Seize opportunities to show the small difference between members’ personal
preferences and what the group asks of its members.
5 Carefully define how members’ contributions help the group achieve its goals.
6 Give members a say in creating norms about effort levels and performance standards.
7 Develop a simple and accepted system for recording and publicising work group
success in core performance areas.
8 Develop valued rewards to motivate members who meet or exceed team performance
standards.
9 Forge a link between team goals and personal accomplishments.
10 If creativity is necessary to ensure team success, temporarily suspend norms to
encourage member innovation.
11 Make it clear that there are serious negative consequence for non-compliance with
core performance norms.
12 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.
13 Do not allow work groups to become too isolated so that they ignore the company’s
need for co-ordination.
Source: Adapted from A. Zander, 1982. Making Groups Effective. San Francisco: Jossey-Bass.

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 group’s norms. If a work group’s 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 The illusion of invulnerability. Members conclude that success can be

achieved easily even in the face of unfavourable odds.
2 Collective rationalisation. The group believes it cannot fail because mem-
bers are oblivious to indicators which could spell trouble.
3 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.
4 Belief in the inherent morality of the group. The group may conclude
wrongly that its decision is moral and upright, and justified on morality
alone.
5 Negative stereotyping of the opposition. The group in question may char-
acterise the opposition as dull, stupid, confused or cowardly.
6 Direct pressure applied to dissenters. If a member disagrees with the
group’s course of action, considerable pressure is applied by mindguards to
bring him back in line.
7 Self-censorship. Here group members may doubt the soundness of the
group’s decision, but they opt for silence rather than rock the boat by
expressing an unpopular idea.
8 Illusion of unanimity. Each member mistakes the silence of other members
as their agreement with the group’s course of action.8
Scholars have attributed many governmental ‘fiascos’ to the existence of

groupthink in high-level policy-making groups.8 Modern examples of this phe-
nomenon would include the American decisions to invade Cuba’s Bay of Pigs
and to continue the Vietnam War during the Johnson administration. The disas-
trous decision to launch the Challenger space shuttle in 1986 would also qualify
as an example of groupthink. More recently, the British government’s 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

safeguards which can be followed to minimise its impact. These safeguards

reflect the importance of the group leader’s role and his influence 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.
2 Influential members should not pre-specify solutions or methods for reach-
ing solutions. Thus, idea generation should be separated from idea evalua-
tion.
3 The leader might have subgroups arrive at their own decisions separately
before polling the entire group on its decision.
4 At intervals, outside experts might provide guidance to the group.
5 When competitive organisations are the focus of group decision-making,
sessions should be devoted to exploration of warning signals and possible
forms of retaliation.
6 A ‘second chance’ meeting should be held after the group has selected
its official 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
The suggestions for addressing groupthink noted above attempt to reduce the
impact of influential work group members on the group’s 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 find groupthink where they exist. Many significant 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 Significant 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 influence the texture of work
groups. It is referred to as group structure and is defined 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.

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 group’s 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 reflected 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 firms

Symbols of rank and position (titles) Director
Chief Executive Officer
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 benefits (first class or corporate jet)
Reserved dining room and parking
priviledges
Country club/health club memberships
Control of work schedule Personal work schedule
Day versus night work
Work space amenities Large office with library and fireplace
Windows overlooking a pleasant view
Private secretary to screen visitors
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 specific 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 conflict. 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 find ways to
preserve the benefits of small work group membership for employees. If they are

not successful in this, turnover and absenteeism will grow because employees
will be frustrated in satisfying their needs for belongingness and inclusion. Self-
directed teams are important innovations which preserve the benefits 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
0 2 3 4 5 6 7 8 9 10 11
Number of members
Figure 6.2 Group size, performance and process losses
The figure shows that the group’s potential performance increases with group
size. Potential performance is defined 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 conflict 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 compli-
cated as does the work group’s structure. Also, more of each member’s 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 loafing (see section
6.5.2).

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 deci-
sions 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 middle-
sized 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 group’s 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 Stage 2 Stage 3 Stage 4

Test and Conflict and Cohesion and Interdependece and
Orientation Organisation Information Problem-solving
exchange
(FORMING) (STORMING) (NORMING) (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
STORMING: Development of rules for handling conflict
Filling the leadership position (which may be empty)
NORMING: Preventing groupthink and other process losses
Managing high cohesiveness
Sustaining a task focus
PERFORMING: Expanding the task focus
Maintaining norms as membership changes
Figure 6.3 Stages of work group development

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 organisation’s 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 find 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 mem-
bers, 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
other’s assumptions about hard work and co-operation. This clarifies members’
expectations for specific 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 conflict emerges in stage 2. Members may become more assertive
in their opinions about the group’s purposes, methods and norms because they
are accumulating more knowledge about the work group. Member dissatisfac-
tion 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 conflict subsides and the work group’s normative structure
emerges, it enters stage 3. In it, members are thoroughly aware of their involve-
ment and commitment to the group. They believe the benefits 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 out-
comes may be so pervasive that groupthink occurs. Since members value their
positions and membership highly, an external threat may trigger strong feelings

of solidarity. If the work group has good information transfer across its bound-
ary, and it is thoroughly tied in to the organisation’s hierarchy and information
flows, then groupthink probably will not occur since the group’s 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 group’s willingness to
confront conflict 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 con-
tribute, acceptance of authority and active participation. Group members feel
empowered and the group has the ability to resolve conflicts by collaborative
means rather than by resorting to bargaining or negotiating. This in turn pre-
vents the formation of coalitions and challenges to the structure of the group.
Stage 4 groups are mature groups because members are confident about their
personal abilities and willingly communicate their confidence 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 influential 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 Indefinitely?

Just as individuals cannot always be simultaneously highly satisfied 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 find mechanisms to remain flexible and adaptable. Part
of a mature group’s 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 organisa-
tion 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 firms in the industry. A much more reasonable managerial perspective is
to view the organisation’s work groups as moving slowly through an ‘evolution-
ary cycle’ of development where a key task is keeping work groups flexible so
that they can quickly adjust to changes in company strategy designed to create
or improve competitive advantage.

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 par-
ticular 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. Physi-
cians believe in the principle of ‘first do no harm’; therefore, their group-based
decision is likely to be conservative. Table 6.5 shows the forces which influence
risk-taking in work group decision-making.
Table 6.5 Factors influencing risk-taking in group decisions

The work group is risk oriented if The work group is conservative if
1 The work group is expected to be Members do not value risk and the
risk-oriented by the rest of the organisation organisation thinks the group should be
and the group members value risk. conservative.
2 The decision has little to do with The decision involves human resources or
organisational systems or personnel. employees’ perceptions of the company.
3 The leader is risk oriented. The leader is averse to risk.
4 The group has a history of tolerating The group has a norm that values the
deviance from group norms. status quo.
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 funda-
mental principle of brainstorming is the separation of idea generation from idea
evaluation. All groups tend to evaluate the first suggestion made by a mem-
ber. 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.

Table 6.6 Factors which contribute to low-group creativity

1 The group has no common goal or core focus.
2 No standard method for making decisions is followed.
3 The process of generating ideas is not separated from the evaluation of ideas.
4 Ideas are not evaluated on their own merits. They are evaluated in terms of which
group members suggested them.
5 Ideas do not become the property of the group once they are suggested.
6 Conclusions are an individual product instead of a group product.
7 The group does not perceive members’ time as a valuable and scarce resource.
8 Some members do not feel sufficiently at ease to participate and submit their ideas
(they fear derision or reprisal).
9 Some members dominate or deflect the group from its stated purposes.
10 The group does not have access to higher managers who can review and approve work
group output quickly.
11 The group places pressure on its members to make their behaviour conform to a low
standard for creativity.
12 The group is critical of failures and blames members for failures which may have had a
creative origin.
1 Assemble the work group and appoint a session leader (not necessarily the
manager or supervisor, but perhaps someone with special knowledge of the
problem).
2 Explain the focus of the session. Define the purpose and/or problem (ideas,
strategies, solutions, alternatives, etc.).
3 Set a time limit for the session.
4 Select a recording method (flip chart, videotaping, blackboard, direct word-
processing input to a computer).
5 Review the rules of brainstorming, noted below.
(a) Break down complex problems into problems specific 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.

Remember, brainstorming is a technique for generating ideas, not for eval-

uating them. It generates lots of ideas quickly. Further, it does not require
accountability so creativity is more abundant and less inhibited. It is particu-
larly 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 stifle
creativity?’
Nominal Group Technique (NGT)

This method structures the work group’s creative process to minimise verbal
interaction among members. The group, usually no larger than nine, follows a
highly structured procedure which is briefly 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).
2 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,
flip-chart, video tape etc.) In a round-robin fashion, all participants present
their ideas for recording until all are shown.
3 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 clarification.
4 Each member records the ideas on 3’×5’ cards and rank orders them secretly
from 1 to n. The mean average rankings are used as a basis for the group’s
decision. The NGT process can end here or the decision may be refined
through discussion and rewording.
5 The voting patterns can be analysed and reasons can be examined to see if
more accurate decisions can be made.
6 A final 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.
The NGT has advantages over more common and less disciplined group
problem-solving methods. First, idea generation is separated from idea evalu-
ation. Second, balanced participation occurs and the effects of dominant indi-
viduals 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 efficient
and members find 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

benefit 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 team’s decision making.
Second, groups with stable membership find the technique effective as well as
new groups or project groups. Lastly, the group’s 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 modified 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 co-
ordinating mechanism to manage the alteration, transmission and summarising
of questionnaire data. The Delphi technique follows these steps.
1 Each group member independently and anonymously records comments,
suggestions and solutions to the problem facing the group.
2 All the data generated in step 1 are sent to a centrally located individual
who is responsible for data compilation and reproduction.
3 Each member receives a copy of all written comments from other members.
4 Members generate feedback on other members’ comments, and all second-
round feedback is written down and sent to the centrally-located individual.
5 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 elimi-
nate 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 advan-
tages 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 influ-
ence the effectiveness of group decision-making. Task activities are defined as
those group activities which channel member efforts to achieve the purposes

Table 6.7 How Delphi groups differ from nominal groups

Delphi groups are Nominal groups are
Composed of members who are unaware of Composed of members who know each other
other group members Designed to meet face-to-face
Made up of members who never meet Designed to reach a decision more quickly
face-to-face More likely to have status and dominance
Reliant on a central processing unit which
effects
collects, collates and feeds back information
of the group. When members define work methods, plan schedules or assess
service or product quality, the group is working on task activities. Mainten-
ance 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 group’s 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

Task activities are occurring when Maintenance activities are occurring when
The group is getting started and introducing The group is creating a supporting
ideas cohesiveness
The group is diagnosing problems and The group encourages agreement and praises
suggesting problem effects group members
The group requests objective information to Members are discussing group norms and
ensure accuracy and attention to detail their effects on the group’s ability to achieve
The group is providing timely information consensus
about the group’s task to its members Members are going along with participant-
The group is spelling out relationships generated ideas to ensure member
between the flow of work among group involvement and commitment
positions Members are discussing ways to attract new
Members sum up group progress on ideas, members and ensure their inclusion in group
activities, goals and solutions. work
Members co-ordinate their activities to ensure The leader advocates the group’s position to
steady progress to the group’s goals higher managers
The leader reports the group’s progress to All group members discuss levels of status to
higher managers ensure member commitment to its goals
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.

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 group’s 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 Define the work group’s 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.
2 Do not jump to idea evaluation before idea generation has created numer-
ous alternatives. This is a process loss which can be avoided by using brain-
storming or the NGT to generate ideas, solutions, effects and outcomes.
3 Avoid groupthink.Recognise that a norm about conformity can easily
develop in cohesive groups which then suspend their capacity for criti-
cal decision-making. Further, teach all group members how to recognise the
symptoms of groupthink.
4 Manage the norms of the group by making valued rewards contingent
on high-quality group performance. This principle will reward individ-
ual performance excellence which supports group norms about effort and
performance.
5 Make group-level rewards contingent on the group’s contribution to work
unit successes. When rewards are tied to success for collaborative behav-
iours, the normative structure of the group remains consistent with organi-
sational 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 effec-
tiveness and performance of organisational groups depend on the extent to
which they meet the specified interaction requirements. Steers and Black argue

that there are three prevailing group interaction requirements: 1) interdepen-

dence, 2) information flow and 3) integration.18 Interdependence requirements
refer to the frequency and quality of interactions among groups. Due to task com-
plexity 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 Ameri-
can 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 officials in Washington, DC. Information flow
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 find rapidly escalating information
flow requirements. Integration requirements refer to the extent of collaboration,
co-operation and structural unification among groups working towards com-
mon 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 co-
operating 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 find 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 proce-
dures to ensure that co-operating groups are informed of tasks requiring joint
action. An example of this would be the requirement that the shipping depart-
ment 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 company’s work-force.
Linking roles. By formally creating a position designed to oversee and co-
ordinate the work of two or more groups the organisation can significantly

improve their intergroup performance. A brand manager who oversees and co-
ordinates 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 task-
force 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) organisa-
tional security or because of severe intergroup conflict, 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 conflict among
product development teams in early product development stages. At later stages,
the conflict 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-flung
international operations, all five 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 Loafing

All managers have led teams or been members of teams having members who
do not perform their fair share of the group’s work. Some group members are
practitioners of the fine art of social loafing 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 loafing 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 loafing: 1) equity
of effort (‘Everyone else is goofing off, why shouldn’t I?’); 2) loss of personal
responsibility (‘It’s a large group, so no one will miss me’); 3) reduced effort

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 we’re getting under each other’s feet’). In most organisations
that extensively use groups we will find managers who try to reduce the social
loafing tendency. The recommendations to lower social loafing borrow heavily
from the concepts of job involvement, work group norms and the significance of
group goals. Here are some practical suggestions that you can follow to reduce
social loafing in groups that you manage:
1 Focus on the interesting and important aspects of the task to increase the
level of job involvement of group members.
2 Assure group members that their individual contributions are identifiable
and significant.
3 Tell group members that they should not tolerate inadequate effort or
performance from group members.
4 Tell them that they should expect to have their performance evaluated.
5 Ensure that some portion of rewards received by group members is depen-
dent 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 five forms of decision-making which vary from being
autocratic and boss centred to being collaborative and group centred. The five
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 decision-
making.
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 one-
to-one format. The manager takes a decision which may or may not reflect 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 reflect
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 final decision.
The central principle to the model is that the decision-maker should select the
method that best fits the problem being solved. The key to using the normative

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 Manager's Questions

QR Quality Requirement How important is the technical quality of this decision ?
CR Commitment Requirement How important is subordinate commitment to the decision?
LI Leader's Information Do you have sufficient information to make a high-quality decision?
ST Problem Structure Is the problem well structured?
CP Commitment Probability If you were to make the decision by yourself, is it reasonably certain
that your subordinate(s) would be committed to the decision?
GC Goal Congruence Do subordinates share the organizational goals to be attained in
solving this problem?
CO Subordinate Conflict Is conflict among subordinates over preferred solutions likely?
SI Subordinate Information Do subordinates have sufficient information to make a high-quality
decision?
YES AI
CP
NO GC YES YES GII
NO SI NO
S YES
YE CP NO
CII
NO NO
NO GC
YES SI YES
NO GII
LI NO ST CO YES
YE YES
S GC
H
NO NO CII
G
HI
CR CP YES AII
NO
GC
LO
NO
YES
W
YES CO
NO
GH
LI ST YES CI
HI
NO
YES
State the CII
QR LO
Problem W
LOW AI
CR
YES GII
HIGH CP NO
Figure 6.5 The Vroom–Yetton–Jago 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 figure indicates that a particular problem is best handled

with a ‘G’ group decision method. The model’s 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 conflict-management skills have more effective groups when
they use more participative methods than those managers with weaker conflict-
management 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 decision’s 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 decision-
shaping qualities and questions is perhaps the most valuable contribution made
by the model.
6.7 Work Groups in Competition and Conflict

No discussion of work group behaviour would be complete without considering
the significance of conflict 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 first interlocking plastic belting systems for industrial
applications) became concerned with the specifications for a new belting system
which James’ group had produced. J. M. felt the specifications 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 officer of Leitner.
Roger indicated that he had ‘the best damned engineers in the business and [he]
didn’t appreciate J. M.’s meddling in the design unit’s 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 don’t think my engineers are competent then you
must think I’m not competent. If you want my resignation, you’ve got it.’ Jay
thought for a moment and responded: ‘I didn’t ask for your resignation, but I want
James terminated.’

6.7.1 Two Organisational Views on Conflict in Groups

The dilemma above illustrates how conflict can escalate quickly to produce
outcomes unforeseen by members of the organisation. Essentially, organisations
fall into two categories when it comes to managing conflict in and between work
groups: 1) conflict is always dysfunctional and unhealthy for the organisation
and 2) conflict is a by-product of organisational life and it is unavoidable but
manageable. It is clear that the conflict noted in the example classifies the
Leitner Company in the first category, especially when the conflict involves
family executives and non-family executives and professionals.
The first conflict view is called the traditional view and it encourages the
suppression of conflict. In other words, group and organisational norms emerge
which keep conflict under strict control. This outcome may be obtained by
defining 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 sufficient
legitimate authority to insist on a solution. Solutions under the traditional view
often become very similar because those engaged in the dispute often find
themselves dismissed or transferred to some other part of the organisation.
The contemporary view takes the position that conflict 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 conflict is impossible and far too costly to merit
serious managerial consideration. Indeed, managers working in organisations
with this view on conflict often become suspicious if too much harmony is
evident! They reason that such organisational tranquillity indicates complacency
and perhaps there is insufficient examination of company goals, activities and
policies.
When companies adopt the traditional view, conflict is usually experienced as
destructive and it produces negative results for the company and its employ-
ees. The contemporary view recognises that conflict can be destructive and
constructive, sometimes in terms of the same issue. This view encourages the
development of company systems to manage and channel conflict to valu-
able organisational ends. As a general rule, conflict can have beneficial results
when the organisation practises employee empowerment and finds ways to
involve employees in ‘core issues’ such as product and service quality, produc-
tivity, employee management systems and grievance-handling procedures and
job security.
6.7.2 Managing Conflict within and between Groups

Conflict-management in organisations focuses on lowering the existing level of
conflict. The methods for managing conflict noted below are presented with the
idea that conflict is currently at undesirable high levels. The methods to be cov-
ered are: avoiding, accommodating, forcing, compromising and collaborating.
Avoiding
Any approach which avoids a major conflict confrontation is called avoidance.

Avoidance means the conflict is prevented from coming into the open. Avoid-
ing conflict can occur by ignoring the conflict and refusing to deal with any
information or behaviour associated with the conflict within or between groups.
When Should Avoiding Be Adopted as a Strategy?

Senior managers generally agree that avoiding conflict is usually a short-run,
damage-control strategy. The most common reasons given by senior managers
for selecting conflict avoidance are: 1) when the issue is trivial and more impor-
tant 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 benefits
of resolution, 4) when it is necessary for people to calm down and gain per-
spective 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-sacrifice. Accommodation may be reasonable if you fear losing a friend
or if you know that argument would trigger a structural solution to a conflict.
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 conflict 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 fires may require instant decisions which leave no room for discus-
sion 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 deter-
minants of the forcing strategy: 1) emergency conditions exist and decisive action
is vital, 2) the issue is extremely important and unpopular actions must be imple-
mented, 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

Compromising
This refers to negotiating to reach a mutually acceptable solution. This is the
standard approach for solving labour–management disputes. Compromising
tends to occur when the parties in conflict have about equal power, and a fixed
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 conflict is a highly visible one.
Why Would Executives Select a Compromising Strategy?

Executives cite several reasons for using the compromise strategy: 1) the decision-
maker 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 expe-
dient 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 inte-
grated to solve a problem permanently through mutual commitment to the
solution. Problem-solving by the parties involved in the conflict usually follows
these steps in reaching a collaborative solution.
1 Define the problem and share the facts (rather than make emotional appeals
and distort facts).
2 State the problem in specific terms before searching for solutions.
3 Once facts are collected, focus on them instead of focusing on the disagree-
ment.
4 Conduct non-judgemental discussion of the facts and the problem.
5 Collaborate on alternatives which lead to the best mutual solution rather
than those alternatives which lead to solutions favouring one party’s inter-
ests.
6 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.
7 Define all agreements as tentative until all facets of the conflict 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 mean-
ingful organisational activity.

• 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 specific 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 cre-
ated 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
benefits of membership highly. Cohesiveness will be positively related to
performance if the work group’s performance norms agree with the per-
formance norm of the organisation. Managers can influence 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 group’s 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 group’s hier-
archy. 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 reflected 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 identifiable issues
which must be resolved before the group can progress to the next stage.
• Work groups cannot stay in stage 4 indefinitely. Turnover of member-
ship and changes in the group’s 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
organisation’s expectations that given groups should be risk tolerant or risk
averse.

• 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 sugges-
tions 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 definition of the group’s
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 flow 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 loafing is the decline in average member performance in groups
of increasing size. Social loafing can be reduced if a manager focuses on
maintaining high job involvement, preserving group performance norms
and reinforcing the importance of the group’s 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’ commit-
ment to the decision; and 4) the extent to which information is available to
make the decision. The actual amount of group participation in decision-
making varies from none (boss-centred decision-making) to considerable
(full group-centred decision-making).
• When group conflict is viewed as a natural process which can be managed
in the organisation, the contemporary view exists. If conflict is viewed as
always being destructive and injurious to harmony this is the traditional
view.

• Various methods for managing conflict 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 decision-
maker’s analysis of the situation and his personal preferences for given
strategies.
Review 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 bank’s board of directors are asked by executive officers
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 poten-

tial, member satisfaction and conflict. T or F?
6.8 Cohesiveness in a work group emerges more quickly if the group is homoge-
neous. T or F?
6.9 If a manager controls 1) work group size, 2) clarity of the group’s 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 group’s goals and the organisa-
tion’s 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 group’s 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?

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 group’s task or goals. T or F?
6.18 Work group composition and maintenance of norms characterise the manage-
ment 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
indefinitely. T or F?
6.21 Brainstorming is a successful method for achieving work group creativity because
it overrides the group’s natural tendency to defer judgement on creative mem-
bers’ 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 conflict holds that organisational harmony may some-
times stand in the way of creative work group problem-solving. T or F?
6.25 Forcing would be a good conflict-management strategy in a command group

if there were sufficient time to make the decision and members had unequal
power. T or F?
6.26 Participative decision-making tends to be associated with:

A higher levels of group member satisfaction.
B lower individual member productivity.
C less creativity among team members.
D more rapid decision-making.
E increased rivalry among team members.

6.27 A way to minimise the effects of groupthink is to:

A encourage members to rationalise the group’s decision.
B increase peer pressure to manipulate dissenting group members.
C re-examine the preferred solution even if consensus has been reached.
D criticise the competition or opposition.
E 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 ini-
tial success at defining the nature of task problems confronting your team.
Therefore, early in the process of achieving team goals you might:
A encourage high cohesiveness to build strong group integrity.
B use devil’s advocacy to prevent initial groupthink.
C minimise member diversity by selecting team members with much in com-
mon.
D use brainstorming to develop a long list of unevaluated problem approaches.
E use the Delphi technique.
6.29 Social loafing is often:

A a deterrent to effective group relations among members and to group
performance.
B a direct result of excessive cohesiveness in a group.
C a result of groupthink.
D a stimulant to increased group performance.
E 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 effec-
tiveness is:
A high levels of interpersonal attraction.
B cohesiveness.
C participation in group decisions by members.
D risk avoidance by group members.
E members with uniformly high personal status.
6.31 The third stage of group formation involves:

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

6.32 By the stage of development group cohesiveness tends to be strong.

A forming
B performing
C norming
D storming
E maturity
6.33 Group cohesiveness is negatively affected by:

A large group size, more than 15 members.
B interpersonal attraction.
C moderate external pressure in the form of competition among groups.
D group members with high personal and positional prestige.
E groupthink.
6.34 Which of the following is not a maintenance activity in a group?

A Smoothing conflicts.
B Following the ideas of other group members.
C Setting goals and assigning tasks to members.
D Helping other members express their feelings about group membership.
E 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 conflict.
A traditional
B short-term
C liberal
D contemporary
E internal
6.1 Describe the organisational conditions which would make the use of project
teams desirable. When using project teams, which management requirements
must be specified?
6.2 Describe four factors which managers can manipulate to influence group cohe-
siveness.
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?

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 manu-
facturing and service companies in the UK. The company was founded by Ean
Clease ten years ago. The firm 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 firm’s business) and a 7 per cent
gain in foreign sales for this year. The firm 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 company’s video tape products
and allied training materials. Around the company they are known as ‘Ean’s
patrol’.
Clease hand-picked the six employees five 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 computer-
generated 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 fit. They work closely with
the filming 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

Table 6.9 Ean’s patrol at Lexington Ltd

Name Age Professional background
Lydia Smith 28 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.
James Wilson 32 Degree in romance languages from Heriot-Watt University.
Worked as a management development specialist at Heriot-Watt’s
Esmée Fairbairn Research Centre for five 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.
Keith Abelson 35 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.
Lawrence Jensen 36 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.
Andrea Wight 26 Mathematics and literature major in college. Has worked at
Lexington for two years. Prior to that, worked for a small
consulting firm specialising in designing software for controlling
complex assembly movements for robotic devices.
Lisa Bronson 38 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 five years.
aspects of product and service development. They also know each other’s 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 filming locations.
Lisa arranges shooting schedules and co-ordinates production work with Ean
and the film crews. She also makes all local arrangements for the crews when
they are filming at various corporate offices in London.
Keith and Andrea have been working hard on Ean and the rest of the group
to consider animating sections of older training films 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 Andrea’s demonstration footage is quite creative and Ean has considered
showcasing their work at the next planning session with the vice-president of
production and filming.
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.

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 Ean’s
group?
2 How does the group’s composition facilitate creativity? Do you agree with
Ean’s 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. Leeson’s Ltd. ∗

Allister McPherson is the general manager of A. E. Leeson’s, 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 Allis-
ter are three key managers of the facility: a production manager who oversees
three work shifts; an office 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 production-
related 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 difficult 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, 276–7.

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 benefit, 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 fixing 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 fill 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 Leeson’s two
years ago. Company management had reasoned that facility productivity and
profitability could rise significantly 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 facility’s production workers.
Workers have been overheard saying ‘Rudy is still in the Navy and he thinks we
are all new recruits’. Rudy’s position was that management’s authority should
not be questioned and workers had a duty to obey legitimate orders from
supervisors.
Rudy’s management style was centred on making his rounds of the produc-
tion facility on an hourly basis. During his first four months, he instituted many
production changes which reduced labour-hours for assembly and increased
product quality and dependability. During this period, five 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 perform-
ance 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 profits 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

a month-long seminar on leadership and organisational quality improvement.

During his absence, Allister decided not to fill 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 Rudy’s major management decisions had been altered.
Two weeks later, employees complained loudly about the company’s policy
of mandatory overtime to meet production output requirements. Demand for
subassemblies had been so robust that workers were regularly working 15–18
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 back-
order 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 Rudy’s 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 five per cent below the averages
for the last six months. In effect, production output, product quality and work-
force satisfaction had increased without the presence of a production manager.
Allister knew that he faced a dilemma. He could report these findings to
corporate officials and he could make a strong case for eliminating the production
manager’s 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 Rudy’s strongly held beliefs
about effective management.
1 Why was production output up 20 per cent and product defect rates down
five per cent?

2 Once Rudy returns, what should Allister tell him and what actions should
he take with respect to Rudy’s position and management style?
References
1 Shaw, M. (1981). Group Dynamics, 2nd edn. New York: McGraw-Hill.
2 Dunham, R. (1984) Organizational Behavior. Homewood, IL: Irwin.
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of Management, 4th edn. Glenview, IL: Scott-Foresman.
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63: 384–99.
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New York: N. M. Scribner.
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Problem Solving Training’, Journal of Applied Behavioral Science 21: 42–3.
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Conflict Behavior’, Academy of Management Review 2: 23–35.

Module 7
The Influence Processes in

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

Module 7 / The Influence Processes in Organisations: Power, Politics, Leadership and Entrepreneurship
Learning Objectives
• Distinguish among power, authority and influence.

• 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 organisa-
tion 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 profile’.
• Contrast entrepreneurial behaviour and administrative behaviour.
• Develop an analysis of your organisation’s ability to encourage entrepre-
neurship.
• Diagnose your own ability to be an entrepreneur.
This module addresses three issues important to managers and students of

organisational behaviour. First, we will define the important concept of power
in organisations. We will examine the bases for interpersonal power and how
individuals and organisational subunits obtain power. Next, we’ll explore organ-
isational politics and we will see how individuals and subunits manipulate the
political system. Our next topic is leadership. We will define it, differentiate
it from management and trace its development as a core concept in the fields
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 secretary’s husband on the payroll and made other
decisions which violated his public trust to run the institution in the most cost-
effective manner with employees who were the best qualified for their jobs. The
director of educational administration knew he had to go. The local newspaper

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 year’s 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 find power and politics to have conno-
tations 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 Influence

Power is the ability to influence someone else. It is the capacity to modify
employee behaviour in a desired manner while being able to avoid having one’s
own behaviour modified in undesirable ways.1 A person, work unit or organisa-
tion 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 flow in any direction in an organ-
isation. 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 officers began their careers there. Another
example is the disgruntled employee who becomes a whistle-blower and gains
significant 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 one’s authority is defined by one’s level in the organisation’s
vertical hierarchy. Authority over subordinates may include the rights to 1)
set goals, 2) evaluate performance and 3) assign overtime work. Authority is
downward influence which flows from the position occupied by the employee.
Authority is granted by the organisation, while power may have multiple origins.
Influence is the process of affecting the thoughts, feelings and behaviour of
others. The three concepts can all fall within the employee’s zone of indifference
which is the range in which the employee perceives influence attempts as
legitimate and acts on them without a great deal of evaluation or thought. If
the employee perceives an influence attempt as illegitimate, only the exercise of
the manager’s power can expand the zone. Authority is a less useful method to
expand the zone of indifference because it is a right.

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 interper-
sonal power; the rest of this section describes their forms.
Table 7.1 Sources of interpersonal power and an example of each

Source of power Work example
Reward Telling a subordinate that he has been very effective in productivity
enhancement during a formal performance review.
Coercive Warning a colleague that you will go to your superior if he does not stop
trading on insider information.
Legitimate Transferring an employee to an overseas assignment.
Referent Emulating a senior design engineer who is widely respected throughout
the company.
Expert Including a design engineer in all product review meetings because of his
experience in design work.
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 influence by providing positive out-
comes 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. Man-
agerial 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 influence 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 trans-
ferred from that job to director of food service operations. Apparently, upper
hospital management felt the specialist was ‘getting too good’ at his job and uncov-
ering 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 one’s
position in the organisational hierarchy. Subordinates accept their duty to obey
because their superiors have the right to give them orders. Not all organisations

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 firms 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 rela-
tions 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 irreplace-
able. 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 equip-
ment, 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 five 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 five types of interper-
sonal 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 manager’s exercise of power should create the greatest
good for the greatest number of people.
2 Does the behaviour respect the rights of all stakeholders? The free speech,
and due process of stakeholders should not be violated.
3 Does the behaviour treat all stakeholders equitably and fairly? The exer-
cise of power should preserve distributive and procedural fairness in the
organisation (see Module 3). Exercises of power should not arbitrarily benefit
one party at the expense of another.

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 Develop a network

Identify with powerful people Reorganise the job
Give excellent performance Take risks, be creative
GAINING MORE POWER
Limit access to information Be a knowledge worker

Control supplies and budgets Manipulate rules
Control personnel decisions
Control financial resources
Manage your boss
Figure 7.1 How employees gain power
Building an image of success refers to designing and creating a good impres-

sion which projects competence and organisational commitment. Image-building
can be done by drawing attention to one’s successes, being enthusiastic about
the organisation, placing value on the organisation’s status symbols and vol-
unteering 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 testifies to the popularity
of this strategy.
Identifying with powerful people refers to finding a mentor in the organisa-
tion. This is an individual in a powerful position with the influence to positively
affect the employee’s career advancement. The employee in question has the
opportunity to understand the mentor’s perspectives on the organisation and its
practices. This prevents the employee from making mistakes which could slow
down his career progress. Most mentor–protégé relationships slowly decline
in value to both parties, especially as the protégé gains more organisational
experience.
Giving excellent performance refers to striving hard to meet the performance
expectations of the organisation. This can mean volunteering for difficult organ-
isational assignments and defending the reputation of the organisation. Being
an excellent performer often means extending one’s efforts in organisational

areas which are not covered by the organisation’s 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 specific knowledge of the qualifications of
applicants has great power relative to the applicant and the director of human
resources. If you can control the flow 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 sus-
taining old working relationships and not forgetting about those people you
worked with on special projects are examples of network-building. Demonstrat-
ing 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 objec-
tives to one’s 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 entrepre-
neurship 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 first.
Being a knowledge worker refers to acquiring wide expertise to solve a
given class of organisational problems. The most significant 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 significantly boost an employee’s power.
Manipulating rules refers to sticking closely to company policies when it
is to one’s 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 firing.
Power can be increased by making recommendations about which employees
need further training, who should be transferred, who should be promoted and

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 financial resources is perhaps the most powerful means to gain
and keep power. While access to this method is hierarchically based, exclusive
control over financial 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 financial resources to the job-holder.
For example, project, product or brand managers often obtain authority for the
control of financial 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 final strategy for gaining power. It may sound
unlikely for the simple reason that most subordinates seriously underestimate
their influence 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 sufficient time to make all decisions. Subordinates
who effectively manage their bosses tend to: 1) identify the boss’s preferred
decision style, 2) identify the boss’s preferred level of formalisation in dealing
with subordinates and 3) periodically clarify the boss’s 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
significance of dependence relationships. Let’s examine the conditions which
contribute to a department’s abilities to control strategic management outcomes
and to accumulate power.
Scarcity
Variation in subunit power is magnified under conditions of resource scarcity.
When an organisation has extensive slack resources, subunits seldom compete
for power since there is abundant budget money, office space, support staff,

etc. If sales slow, products become obsolete or competitors become much more
cost-efficient, 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 cash-
rich 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 officer 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. Organisa-
tional crises create upheavals which disturb operations and paralyse effective
decision-making. It stands to reason that those subunits which help the organi-
sation 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 span-
ning 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 flow 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 organisation’s work. Centrality can take several forms. First,
the subunit can be at the centre of authorisation for expenses and payments.
Accounting departments fit 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
profit/cost centres. Second, centrality can take the form of subunit influence
on the quantity or quality of the organisation’s product or services. Companies
making products that must have extremely high reliability (e.g., medical test-
ing 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 moment’s 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

of e-mail systems in organisations have diminished the significance of spe-

cialised 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 dis-
tributed 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 influence to obtain ends
not sanctioned by the organisation or to obtain sanctioned ends through non-
sanctioned (illegal) means.6 The key point in the definition 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 Unacceptable results
Whistle-blowing to expose theft

Management Non-political work that is
of company equipment or the
approves efficient, productive and
inappropriate use of company
effective
funds
Ignoring the chain of command Degrading a colleague who is

Management
to gain company support for a competitor for a higher-level
disapproves
a product innovation job opening
Figure 7.2 A taxonomy of political behavior in firms
1 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.
2 Approved methods and unapproved outcomes. In this case, the organisa-
tion’s rules are followed to achieve organisationally undesirable outcomes.
Suppose a manager covers up the drug addiction of a subordinate by giv-
ing him an overseas assignment. The assignment may be authorised, but
covering up performance problems caused by drug addiction is not.

3 Unapproved methods and approved outcomes. This represents the pursuit

of valued outcomes by using questionable methods. Such political behav-
iour often occurs when resources are scarce and the subunit’s 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.
4 Unapproved methods and unapproved outcomes. This situation is the most
flagrant 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
find 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 trader’s real motives and goals. The trader’s methods
and the profits 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 conflict, 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 organisa-
tion is violating his instrumental or terminal values, or the law. Thus, whistle-
blowing means that the individual informs a reporter, police officer, government
official or other influential individual about an assumed injustice, irresponsible
organisational action or violation of the law. The behaviour bypasses the organ-
isation’s 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 conflictrefers 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

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 protégé to gain political power through the interpersonal
power bases of his sponsor or mentor. Thus, the protégé is able to ‘tap into’ the
mentor’s 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 con-
structive examination of possible internal causes for such behaviour. An exam-
ple of insurgency was the Eastern Airline machinists’ and maintenance workers’
campaign to discredit Eastern’s aircraft maintenance practices by filing com-
plaints with the US National Transportation Safety Board. The campaign led
quickly to the grounding of 40 per cent of Eastern’s planes. Frank Lorenzo, the
president of Texas Air (Eastern’s parent corporation), mounted a campaign to
attack Eastern’s maintenance employees, but the attacks led to the bankruptcy
of Eastern. This example illustrates insurgency which dominates labour man-
agement 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 confirm the political nature of
their relationship to their boss, but they would find little that has been written
on the subject of politics in the superior–subordinate 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 superior–subordinate
relationship rests on mutual dependence and in many ways the boss’s career
is strongly linked to his subordinate’s career at various times. Subordinates
often fail to recognise their significance in the superior–subordinate relationship
and they meekly leave the management of the relationship to their superiors.
Subordinates who fail to understand and to manage the superior–subordinate
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.
2 The boss has all the information to make a decision. Related to the first
assumption, this one also casts the boss in the role of omnipotent decision-
taker.
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.

Table 7.2 Strengthening your work relationship with your boss

1 Take time to understand your boss’s goals, objectives, job pressures, strengths and
weaknesses and leadership style.
2 Realistically assess your own strengths and weaknesses, preferred decision-making style,
comfort level with authority and your need for achievement.
3 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 boss’s time and resources.
The first step stresses your understanding of your boss and his decision-
making 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 self-
appraisal 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 figures. 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 boss’s 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.

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 first task in charting a path through competing leadership theories is to
distinguish the concept from management. Leadership is the power of one indi-
vidual to guide the actions of another. Leaders are individuals who advocate
change and who try new approaches to problems. Leadership is often concep-
tualised as a set of behaviours or a product of the interaction of the leader’s
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 specific functions of the manager and who holds a formal
title or fills 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 influence 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 manager’s job in
terms of roles.8 He based his managerial role classification system on detailed
analyses of how managers spend their time. He identified 10 roles which man-
agers fill 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 col-
lect 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 sufficient
information and have established dependable interpersonal working relation-
ships.
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

Table 7.3 The manager’s roles in today’s firms

Interpersonal relationship maintenance
Figurehead/chief Testifies in court and at regulatory hearings
Cuts ribbons and opens new offices/facilities
Leader/encourager Gives pep talks and holds open meetings with workers and staff
Passes out awards and honours
Hires and fires
Liaison/linking pin Presides over industry trade group or professional
society/certification group
Informational (generation and transmission of data and knowledge)

Monitor/surveyor Reads industry reports and meets with vendors
Distributor Holds meetings, writes memos and sends e-mail
Advocate/spinmeister Makes speeches, meets with the press, grants interviews
Decisional (deciding and controlling)

Creator/entrepreneur Scans and detects new ideas/product innovations/ industry trends
Crisis controller Acts quickly in a dilemma and makes decisions to limit perceived
damage
Resources distributor Sets and manages the budget in relation to the firm’s strategic
plan
Mediator/negotiator 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 manager’s
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 fulfil 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 don’t get
time to yourself, and you’re constantly ‘on call’. You always have to watch out
for everyone else. For these reasons, I wouldn’t 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 figurehead, leader and spokesperson have nearly vanished from day-
to-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 find 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.

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 influence 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 lead-
ership. Still other scholars and experts stress the importance of the constancy
and predictability of the leader’s 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 leader’s traits and behav-
iour 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 suc-
cessful leadership, regardless of its good, bad or indifferent social consequences.
The implicit assumption was made that those individuals who became promi-
nent 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 per-
sonality, 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 officers. 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 Examples of leadership traits

Physicality Social pedigree Mental characteristics
Energy level Economic and social status Intelligence
Height Alma mater and college degree Judgment
Attractiveness Job mobility Verbal fluency
Weight Public service Abstact reasoning ability
Personality Work orientation Social skills/abilities

Dominance Achievement need Co-operativeness
Aggressiveness Initiative Likeability
Self-confidence Desire for responsibility/promotion People skills
Creativity Diplomacy
Stress tolerance Supportiveness

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) per-
suading 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.
Difficulties in the trait approach to leadership. The first 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 first 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 influence 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 influence subordinate
performance and satisfaction. These experts have refined 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 sub-
ordinates 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.

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) approacha-
bility, 2) supportiveness, 3) maintenance of high morale in the work group, 4)
concern for group welfare and 5) maintenance of a collaborative work atmo-
sphere. Consideration focuses on self-esteem issues and the cohesiveness of the
work group. Consideration behaviours are intended to achieve a good socio-
emotional 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 influenced group satisfaction and performance. A num-
ber of conclusions have emerged about the leader’s behaviour and the group
outcomes of performance and member satisfaction.
1 When subordinates are experiencing time pressure, job ambiguity or exter-

nal threat, satisfaction and performance increase under initiating structure
leader behaviour.
2 If the group’s task is perceived to be interesting and challenging by group
members, then the need for consideration and initiating structure is reduced.
3 When the group’s goals and task are certain, consideration promotes satis-
faction and initiating structure can cause dissatisfaction. Thus, under con-
ditions of high task clarity, initiating structure becomes unnecessary and
intrusive.
4 If subordinates lack job performance knowledge or their jobs are vague,
consideration has less relationship with satisfaction and performance than
initiating structure.
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 leader’s 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

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 organisation’s 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 over-
enthusiastically 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 specific 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 Fiedler’s contingency theory.13
7.3.7 Fiedler’s Contingency Theory

Fiedler’s contingency theory of leadership proposes that leader behaviour inter-
acts with the favourableness of the situation to determine the level of group
effectiveness. Some situations are more or less favourable and they require dif-
ferent leader behaviours. The theory requires the assessment of the leader’s
style by measuring the leader’s 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 difficulty 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 (least-
preferred co-worker) has few redeeming qualities. Thus, the low LPC leader
reasons: ‘The guy is a poor performer and he’s dull, boring and uncreative.’

Table 7.5
PLEASANT 8:7:6:5:4:3:2:1 UNPLEASANT
FRIENDLY 8:7:6:5:4:3:2:1 UNFRIENDLY
WARM 8:7:6:5:4:3:2:1 COLD
DISTANT 8:7:6:5:4:3:2:1 CLOSE
GLOOMY 8:7:6:5:4:3:2:1 HARMONIOUS
RELAXED 8:7:6:5:4:3:2:1 TENSE
BORING 8:7:6:5:4:3:2:1 INTERESTING
SINCERE 8:7:6:5:4:3:2:1 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
leader’s 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 impor-
tant 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 subordi-
nates. When these qualities are absent, insubordination, sabotage, absenteeism,
grievances and work slowdowns may result. Task structure refers to the clarity
of the group’s work and the extent to which members understand the goals of
the group’s work. When these conditions exist, the influence process is easier
because the leader can formulate clear performance measures which subordi-
nates 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
‘leader’s way’ is better than their way. Position power is the leader’s 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
Fiedler’s 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 leader–member relations which
is the strength of the relations-oriented, high LPC leader.
The theory stresses that the leader’s orientation cannot be easily changed.

Situation favourableness
High Low
Leader-member
relations Good Poor
Task structure Structured Unstructured Structured Unstructured
Position power Strong Weak Strong Weak Strong Weak Strong Weak
I II III IV V VI VII VIII
TASK RELATIONSHIP TASK
MOST EFFECTIVE LEADER ORIENTATION
Figure 7.3 Fiedler’s contingency theory of leader effectiveness
Thus, the organisation must match the leader to the situation’s favourabil-
ity. Fiedler says it makes most sense to diagnose the leadership situation and
see if there is a good match between the leader’s orientation and situational
favourability. Fiedler argues against trying to train leaders to exhibit different
behaviours. He thinks organisations should match the leader’s orientation to the
demands of the leadership situation. However, it would be cumbersome indeed
for organisations to be continually assessing the fit between the orientations of
leaders and the situations they face. Fiedler has offered several suggestions to
alter the leader’s situational control to improve the fit between his motivational
pattern and situational favourability. They are shown in Table 7.6.
Table 7.6 How leaders can change the situation that they face
Tinkering with relationships at work
1 Spend more or less time with subordinates including lunch and after-hours socialising
2 Request certain people for group membership or assignments
3 Volunteer to supervise or work with troublesome group members
4 Transfer certain group members
5 Get additional rewards to improve morale
6 Listen to employees’ concerns and offer personal advice
Modifying task structure
1 Give the group creative challenges with no constraints on methods
2 Provide more standardised assignments
3 Divide the work into smaller, more specialised units
Modifying position power
1 Rely on discipline to constrain troublesome team members
2 Require that all information and group decisions are reviewed by upper management
3 Delegate more authority to group members (empowerment)

7.3.8 House’s 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 leader’s main job is the
clarification 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 satisfied and are more
willing to exert effort and to accept leadership influence. 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 specifies how a leader exchanges rewards for performance and effort
from subordinates.
In the path-goal theory, the leader’s job is clearing pathways between employee
effort and performance and between employee performance and rewards. Thus,
leaders must be flexible enough to practise a number of behaviours which move
subordinates along the sequence of effort-to-performance and performance-to-
reward. The behaviours which the leader must develop are described below:
1 Directive behaviours. These are behaviours such as work planning, setting

performance standards, clarifying work expectations and giving instructions.
2 Supportive behaviours. Leader behaviours which are friendly, supportive,
caring and considerate.
3 Participative behaviours. Using subordinate’s ideas in problem-solving.
4 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 achieve-
ment oriented leader behaviour that effectively rewards individual employee
contributions to unit performance.
2 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.
3 When subordinates question their task abilities, they will respond best to
directive leadership. However, they will find this behaviour irritating if
they have high ability to perform the task well and there is time pressure
to complete it.
4 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.

5 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 char-
acteristics require different leader behaviours if subordinates are to work hard,
accept the leader’s influence and be satisfied with work. Some of the combina-
tions hint at the fact that the leader’s 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 influence. Consider these two situations:
Aaron is a university research scientist with a scientific 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.
Sidney’s boss is in a much stronger position to exert successful influence than
Aaron’s department head at the university. Aaron’s scientific expertise and external
financial 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 influence 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 conflict 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.

Table 7.7 Substitutes for leadership and control in work relationships

Substitutes Neutralisers of Neutralisers of
relationship orientation task orientation
Qualities of subordinates
Ability, expertise, knowledge yes
Professional certifications and licenses yes yes
Indifference to rewards yes yes
Jobs’ features
Routine methods and clear goals yes
Provides own feedback yes
Intrinsically satisfying and involving yes yes
Firm’s features
Formal, inflexible work rules yes
Cohesive self-directed teams yes yes
E-mail and intranets yes yes
Spatial separations yes yes
Please note by referring to the examples that neutralisers can convert to substi-
tutes for leadership. In Aaron’s case, his expertise and research grant neutralised
his department head’s influence. 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 confirmed four primary, behavioural dimensions:
1 Performance-contingent reward behaviour. The extent to which a leader
uses positive reinforcers, such as praise, recognition and affirmation of
successful performance, contingent on high subordinate effectiveness on the
job.
2 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.
3 Non-contingent reward behaviour. The extent to which a leader rewards a
subordinate, regardless of how well the subordinate performs on the job.
4 Non-contingent punishment behaviour. The extent to which a leader uses
punitive means and reprimands, regardless of how well a subordinate
performs.15
Studies of performance-contingent leader reward behaviour confirm that it is
associated with higher levels of subordinate job performance and satisfaction.

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 leader’s
part.15
The careful reader will also note that the leader’s use of rewards and punishers
is magnified 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 leader’s 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 financial considerations (pay and benefits
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 leader’s
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 significant financial and non-financial rewards, ensure that their dis-
tribution to employees is based only on measurable and well-understood
individual and group-based performance standards.
2 To enhance the power of financial and non-financial performance-based
rewards, use recognition and acknowledgement of organisational gratitude
for exemplary individuals and groups.
3 Create as much variety in financial and non-financial rewards as possible.
Avoid confusion among employees concerning how individual and group
performance is measured and rewarded.
4 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.
5 Avoid delays in the administration of both performance-contingent rewards
and punishers.
6 Avoid personal biases in giving rewards and punishers.
7 Administer punishers to individuals or work groups in private.

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 profit 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.
2 Entrepreneurs are born and not made. Considerable evidence indicates
that entrepreneurial traits are acquired and not inherited. This supports
Drucker’s contention that entrepreneurial skills can be taught and learned.
3 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.
4 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.
5 The myth of the entrepreneurial profile. There are no checklists which
simplify the traits of the successful entrepreneur. These checklists are useless
oversimplifications of a complex pattern of human behaviour. The ‘profile
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 profile 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 Bowman-
Upton 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

Table 7.8 The entrepreneurial profile

Entrepreneur’s characteristic What the entrepreneur believes
1 Is tenacious and makes sacrifices You must make sacrifices in your family life and
standard of living to start a business.
2 Pursues achievements You must have a strong desire to succeed even in the
face of several failures.
3 Is directive Have a clear vision of your goal and be able to explain
it to others.
4 Assumes personal responsibility You should seek situations where you can assume
responsibility for success or failure.
5 Solves problems Turn problems over until you get the best solution or
result.
6 Appreciates novelty Catch things that others miss.
7 Has an internal locus of control Believe that your outcomes are a control matter of
your efforts.
8 Tolerates ambiguity Be productive and focused in the face of substantial
uncertainty.
9 Takes calculated risks Lower your risk by developing a thorough business
plan.
10 Handles failure Failure is temporary.
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 classification. Individuals’
beliefs about business opportunity detection and exploitation are not confined
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 artificial category based on organisational
affiliation to describe a group of people who are really just entrepreneurs.20
They argue that the defining 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 engi-
neer, used to be annoyed when pieces of paper he used to mark hymns
slipped to the floor as he stood up to sing. He knew that Spencer Silver, a

Table 7.9 Differentiating entrepreneurial behaviour from administrative

behaviour
Dimension of Entrepreneurs tend to ... Bureaucrats tend to ...
behaviour
Creating Spot opportunities Control the flow of resources
value-added Radically change the firm Make incremental changes in
strategies Exhibit self-confidence methods
Believe in firm’s capabilities Efficiently use the firm’s current
resources
Taking decisions External product and process Separate personal beliefs about
opportunities are closely linked to external opportunities and change
the personal value that change is (change is not always good)
valuable and meaningful Checks and balances are
Flat structures best keep the firm more important than rapid
flexible and fluid (cross-training is decision-making
a must)
Tackling problems in Minimise risk by leasing or renting Own equipment and facilities and
the firm facilities and equipment add capacity only when capital
Always be prepared to add costs are manageable
capacity
Using incentives Keep salaries low and use ISPs to Develop and maintain merit- based
retain talented employees reward system
Use bonuses at individual and Periodic salary surveys to ensure
team levels competitive pay
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 Arthur’s 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’.
2 At the age of 28, Nolan Busnell created a game called Pong, America’s first
video game. He formed the Atari Corporation to market his game. Within
five years he had sold his interests in the company for $28m.
3 While a student at Yale, Frederick Smith sketched out his plans for an air-
delivery 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.
4 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 market-
value added wealth for its shareholders. This places Microsoft well ahead

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 entre-
preneurial. In fact, these and other successful firms have special roles which are
filled by managers and engineers who help nurture and develop entrepreneurial
innovation in employees. Let us consider the roles that are necessary for encour-
aging intrapreneurship in the firm. 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: ‘We’re
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 sufficient 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 firm. They take on unique
characteristics which reflect the work habits of the employees. One manager’s
comments about such a work unit are illuminating:
The floor is cluttered with all a variety of magazines, a stereo blasts away, and
photos of scenes from various science fiction movies decorate one corner. These
employees do not come to work until 10 a.m., and they don’t 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: ‘We’ve finally found the key
problem that users are having with our software. They don’t like the way the
screens present information’. When I asked why it took four months to figure this
out, the employee responded, ‘Why not? We now know the key to what makes

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 fit in to an organisation which uses
idea champions, sponsors, godfathers and greenhouses. Try the short question-
naire below to see if you’re 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 I do not worry about getting a bad job performance rating.

2 I more often attempt difficult tasks that I am not sure I can do than easier
tasks that I’m sure I can do.
3 I would rather do something that I feel is challenging and difficult than
something that is easy.
4 I prefer to develop my own approach to work rather than have a job
description.
5 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.
6 I rarely ask for instructions from my manager even when my job seems
unclear.
7 My idea of how success should be measured does not depend on the
number of promotions I receive.
8 When I work, I like situations in which I can’t get everything done without
the help of others.
9 I make things happen when I work. I can accomplish things no matter what
the work climate is like.
10 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
profile, 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 specific 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 champion’s life is loaded with
controversy and doubters. People may block the idea champion’s way and resist
his ideas in favour of the status quo in the organisation. If the idea champion’s

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 influence 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.
• Influence 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
influence 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 indi-
vidual. 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
flow of work and 4) eliminating substitutes for the subunit’s activities.
• Organisational politics refers to the management of influence 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 conflict,
building coalitions and finding sponsors and practising insurgency. Whistle-
blowing behaviour occurs when the organisation’s values and practices
violate an employee’s instrumental or terminal values.
• Upward management of the boss is both reasonable and necessary to sustain
an effective superior–subordinate 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 direc-
tive behaviours which focus on achieving goals and clarifying work. Both
leader behaviours are related to group performance and member satisfaction

depending on: 1) external pressure, 2) nature of the task, 3) clarity of goals

and 4) extent of performance feedback.
• Fiedler’s contingency theory tries to integrate the leader’s orientation to his
least-preferred co-worker and the favourableness of the leadership situation.
The theory proposes that the situation is composed of: 1) leader–member
relations, 2) leader’s position power and 3) task structure. The leader’s
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 leader’s job is the
clarification 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) achievement-
oriented behaviour to achieve the clarification 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 leader’s 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
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 satisfied 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?

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 uncer-
tainty 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 Fiedler’s contingency theory places special emphasis on the value of teaching
people how to change their task-oriented or relations-oriented leader behav-
iours. 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 bureau-
cracy. 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?

7.21 The right to give orders inherent in one’s position is and the capacity
to influence peers and superiors is .
A power; authority
B influence; authority
C locus of control; need for achievement
D authority; power
E power; control
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 legitimate
B expert
C coercive
D reward
E referent
7.23 Which of the following power sources is least likely to be available to a

technical, non-managerial employee?
A expert
B legitimate
C referent
D knowledge
E 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 reward
B coercive
C referent
D expert
E legitimate
7.25 When an employee engages in entrepreneurial behaviour and seeks to find

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

7.26 Which of the following is least likely to minimise the problems associated with
organisational politics?
A encouraging participative management.
B communicating the rationale behind decisions.
C clarifying goals and performance objectives.
D maintaining open communication channels to higher levels of management.
E disregarding the informal organisation.
7.27 The problem of which comes first: great leaders who make great situations or
great situations which make great leaders, is handled least well by the
leadership theory.
A behavioural
B trait
C contingency
D path-goal
E neutraliser
7.28 The Fiedler contingency theory of leadership would predict which of the fol-
lowing in matching the leader to a favourable leadership situation?
A re-engineer the situation.
B leader behaviour training.
C better selection and assignment of the leader to the situation.
D match LPC score to locus of control.
E train followers in consideration and initiating structure.
7.29 According to Fiedler’s leadership research, high LPC (relations-oriented) leaders

are most effective in situations where:
A leader–member relations are poor, the task is unstructured and position
power is weak.
B leader–member relations are poor, the task is structured and position power
is strong.
C leader–member relations are good, the task is unstructured and position
power is weak.
D leader–member relations are good, the task is structured and position
power is weak.
E leader–member relations are good, the task is structured and position
power is strong.
7.30 House’s path-goal theory of leadership is a transactional, contingency theory of

leadership which shares theoretical principles with
A expectancy theory.
B Herzberg’s two-factor theory.
C Maslow’s hierarchy of needs.
D McClelland’s socially acquired need theory.
E management by objectives.

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 person’s

power in an organisation?
7.3 Develop an argument for explaining the extent of your marketing department’s
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 firm 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 Ashton’s 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 file 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

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 Foreman Foreman
L. Orbs B. Sharp Y. Fore
Company History
The firm 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 Lenton’s business. When
Mr Lenton began the business, his was one of a handful of firms building the
boards. Recently, several other firms had started making similar boards. One
competitor had bid on business with Lenton’s major customer. Thus, Mr Lenton
began to put pressure on Ian to increase efficiency 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 pro-
grammes 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 firm 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 founder’s
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

firm. Recently, several employees had completed the installation of a computer

system at Wexley’s 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. Employee–foreman relationships were good,
but the employees found the work to be boring and monotonous. Wages were
about average for the industry and Lenton’s employee turnover rate was also
about average. The foremen knew that the work was monotonous. They fre-
quently 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 men-
tioned 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 specific 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 foremen’s efforts to implement the goals met with immediate employee
resistance. The employees’ reactions were typified by Allison Roe, an assembler
on Lewis Orb’s production line: ‘I don’t 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 efficiency 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 slow-
down. Previously hard-working employees voiced their support for the slow-
down, reasoning that ‘the company can’t fire all of us’. Ian and Wexley observed
the effects of the slow-down. Wexley’s response was to further tighten work rules
by requiring: 1) a loss of one half-hour’s pay for each five minutes of lateness
in reporting to work in the morning and after lunch, 2) reducing breaks from

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 fire quickly from the employees. For the next two weeks
they flagrantly violated the new rules. Wexley had Yves Fore dismiss two
employees under the new discipline system. Other problems surfaced in Bernard
Sharp’s 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.
Ian’s 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 finding
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 Wexley’s tightened work rules.
Phillip Colson, the company accountant, came into Ian’s office. He dropped
the previous month’s production efficiency and productivity report on Ian’s
desk. Ian flipped the printout to the production figures and he knew instantly
that he’d 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 figures 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

Mintzberg’s managerial roles.

∗
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 oper-
ations and quizzes the manager about sales figures and store expenditures. Since
she had an extremely high need for achievement, she had demanding expecta-
tions 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 she’s not satisfied
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 person’s 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 figures 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. Dissatisfied
women on corporate career paths flocked 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
company’s stock was issued in London on an unlisted exchange and it soared as
investors hoped to capitalise on the company’s proven growth formula. By the
late 1980s the strains of the company’s 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 profit 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 company’s 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: 42–5; Robin Pogribin,
‘What Went Wrong with Mrs Fields?’, Working Woman, July 1993: 9–11; Harris Collingwood, ‘Kitchen Too Hot
for Mrs Fields?’, Business Week, 1 March, 1993: 46.

she began to fill 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 company’s 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 semi-
sweet chocolate chips in supermarkets. The company is now opening cookie-
bakery-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 unsatisfied, 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 company’s 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 company’s 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 Cobb, A. (1984) ‘An Episodic Model of Power: Toward an Integration of the Theory
and Research’, Academy of Management Review 9: 482–93.
2 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.
3 Crozier, M. (1964) The Bureaucratic Phenomenon. Chicago, IL: University of Chicago
Press.
4 Velasquez, M., Moberg, D. and Cavanaugh, G. (1982) ‘Organizational Statesmanship
and Dirty Politics: Ethical Guidelines for the Organizational Politician’, Organizational
Dynamics 11: 65–77.
5 Hickson, D., Hinings, C., Lee, C., Schneck, R. and Pennings, J. (1971) ‘A Strategic
Contingency Theory of Intraorganizational Power’, Administrative Science Quarterly 16:
216–29.
6 Mayes, B. and Allen, R. (1977) ‘Toward a Definition of Organizational Politics’,
Academy of Management Review 2: 672–8.
7 Mintzberg, H. (1983) Power In and Around Organizations. Englewood Cliffs, NJ: Prentice
Hall.
8 Mintzberg, H. (1973) The Nature of Managerial Work. New York: Harper & Row.

9 Kotter, J. (1982) ‘What Effective General Managers Really Do’, Harvard Business Review
(January–February): 156–62.
11 Bennis, W. and Nanus, B. (1985) Leaders: The Strategies for Taking Charge. New York:
Harper & Row.
12 Lewin, K., Lippitt, R. and White, R. (1939) ‘Patterns of Aggressive Behavior in
Experimentally Created Social Climates’, Journal of Social Psychology 10: 271–99.
13 Fiedler, F. (1967) A Theory of Leadership Effectiveness. New York: McGraw-Hill.
14 House, R. (1971) ‘A Path-Goal Theory of Leader Effectiveness’, Administrative Science
Quarterly 16: 321–39.
15 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: 299–324.
16 Drucker, P. (1985) ‘The Entrepreneurial Mystiques’, Inc. (Oct.): 34–44.
17 Aldag, R. and Stearns, T. (1987) Management. Chicago, IL: Southwestern.
18 McClelland, D. (1976) The Achieving Society. New York: Irvington.
19 Sexton, D. and Bowman-Upton, N. (1991) Entrepreneurship: Creativity and Growth. New
York: Macmillan, 12–13.
20 Sexton, D. and Bowman-Upton, N. (1991) op. cit., 13.
21 Aldag, R. and Stearns, T. (1987) op. cit.
22 ‘Here Come the Intrapreneurs’ (1985) Time, 4 February: 36–7.
23 Galbraith, J. (1982) ‘Designing the Innovating Organization’, Organizational Dynamics
(Winter 1982): 5–25.

Module 8
Organisational Design and New

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

Module 8 / Organisational Design and New Forms of Service-Driven Organisations
Learning Objectives
• Differentiate between organisational structure and organisational design.

• Identify the distinguishing features of mechanistic and organic organisa-
tional 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 organi-
sations.
• Weigh the benefits and costs of decentralised business operations.
• Differentiate between organisational co-ordination and organisational con-
trol.
• Delineate the methods to achieve improved horizontal and vertical co-
ordination.
• Explain the differences between process-oriented and results-oriented con-
trol systems.
• Understand why eliminating the manufacturing approach in customer ser-
vice requires a commitment to a strengthened employment relationship.
• Explain why service quality improvements require the rebuilding of organ-
isational structure and processes from the bottom up to support service
delivery employees.
• Assess whether service quality is a major component of competitive advan-
tage in the firm.
• 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 firms.
• Explain how outsourcing of services to cut costs can jeopardise competi-
tive advantage and customer loyalty if the supplier’s service is deemed
inadequate by customers.
• Explain that raising service quality is far more time consuming than down-
sizing, but is more likely to sustain competitive advantage.

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 organisation’s goals. If managers pay little atten-
tion to the proper design for the firm (or do not co-ordinate work), employees
do not fulfil their performance potential and they do not achieve the goals of
the company’s 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, Rex’s 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 configuration of a company is the way work is divided
and how it achieves co-ordination among its various work activities. 1 A com-
pany’s 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 dis-
cretion, 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

MECHANISTIC ORGANIC
DESIGN DESIGN
ORGANISATIONAL
DESIGN ISSUES
DEGREE OF WORK SPECIALISATION
Division of labour
High Low
Distribution of DEGREE OF CENTRALISATION

authority High delegation
Low delegation
DEGREE OF WORK UNIFORMITY

Departmentalisation
High uniformity Low uniformity
NUMBER OF SUBORDINATES
Span of control
Few 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 firm. It is the spe-
cific tasks and work methods which define an employee’s 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 com-
munication 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 sub-
tasks at which employees develop expertise through repetition. In this way
companies capture efficiencies in production systems which can be transformed
into lower cost per unit of output and sustainable competitive advantage.

Delegation of Authority
Delegation of authority is a manager’s decision about how much authority
to give to a subordinate. In many ways, it is a manager’s decision to give
‘a piece of his job’ to a subordinate or a team of employees. Authority was
defined in Module 7 and it is the legitimate right to give direct orders to teams
or individuals. It flows 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. Here’s a short story on the subject of
authority delegation.
Victor’s 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 manager’s point of view, delegation represents giving up some mea-
sure of control. Managers cannot do all of the firm’s 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 increas-
ingly 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 moti-
vator (intrinsic reward) which raises subordinates’ effort levels. The need to be
effective in delegation of authority is even more pressing in downsized and
delayered firms. There, the focus of delegation is likely to be self-directed work
teams rather than separate individuals.
Principles of delegation of authority. Let’s 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 configuration of hardware (and price)
to meet the customer’s 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 firm. 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.

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 employee’s understanding of the task
is complete. Also, he checks with the subordinate to see that he knows how to
complete the work.
Fifth, the subordinate’s 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 five rules of delegation create beneficial outcomes for
the firm 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 benefits of delegation are summed up in the book In Search of Excel-
lence 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 Emerson Electric, with 54 000 employees, has fewer than 100 at its head-
quarters.
2 Dana, with 35 000 employees, recently cut its corporate staff from 500 to 100
employees.
3 WalMart, with $190bn in annual sales has a corporate staff of under 400 at
its headquarters.
4 Schlumberger Inc. has a corporate staff of 90 employees.5
These firms 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 firms must practise the principles of
delegation so that employees working in the field 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.

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 finance. 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 manufactur-
ing firm might include production, purchasing, personnel, finance, accounting,
and marketing. Figure 8.2 shows a simple functional departmentalisation for an
organisation.
GENERAL MANAGER
ENGINEERING MANUFACTURING QUALITY MARKETING FINANCE PERSONNEL

CONTROL AND SALES
EXECUTIVE PRODUCTION
ENGINEER MARKET PUBLIC
PURCHASING RESEARCH RELATIONS
Figure 8.2 The functional design
The functions depicted in the manufacturing firm shown in Figure 8.2 are
engineering, manufacturing, quality control, marketing and sales, finance and
personnel. The principal advantages of the functional design are noted below.
1 The structure is a logical reflection of the firm’s functions.

2 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 efficient.
3 It is efficient because individuals in functional departments learn to speak
a common language (accounting, purchasing, quality control, and so on).
4 It minimises the extent of duplication of effort.
5 Training of employees is narrowed and simplified.
6 It facilitates tight control and the legitimate authority of the chain of com-
mand is reinforced.
Several disadvantages do occur in functional designs, however.

1 Overspecialisation can take place and this can narrow the business view-
points in functional departments.
2 The development of managers is limited to their functional areas.
3 Co-ordination between departments can weaken; for instance, employees
in purchasing may never be aware of problems confronting marketing
personnel.
4 Employees identify more strongly with their departments than with the
culture of the firm.
5 The chief executive may be overburdened.
6 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 It tailors work units to the particular features of customers in a given region,

i.e., British, Japanese, American, French.
2 It provides an excellent training ground for managers as they are assigned
to different regions.
3 It provides an excellent basis for the career development of managers (move-
ment from field operations to company headquarters).
4 It creates work units that are highly responsive to specialised customer
needs.
There are a few disadvantages which occur in the territorial form of depart-
mentalisation.
1 There is a danger of duplication of effort across departments serving various

territories or regions.
2 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
diversified 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 firm
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 field service division. The territorial design is
reflected in the international division. The principal advantages of the product
divisional design are presented below.
1 It provides adaptability and flexibility in meeting the needs of customers

and the company’s ability to manage a set of related products.
2 External changes can be detected more readily and understood in product-
relevant terms.

PRESIDENT AND CEO
PRESIDENT, PRESIDENT, PRESIDENT,

COMPUTER FIELD INTERNATIONAL
DIVISION DIVISION DIVISION
Vice-President Vice-President Vice-President

Office Machines Office Machine Repair European Region

Printers and Peripherals Printers and Peripheral Repair South American Region

Personal Computers Personal Computer Servicing Australia

Mainframe Computers Mainframe Computer North American Region
Servicing
Figure 8.3 Combined product and territorial design
3 Employees gain deep understanding of product and market characteristics

(product divisions are good training grounds for developing managers with
generalizable skills).
4 The structure encourages the development of separate business units (profit
centres) which top management can pit against each other through friendly
competition to maximise profits.
5 Performance measures are easy to create and judging the performance of
various product divisions is less complicated.
6 The design shifts some of the burden for general management from corpo-
rate executives to division executives (This reduces the extent of diversity in
the chief executive’s 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).
2 Finding and training people to head each division is a difficult job.
3 When product divisions attempt ‘joint ventures’ conflicts can arise due to
sharing resources and agreeing on ‘transfer prices’.
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 firm, severe co-ordination and communication
problems can arise. In some cases, product-oriented divisions can actually work

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 organisa-
tion 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 specific 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, HP’s 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 division’s
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 résumés fluttered about
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 configuration evolved in aerospace firms 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 firm.
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 divi-
sions 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 func-
tional 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.

PRESIDENT AND CEO
MEDICAL INDUSTRIAL DEFENCE

PRODUCTS INSTRUMENTS SYSTEMS
DIVISION DIVISION DIVISION
PRODUCTION MARKETING ENGINEERING

MANAGER MANAGER MANAGER
RESONANCE
IMAGING
PROJECT Production Marketing Engineering
MANAGER employees employees employees
LATERAL
COLLATOR
PROJECT Production Marketing Engineering
MANAGER employees employees employees
Figure 8.4 The matrix design in a medical products firm
Now let us examine the advantages and disadvantages of the matrix design.
The principal advantages are noted below.
1 The matrix design combines the strengths of the product divisional and
functional designs.
2 The design blends an emphasis on market changes with management and
technical expertise in given product or project areas.
3 It develops managers with technical product and project knowledge who
can communicate effectively with marketing, production, and personnel
from other functional departments.
4 A self-contained department can devote its undivided attention to the needs
of its product, project or customer groups.
5 The firm can focus on specific 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.
2 The design requires excellent planning and resource allocation to ensure
that functional work proceeds and projects do not ‘starve’.
3 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.
4 The design may lead to excessive overhead costs because projects may
over-hire technical and support staff.

Table 8.1 summarises the discussion on departmentalisation.
Table 8.1 Forms of departmentalisation

Functional Product divisional Hybrid/territory Decentralised matrix
Emphasis on:
Profit responsibility CEO Subsidiary president Regional manager Project / programme
managers
Self-directed teams de-emphasised used at unit level customer-driven project expertise
Cross-training de-emphasised used at unit level vendor and emphasised for

for manager and customer-driven project managers
employees
Customer relations de-emphasised mostly a product balanced emphasis emphasises mostly

and service quality focus on product and product
service
Broadening of emphasised on emphasised on a emphasised on a emphasised on a

managers’ and process basis product and process process and service product and process
employees’ technical basis basis basis
skills
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 influenced by the number and intensity of interpersonal relationships
between the superior and his subordinates. Ivancevich and Matteson note that
three factors affect a manager’s span of control.2
1 Required contact. In research and development, and medical and produc-
tion work, there is a need for sustained and frequent co-ordination between
superiors and subordinates. Self-directed teams need flexible 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.
2 Degree of specialisation. In general, a manager lower in the firm 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 organisation’s hierarchy.
Modern computer-based communication systems are turning these estab-
lished relationships upside down. Employees performing complicated work
can now work from home and stay in instant contact with work colleagues
by being on-line.
3 Ability to communicate. Managers who can clearly and concisely convey
company policies, procedures, and work expectations to subordinates can

manage a wider span of control. During the last ten years, the manager’s
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 sep-
aration 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 firm. Extensive research on firm structure indicates that it is composed
of several dimensions which have significant 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 manage-
ment. Decentralisation is the process of pushing authority down the organisa-
tional hierarchy so that decisions are made as close to the origin of organisational
problems as possible. When a firm is centralised, all employees follow uniform
procedures and policies which are formulated and enforced by higher manage-
ment. Rules and regulations direct employees to do certain things in specific
ways at certain times. Rules and regulations make employees’ tasks explicit and
they determine the nature of superior–subordinate relationships. If managers
establish many rules and regulations covering employee behaviours, then they
maintain control over their subordinates’ tasks, work relationships, and behav-
iour. Thus, decision-making is centralised through the formal system of rules
and regulations. When centralisation dominates, the firm creates more control by
adding more layers to the chain of command. This causes the number of man-
agers 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 firms.
Highly centralised firms usually exhibit high formalisation. Formalisation is
defined 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 excep-
tions are encountered. Written work guidelines are formulated so that similar
work activities are performed in the same way each time. Greater standardis-
ation and formalisation lead to greater centralisation and larger administrative
ratios in firms.

We have said that decentralisation is a managerial decision to delegate author-

ity to employees or to self-directed teams at lower levels in the chain of com-
mand. 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 cen-
tralisation reflects the opposite of these worthy qualities.6
The drive to decentralise using the tools is also propelled by several power-
ful forces. They are: 1) shareholder demands for higher returns, 2) increasing
global competition from rivals that are true low-cost producers, 3) more sophis-
ticated 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 firms.
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 firms on the basis of products,
services and markets while they centralise functions and processes (e.g., account-
ing, purchasing, finance, information systems and human resources). If process
centralisation proves to be too costly, then managers try outsourcing. Out-
sourcing is contracting for manufacturing, distribution and personnel activities.
Outsourcing allows the firm to control its costs because many types of labour
and overhead costs are pushed off to the supplier. Outsourcing allows the com-
pany 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 efficient 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 outsourc-
ing is that the company’s management team will find 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 firms, the use of outsourcing employees is creating modular work
forces that use temporary employment agencies to provide managers, techni-
cians, accountants and staff specialists on a contract basis. Because employment
benefits 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 find 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.

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 uncer-
tainty. Most managers prefer fixed 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
findings.7
Table 8.2 Strengths and Weaknesses of Decentralised Designs

Strengths Weaknesses
1 Meshes well with rapid change and fast 1 Innovation is often restricted to projects
company growth or specialised programmes
2 High awareness for projects, 2 Difficult to allocate pooled resources
programmes, or products such as computer analysis
3 A high task focus which yields control 3 Co-ordination problems in joint functions
over time, financial and human resources such as purchasing
4 Customers can determine task 4 Deterioration of broad managerial skills
responsibilities and project personnel are and potential for loss of technically
highly responsive to their needs skilled employees
5 Concurrent multiple tasks can be 5 Jurisdictional and priority disputes
co-ordinated across functional 6 Possible neglect of high-level
departments co-ordination to ensure organisational
effectiveness
The weaknesses noted in Table 8.2 come through strongly in the case descrip-
tion 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 men-
tioning 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 arrange-
ments involve diversification while strategic alliances are a form of joint venture
for a specific purpose between two or more companies. A conglomerate is a
holding company that acquires many other companies which have entirely dif-
ferent business strategies and operate in diverse industries. A conglomerate is
the expression of the strategic principle of unrelated diversification. Unrelated
diversification is the acquisition of companies because they are: 1) undervalued,
2) financially 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 conglomerate’s CEO.

In the United States, General Electric is an excellent example of a conglom-

erate. 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 group-
ing of companies based on an important strategic element such as overlapping
competitors, a closely related strategic mission, or a common need to compete
globally. GE’s 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 (sub-
sidiary 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 confined to North America and Europe. In Japan they
are called a keiretsu which is a corporate system that links suppliers and manu-
facturers that are clustered together to take advantage of geographic, logistical,
and financial 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 fibres, finance and insur-
ance, 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 financing is available through the conglomerate’s
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-five 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 five percent of the stock
of another keiretsu member. These interlocking financial relationships encourage
co-operation and information sharing within the keiretsu. At Mitsubishi co-
operation 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 final
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.

The on-going deflationary period in Japan has forced them to slash expenses
to maintain profits. During the mid-90s, Toyota slashed domestic production
costs by $1.5bn. Known as the ‘world’s most efficient car producer’, Toyota is
believed to be still immensely profitable at an exchange rate of 92 yen to the
dollar. Some experts believe that the company could still be profitable 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
profit 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 co-
prosperity.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 profit margin to 5 percent.
The Japanese conglomerates are under enormous pressure from Japanese con-
sumers to lower prices. Small retailers in Japan are failing in record numbers
because they cannot compete on price with larger, more efficient, discount-
oriented retailers. Business analysts note that after 50 years of ‘quasi-legal’
price-fixing, Japan’s business cartels must lower prices and reduce profit mar-
gins. These pressures continue to accumulate due to nearly four years of near-
zero economic growth.9 The formerly close relationships between manufacturers
and suppliers are collapsing as Japan’s 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 Japan’s consumers more than $140bn per year.9 So, the
head of Japan’s Federal Trade Commission (FTC) has hired more investigators
and last year the agency cracked down on price-fixing in six industries ranging
from cosmetics to warehousing. By 2000, the agency promises to eliminate all
of Japan’s cartels.9 Until the economic distortions created by cartels and price
fixing are eliminated, Japan’s 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 com-
puter products, IBM slipped to a distant third in sales. This happened because

companies in the NEC and Fujitsu keiretsus were expected to buy their com-
panies’ 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 sub-
stantially 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 firms 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 company’s products, collaborating to manufacture
components or to assemble finished 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 beneficial
outcomes.12 They hope to gain economies of scale in production or marketing
or they might believe that such a move will fill 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 satisfied 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 formal-
isation 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.

Research on span of control suggests that employees begin to experience

confusion about work expectations and performance if their manager’s 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 firm’s formalised operating practices provide it with a framework for con-
trolling the work behaviour and work expectations of employees. Written rules
and regulations inherent in a firm’s 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 firm 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 firm’s environment determines the information load which
creates the need for co-ordination mechanisms to manage information flows.17
If a work unit manager knows exactly what needs to be done to co-ordinate
the unit’s 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 firm’s
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 firms to find varied and unique ways
to co-ordinate subunit activities.17 They concluded that integration was harder
to sustain in firms 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 firms operating in ‘stable’ environments were
more centralised, with greater standardisation and formalisation, than firms
operating in turbulent environments.17

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 firm 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 firm must be devel-
oped 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 informa-
tion is increased horizontally, the firm is better able to integrate its workflow.
We can now consider vertical and horizontal co-ordination mechanisms which
help managers to handle the firm’s 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 firms use to handle vertical flows of infor-
mation.
1 Use teams and task forces. One way to increase co-ordination hierarchically
is to create more group decision-making. For example, a firm 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 collat-
eral organisation is a parallel, co-existing arrangement of task forces which
supplements the formal organisational hierarchy.18 The collateral organisa-
tion works on problems which cut across the firm. Research indicates that
knowledge problems which are ill-defined are solved more effectively by
collateral organisations than by the firm’s 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 firm 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 firm to be less able to anticipate sudden product changes. With the help
of external consultants, the firm decided to tackle these issues at its Birmingham
plant. The project started by gaining top management commitment and involvement
to solve the plant’s co-ordination problems. The consultants held informational
meetings about the need to improve the firm’s 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 specific
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

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 employee-
controlled board to review production cost control suggestions.
2 Use direct supervision. This costly form of traditional vertical co-ordination

works through the chain of command. Supervisors and managers co-
ordinate 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.
3 Use standardisation of work processes. Much work is so routine that
the firm’s technology dictates the pattern of co-ordination. Little direct
supervision is necessary. The sequential work flow 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 self-
directed teams. Many companies have simply thrown out their rule books
and installed self-directed teams that have cross-trained members.
4 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.
5 Use performance appraisal. Performance appraisal is a tool not often recog-
nised as a vertical co-ordination mechanism. It can be used to control indi-
vidual performance and to communicate work expectations and goals to
employees. Managers and their subordinates meet several times each year
to discuss the subordinate’s 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.
6 Create a management information system. Originally, management infor-
mation systems (MIS) were simple devices such as employee suggestion
systems or company newsletters. Now, they consist of computerised infor-
mation and record keeping systems. Their uses include: 1) providing early
warning signals (product breakthroughs), 2) providing information to assist
decision-making (supplying financial ratios to top managers), 3) conducting
programmed decision-making (allocating funds to spread risk in a com-
pany’s investment portfolio), and 4) automating routine clerical functions
(meeting payroll needs with a computerised system). The areas for the great-

est economic benefit 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 pro-
cessing of the company’s workflow. 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 co-
ordination is direct contact among units linked by workflow. 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 decision-
making down to the level of workflow 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 net-
work of dependable interpersonal contacts over time. These contacts facili-
tate lateral relations which are instrumental in solving workflow problems.
Second, direct contact and lateral relations decay over time because man-
agers 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
mentor–protégé relationships and the rotation of managers through inte-
grated work units.
2 Use liaison roles. The liaison role is formally established to link two or more
subunits which must co-ordinate workflow. For example, in an oil company,
the marketing staff often had trouble with the refinery personnel. The
marketing staff understood which products were selling at the highest and
lowest prices. The refinery 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 refining 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 firm becomes more complex and it adds new
horizontal departments or divisions, the need for skilful liaison managers
grows.

3 Use cross-functional teams. When direct contact or liaison roles are inade-
quate, a third option is to create a temporary task force to provide horizon-
tal co-ordination. When problems arise involving numerous departments, a
cross-functional team can be created with members from the affected depart-
ments. For many firms, 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 firm may hold weekly ‘creative account reviews’.
Account executives are required to present their campaigns to senior man-
agers. The senior managers represent a task force charged with the respon-
sibility of reviewing the creative aspects of advertising campaigns before
they were reviewed with clients. In other firms, engineers are required to
present their new product ideas to senior managers and engineers before
the firm will commit resources to further product development.
4 Use permanent teams to manage recurring workflow problems. If the
firm finds 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 fitness, pediatric, community health and education, emergency, drug rehabili-
tation, and other health services. The service line managers have responsibility
for marketing profitability, 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 specific 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 mecha-
nisms 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 profitability of their extensive product lines. As competition works its way
into the American health care market, this form of horizontal co-ordination will
proliferate.

8.2.7 Control in the Organisation

We have considered how firms 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 firm. 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 efficiency 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 inefficient 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 TQM’s continuous process improvement,
Japanese firms were able to get a competitive jump on their less effective,
foreign rivals. In industry after industry, American firms gave market share
to their more quality conscious Japanese rivals. Today, in most industries, the
product innovativeness of American and European firms have mostly neutralised
the competitive advantage of Japanese firms 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 inflexible. This may be acceptable if the firm operates in a placid business
environment. However, if the environment is turbulent and highly uncertain,
extensive, external process control severely limits company flexibility. Previ-
ously 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 benefits. These include the creation of meaningful work standards,
accurate and continuous measurement of performance, specification 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

aspects of MBO for individual employees. We can also examine this subject
from the standpoint of the firm’s efforts to create integration, co-ordination
and proper fit between its strategy and its design. As a method of integration,
MBO is used to gain output control in firms. MBO systems try to ensure that
managers set specific 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 defined targets which have been specified in the firm’s 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 first 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 specified 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 superior–subordinate meetings 1) to estab-
lish goals, 2) to review periodically goal activities and results, and 3) to resolve
conflicts 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 com-
mon work expectations for employees and their managers.
2 Knowledge of results. MBO systems place a high priority on perform-
ance feedback. For the feedback to be effective, it must be supportive and
immediate.
3 The function of the superior. Superiors must work to provide feedback
which is work-oriented and not personality-oriented.

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 firm 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 Members of the work unit establish goals and action plans for achieving
those goals.
2 Discussion of work unit goals ensures that everybody understands them.
3 Employees in the work unit establish their own action plans for achieving
their goals. The managers participate in one-to-one meetings with employ-
ees. Here the goals are made specific and quantifiable if possible.
4 The superior and subordinate jointly establish outcome criteria for assessing
success.
5 The superior conducts periodic formal and informal feedback with employ-
ees concerning individual and work unit goals.
6 The system is documented with all goals set down on paper.
7 Goals are ‘cascaded’ down the hierarchy. They become more specific and
quantified at lower levels.
The MBO process is summarised in Figure 8.5, which shows that it is a

comprehensive control system which creates a results-oriented work relation-
ship 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 subordinate’s successes in goal attainment. MBO
can be a comprehensive process offering employees numerous opportunities to
find intrinsic rewards from their work.
While MBO can greatly improve control at all levels in the firm, 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.
2 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.
3 Superiors fall into an ‘either punish or reward’ mentality regarding results
achieved by subordinates.
4 The collaborative aspects of the system are lost if employees have too many
goals or they are worried about accomplishing their specific goals.23

Manager or Employee or
Team leader 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 firms 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 Com-
panies 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
firms obtain and preserve a competitive advantage. Several new actions to cap-
ture competitive advantage through enhanced responsiveness have emerged and
they are discussed below.
Simplify and delayer. To reduce costs and to speed decision making, com-
panies are simplifying and reducing the complexity of their structures. The
complementary processes of simplification and reduction often entail 1) elimi-
nating 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

supervision). Delayering was a tactic applied by Union Pacific Railroad in the

late 1980s. Figure 8.6 shows the old chain of command on the left while the
company’s new command structure is shown on the right.25
PRIOR TO 1987 REORGANISATION NEW COMMAND STRUCTURE (1990)
Executive VP Operations Executive VP Operations
VP Operations VP Field Operations
General Manager Superintendent

Transportation Services
Assistant Manager Manager Train Operations
Regional Transportation Yardmaster

Superintendent
Railroaders
Divisional Superintentent
Divisional Superintentent
Transportation
Trainmaster / Terminal
Superintentent
Assistant Trainmaster
Terminal Trainmaster
Yardmaster
Railroaders
Figure 8.6 Union Pacific Railroad hierarchy: 1987 and 1990
CEO Mike Walsh had this to say about the sluggish firm that he took over in
the mid-1980s:
‘Suppose a customer was having difficulty finding a railroad car – it was either not
the right one, or wasn’t where the customer needed it for loading or unloading.
The customer would go to his UPRR sales representative, who “went up” to the
district traffic manager, who in turn “went up” to the regional traffic 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
department’s general manager. The general manager then “went down” to the

superintendent, who “went down” to the train master to find out what had gone
wrong.’25
When Mr Walsh reviewed his firm’s rigid design, he immediately ordered the
removal of 800 managers in five 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 firm 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 firms, 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 Sweden’s ASEA, it had a corporate
staff of 2000, which he immediately pared to 200. When he acquired Finland’s
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 firms, spans of 100–200 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 moni-
tor 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 firms,
employees and their work teams take on decision-making duties once done
by middle managers. Employees who once had to seek permission from man-
agers 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 empower-
ment reach out to a company’s field operations. In less responsive structures,
field representatives and technical specialists might have to wait for weeks for
answers to warranty questions or pricing proposals. Empowered field 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, firms 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 firms, empowered teams make the following decisions.

1 Recruiting, hiring, performance evaluation, and termination.

2 Formulating and tracking a budget prepared by the team.
3 Making capital acquisition proposals as needed.
4 Handling quality control, subsequent trouble shooting and problem solving.
5 Developing numerical standards for productivity and quality.
6 Suggesting new products and the development of their prototypes.
7 Working with other teams from sales, marketing and product development.
8.3.1 Experiments with the Boundaryless Organisation

Rigid, hierarchy-based firms create numerous vertical boundaries which act as
obstacles and choke points to rapid and responsive decision-making. Such firms
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 low-
cost, domestic and foreign rivals. Neat, clear organisational boundaries are
disappearing as firms replace complex vertical hierarchies with loose horizontal
networks to link traditional functions such as production, marketing, account-
ing 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 firms
reduces the costs of goods sold. These profound changes represent the unravel-
ing 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 hori-
zontal boundaries are made more permeable and flexible by using self-directed
teams, technologically sophisticated communications, responsiveness to cus-
tomers, outsourcing and strategic alliances. These arrangements create a much
more flexible and adaptable work-force whose has members are capable of per-
forming many more complex tasks than their counterparts in rigid, hierarchically-
oriented firms. In the evolution of boundaryless firms, strategic alliances with
customers and suppliers dismantle those traditional boundaries. Hirschorn and
Gilmore argue that traditional vertical and horizontal boundaries will disappear
if a firm alters its authority, task, political and identity boundaries.28
The authority boundary is the natural distinction between leaders and fol-
lowers in firms. In firms 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 flat, or delayered firm must move away from a
system which issues orders. To overcome this barrier, managers must learn to

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 firm it is assumed that problem solving expertise is widely dis-
persed. This encourages employees to follow leaders without losing the ability
to challenge them if they detect a performance problem.
Hirschorn and Gilmore’s advice is fine as long as it does not involve investors
who may be unhappy with their returns and the company’s earnings per share.
When these problems arise, shareholders expect executives to correct earnings
and market performance problems. When this happens, these executives re-
assert 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 flexible task network which supersedes the tra-
ditional ‘compartmentalised’ view of work in centralised firms. 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 final 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, self-
directed team environment. However, the devil is in the details of implementing
and sustaining these more open, collaborative work arrangements. The biggest
threat to the flexible task boundary idea is in how managers view costs ver-
sus 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 min-
imisation). 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 man-
agers a shift in emphasis occurs. The focus of management decisions becomes
the ‘maximisation of the market value of the firm’. This causes executives to
emphasise increasing future earnings. To do this, firms 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

flexible 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 obsessed with revenue growth.
The political boundary is made up from the different political agendas which
can divide company units and create conflict. For instance, production prefers
to make products as simply as possible and to control costs. Marketing and
sales prefer to market products which meet or exceed customer expectations
but are more costly and complex to make. These disagreements often erupt in
battles among departments over budgets and personnel. The boundaryless firm
manages such political disagreements by creating a culture which emphasises
the best interests of the work teams, the network and the firm through the
complementary processes of accommodation and conflict management.
Turf battles and political scraps among work units will never disappear. The
trick is to have in place the types of performance measurement systems and
incentives to encourage collaborative processes among departments and work
teams. The measurement systems that hasten the resolution of political battles in
firms are those that track and measure customer satisfaction. Here the ‘external
customers’ are those who buy products and services and ‘internal customers’ are
those that depend on the work of departments and self-directed teams. Many
companies have taken up the challenge of making themselves more responsive
to customers by measuring countless aspects of service and product quality
from the ‘customer’s’ point of view. Strategic plans are altered to accommodate
these measurements and managers set ambitious customer service goals. The
bonuses and merit-based pay rises for self-directed teams and autonomous
subsidiaries are linked to improvements in customer service indicators. Only
outcome-based measurement systems and meaningful incentives will improve
internal, organisational processes of accommodation and conflict management.
When well designed, these systems create superordinate goals that prod self-
absorbed units to pull together.
The identity boundary consists of employees’ shared experiences and beliefs
which they insist set them apart from the rest of the company. When this
boundary is well developed, members of departments and work groups have an
‘us versus them’ attitude.30 It encourages employees to trust insiders more than
outsiders. This belief can undermine cross-functional team work and network
creation. To overcome it, firms try to excel at socialising new members to get
them to identify with the company and its goals. Of course, this may be quite a
problem when older members long for the days before the company was pruned
by half or the days when managers preached their no-layoff policy.
Again, the experts are not giving us much to go on regarding the iden-
tity boundary, other than the fact that it probably exists. The argument in the
last paragraph is based on the tendency of all companies to develop multiple
cultures (see Module 9). There is really nothing wrong with having multi-
ple cultures or noticeable identity boundaries in a firm if the common thread
tying all units together is adaptability and responsiveness to customers. Iden-
tity boundaries are just really ‘surface characteristics’ of all companies. They
only cause co-ordination and integration problems if adaptability and respon-
siveness to customers is not a core feature of the firm’s mission. Lurking in

the background as an explanation for the dangers of identity boundaries in

the firm is managers’ passion for cost containment instead of revenue growth.
The revenue-driven–market–value–maximisation perspective tends to remove or
erase identity boundary problems because it causes the ‘customer-market share’
perspective to rise in importance. The ‘net-income-cost-containment’ perspective
tends to raise and solidify identity boundary problems.
The systematic removal of the boundaries identified above moves firms to
adopt designs that strongly emphasise adaptability and responsiveness instead
of command hierarchy and centralised decision making. This is a horizontal
design that emphasises adaptiveness and responsiveness. These companies are
not organised around the functions of business. Instead, they focus on core
processes such as: 1) new product development, 2) sales and warranty fulfilment;
3) product quality and 4) customer service. In the horizontal organisation, all
employees work on cross-functional, self-directed teams which perform one or
more of the four key processes noted above. The horizontal firm depends less
on traditional departments composed of employees with functional expertise.
Instead, functional specialists are uniformly spread among the work teams
which perform core processes. Companies are going horizontal for a number of
reasons.
1 The structure reduces cycle time in production and service. Documents

and decisions pass through fewer layers and among fewer teams before
decisions are taken.
2 The benefits (competitive advantage) of downsizing diminish rapidly in
firms that cling to the hierarchically-oriented functional or product divisional
structures.
3 Downsizing may reduce costs, raise productivity and temporarily increase
profitability but it does not fundamentally change the way work is done.
Work is still handed from one department to another even though there are
fewer people in the departments. This shows that any firm can downsize
and obtain some temporary economic gains. To hold a competitive advan-
tage, downsizing must be done in conjunction with a fundamental alteration
in the way work is organised and completed.
Figure 8.7 shows the decisions which must be made by a firm that wants to
be more responsive to its business environment. The natural outcome for a firm
traveling the path in Figure 8.7 is to become a horizontal firm. At the centre
of Figure 8.7 are the difficult jobs of determining the company’s core processes,
dismantling functional departments and assigning functional specialists to the
correct cross-functional teams. The successful completion of such a restructuring
involves significant downsizing in departments which are shown not to add
value to the identified core processes. Deciding which units do not add value
and making the human resources decisions which naturally follow often test
strongly the resolve of senior executives. These decisions are tough to make
because they are often made in companies that are already showing growing
profitability.

What is our core What are the firm's key Once we strip away functions,
strategic business? internal strengths and what are our core corporate
weaknesses in relation to its processes that create the most
marketing and financial goals? profit-making opportunities?
Devise a plan to eliminate

What current functions and functions and their staffs
What are the key tasks in our
jobs fail to add value to our without losing professional
core, value-adding processes?
competitive advantage? skills and knowledge of
customers needs
Create multi-disciplinary teams Empower employees and

Set performance requirements process managers with
to run each core process.
for each new core, value-adding authority and give them
Conduct wall-to-wall training
process in market and product and customer
in product quality and
financial terms service performance data
customer service
to accomplish their goals
Revise training, performance

appraisal, pay and budgeting
systems to support the new
core processes that are
team-driven and managed
Figure 8.7 Creating a horizontal organisational design
A Comment on Selecting the Best Design

Managers have to consider several factors in creating the best design for their
firms. We have noted that key design decisions are division of labour, delegation
of authority, departmentalisation, and span of control. The decisions about these
elements must be made against the backdrop of rising environmental turbulence
and the uncertainty it creates. The emergent designs for highly competitive
firms are no longer the functional, product, territorial or matrix configurations.
Instead, these designs are delayered, technologically sophisticated and highly
customer-oriented.
The firm’s overall structure unfolds from a series of managerial decisions
about the four parameters noted above. These designs now vary from mech-
anistic to organic to horizontal. Further, the breakdown of boundaries among
units in the firm and between the firm and its customers is driven by the
search for competitive advantage in industries that are more de-regulated and
global. Depending on managerial judgments about environmental turbulence
and uncertainty, managers will take decisions to dismantle boundaries and to
delayer their hierarchies.

8.4 Drivers of Growth in Customer Service

In developed nations such as Canada, Great Britain, Germany and America,
the percentage of people employed by the service sector is rising much faster
than employment levels in the manufacturing sectors of those economies.31 In
1975, about 20 percent of university graduates in those countries entered jobs
in manufacturing, construction, agriculture and mining. In the same year, about
22 percent of college graduates found employment in the service sectors. By
1990, 38 percent of these countries’ college graduates worked in services. By
2001, 51 percent of graduates will be working in services, with flat or declining
employment in manufacturing, construction, agriculture and mining.
The sections which follow examine why companies are turning to service
improvement to increase profits and market share. The nature of the service
experience from the customer and employee perspectives is presented and anal-
ysed. The distinction between a manufacturing focus versus a service focus as
a basis for sustained competitive advantage is examined. These sections come
down firmly on the side of service quality improvement as a path to sustainable
competitive advantage for the firm. The sections focus on the importance of
work-force management practices which must be altered or refined to create a
flexible work-force of employees who value service delivery and who under-
stand fully its critical role in sustaining competitive advantage. Let’s begin by
examining the reasons why service quality improvement is a driver of sustain-
able competitive advantage.
Differentiating service is often easier and faster than differentiating products
in terms of their physical characteristics. The wider availability of pre- and post-
purchase service reflects increased competitive rivalry in any industry. When
companies and their industries mature, so do their products. Mature industries
have products that are standardised and all rivals know how to produce them
efficiently. Product innovations become more costly and elusive and when they
are successful, they are quickly copied by rivals. That is not to say that firms in
mature industries do not try to increase their market share by introducing new
product innovations, rather they step up the search for ways to strengthen their
competitive advantage by differentiating their service mix from that of their
rivals.
Customers demand better quality. Firms around the globe have responded
to this driving force by creating total quality management systems to reduce
product defects. Initially, TQM was a manufacturing phenomenon. As its use
widened by manufacturing industries, firms that had captured more market
share by using it found that their profit gains eroded as rivals installed their
own TQM programmes. Like most widely adopted innovations, TQM began to
lose its value in adding to competitive advantage. Knowledge diffusion of the
methods and goals of TQM ensured that all rivals in a given industry knew how
to achieve gains through its application. TQM in its maturity as an organisa-
tional improvement mechanism has simply become a rule of competition. Any
company wishing to compete with rivals having excellent products and services
had better use TQM. For many firms the next step in the search for sustainable
competitive advantage is to add more services to their product mix. To improve
their profits firms are now experimenting with the application of TQM principles

to measure and improve service quality as it is experienced by customers.

Service improvements strengthen brand loyalty and erect market segment
and industry entry barriers. Companies that offer excellent products and high
quality services know that they have a more sustainable competitive advantage
than their rivals who simply try to be the industry’s low-cost producer. In global
industries having intense competition, the low-cost producer is vulnerable to
rivals with more efficient technologies and better product designs. In global
industries, the firms that capture the differentiation competitive advantage can
create markets segments containing excellent products and high quality services
purchased by highly brand and company-loyal customers. To the extent that
brand loyalty is service-driven, these firms create protected market segments
which are very hard for low-cost producers to penetrate. Domestic industries
with excellent service reputations will have higher entry barriers (to foreign
competitors) than domestic industries having intense price-based rivalry among
firms vying for the low-cost producer advantage.
Bad service quickly drives off customers and lowers or erases profits.
Research on the economics of customer service problems indicates that customer-
contact employees are a crucial link between resolving a complaint on the spot
and the customer’s intention to repurchase.32 The Technical Assistance Research
Program of the US Department of Consumer Affairs found that when customers
experience minor problems, 95 percent say they will repurchase if the complaint
is quickly resolved. If the complaint resolution process takes even a little time,
the rate drops to 70 percent. As Schlesinger and Heskett note, ‘A spread of
25 percentage points can easily mean the difference between spectacular and
mediocre operating performance.’ Studies on the effects of customer loyalty
have shown that even a five percent increase in customer retention can raise
profitability by 25 to 85 percent.32
8.5 How Good Service Retains Customers

The profile below describes a firm that aggressively solved the customer retention
problem.33 It introduces our discussion of customer service and the principles
that firms can use to raise service quality.
The ByteRight Corporation is a maker of computer and office products. The

customer service department in the business products division has responsibilities
formerly assigned to the company’s product managers. Before these changes,
product managers had to develop and launch new products, but they were often
swamped with customer enquiries about: product applications, bids, product quality
problems and new product features. They had little time to develop and launch
new products. For instance, a product manager, after being gone two days, would
often find 60 or more customer and vendor e-mail messages on his computer.
To address the problem, customer service was given the responsibility and the
authority to handle these service issues noted above. Training was provided to
service reps and service issues. Training was provided to service representatives
and managers agreed to back them up on their decisions, right or wrong.
Support was vital to the success of this change in the minds of the reps. As long

as they could count on manager’s backing for their decisions, then they were
comfortable making the appropriate customer service decisions.
The goal in customer service is called the ‘one-stop programme,’ and it tries to
eliminate the need for transferring customers to different people in the company.
‘Before the programme customers often did not know with whom they needed to
talk or if they had the right people at all,’ says Ian Mentor, ByteRight’s controller.
‘Now, customers can call service reps and have all of their questions answered.
The reps evolved from being order-takers to being territory managers,’ according
to Mr Mentor.
8.5.1 Managing Services Differs from Producing Products

Producing and developing services differs from manufacturing and selling
products in several distinctive and important ways. First, not until service
is demanded is it produced. Service units are consumed immediately and they
cannot be stored. Second, service is often provided by employees not under the
direct supervision of a manager. Third, services are provided when and where
the customer desires. For instance, banks build near their customers and McDon-
ald’s puts a store on every street corner. Fourth, services are labour intensive. A
truly memorable stay in a fine spa or hotel cannot be automated and delivered
by a staff of robots (in sharp contrast to some of your own personal experiences
no doubt). Fifth, service is intangible and its characteristics are more difficult
to measure than the features of a product with distinctive performance and
physical characteristics. And sixth, service is often produced in the presence of
the customer who participates in the delivery process. An example of customer
participation is the interaction between a bank customer and an automatic teller
machine. At the health spa you might have a personal trainer who helps you
establish a workout regimen and who shows you how to perform the exercises
properly (despite your semi-silent groans triggered by your aching muscles).
It is the recognition by firms that clients are co-producers of services that has
helped them detect deficiencies in their systems and methods. The recognition
that customers are actively involved in service delivery opens opportunities for
firms to cement customer loyalty, ensure repurchases and raise profits. Even
firms in mature industries find that their improvements in service offerings
(that are based on viewing clients as co-producers of service) create sustainable
competitive advantage and raise market share. It is no coincidence that the
likelihood of price wars and the intensity of competitive rivalries lessen in
industries if firms find ways to improve service that is co-produced with their
customers. These arrangements are acquiring the characteristics of strategic
alliances between producers and their customers.
To understand how companies can strengthen their competitive advantage
through service enhancement, we can look at what Albrecht calls ‘moments
of truth.’34 . According to him, a moment of truth occurs in service delivery
when the customer encounters any aspect of the firm and forms an opinion
about the quality of its services and products. He stresses that these moments
accumulate and the customer forms a durable opinion about a firm’s interest in
his satisfaction and repeat business.

Here are some examples of moments of truth in your hypothetical visit to

your doctor’s office.
1 You stand in front of a desk or peer through a little window to get the
attention of a staff nurse.
2 You complete a form to authorise payment for the visit.
3 You pass some time in a waiting room full of other patients.
4 You sit in an examination room.
5 After a procedure you stay in an examination room while the physician sees
to another patient.
6 You are instructed in the proper use of medications by the nurse or the
physician.
7 You speak to the staff nurse before you can leave the office.
While these moments of truth may differ from the ones shown above, they
do illustrate the opportunities that the physician and his staff have to deliver
to you excellent or poor service. For a firm to achieve competitive advantage
through service improvement, the three factors described below must guide all
changes to the firm’s service mix.
A well-conceived strategy for service. Highly competitive firms have discov-
ered, invented, or evolved a unifying idea about what they do. In the responsive
firm, this is a guiding service concept (business value in the firm’s mission state-
ment) that prompts all front-line employees to discover the customers’ real
priorities. This guiding concept becomes a permanent feature of the firm’s com-
petitive advantage and it is used aggressively to differentiate the firm’s service
mix from that of its rivals’.
Customer-oriented front-line people. The managers of firms have encouraged
and helped the people who deliver the service to keep their attention fastened
on the needs of the customer. This leads to a creative service customisation by
employees that marks the service as superior in the customer’s mind.
Customer-friendly systems. The delivery system that backs up the service
people is designed for convenience of customers rather than the convenience of
the firm and its staff. The physical facilities, policies, procedures, methods, and
communication processes all say to customers, ‘This apparatus is here to meet
your needs’.35
8.5.2 Excellent Service Goes Beyond Manufacturing Efficiency

At the heart of service are the needs and expectations of customers as they
themselves, not the operating system and its constraints, define them.36 Making
service customer-friendly requires the firm to focus on how and where customers
interact with the company. This requires the firm to maximise the efforts of front-
line employees to add value through the services that they deliver. It is very
difficult for firms to maximise service quality by standardising service outputs
(the goal of manufacturing efficiency). It follows that standardisation of service
outputs fails as a competitive strategy when the customer is a co-producer of
the service episode. Service standardisation under conditions of co-production

signals to the customer, ‘We want your business and we want you to be involved
in what we do for you, but we want to do it our way’. This is the pursuit of
manufacturing efficiency in service delivery and it seriously undermines the
six ways in which service differs from producing discrete products. It threatens
repeat business and prevents a company from selling more services to customers
who reject the ‘do it our way’ balm.
Many companies try to improve competitive advantage by redesigning their
service offerings and then applying the manufacturing paradigm. After much
training and effort to support a more efficient service model, the service redesign
effort fails because cost containment and not customers’ needs and expectations
are really at the centre of the service improvement programme. In service
improvement programmes, the tendency to apply manufacturing methods to
the delivery of services can be avoided by starting with the goods-services
continuum in Figure 8.8. It makes the distinction between pure goods that are
subject to efficiencies in manufacturing (scale efficiencies) and pure services that
are not.37
Pure goods Bundled goods/services Pure services
Electrolux manufactures You buy your Electrolux An authorised Electrolux

a washing machine unit washing machine from repairman comes to your
and prepares it for your local appliance store home to fix vibration in
shipping to a reseller. and you receive a your unit.
one-year warranty .
Figure 8.8 The goods–services continuum
Figure 8.8 shows that service delivery work differs from production work.
Figure 8.9 classifies service jobs by sales opportunities and production effi-
ciency. There is an inverse relationship between production efficiency and sales
opportunities. Production efficiencies fall as sales opportunities increase due to
the complexity of customer-server interactions.38 Companies in mature indus-
tries producing standardised product offerings find that gains in market share
are more lasting when they are achieved by improving service offerings than
by industry-destructive price wars. Firms in mature industries find ways to
enhance and increase the number of sales opportunities by adding face-to-face,
customised service delivered by highly skilled front-line employees.

High Time and cost efficiency Low
Face-to-face,
loose specs,
use teams
Face-to-face,
loose specs,
use individuals
Sales opportunities
Face-to-face,
tight specs,
use individuals
Phone
contact
On-site
technology
Mail /
faxes
Basic service Electronic Customer Service Narrow Broad

problem detection dissatis- rules only diagnosis diagnosis
detection faction
LOW UNCERTAINTY IN SERVICE METHODS HIGH
LOW EMPLOYEE SKILL REQUIREMENTS HIGH
Figure 8.9 A graphical representation of service design strategies
8.6 Organising Principles of Service Quality

The first principle of service quality improvement is classifying the firm’s
services on the client-customer service spectrum.36 Figure 8.10 shows the spec-
trum. It signals the importance of building work-force service delivery skills.
The significance of Figure 8.10 is that the firm matches its service strategy to its
current service offerings and the level of employee training necessary to support
excellent service. To their dismay firms find that their service offerings have
slipped from unique to routine. If a company wants its service strategy to add
value to its competitive advantage, it must custom-tailor services and ensure
that employees have the proper skills to deliver them.
Principle two is organising to improve service and it occurs in firms that
subordinate all control processes to service enhancement and adopt employee
empowerment. Subordinating control functions to service enhancement puts

Customised Balanced Standard operating

methods
What type of Face-to-face, total Face-to-face, tight On-site technology
contacts that customisation specifications Fax and email contact
clients expect Face-to-face, loose Phone contact
specifications
Outcomes clients Unique solutions Experienced-based Generic solutions to

expect to technicolor solutions to more common problems
complex problems routine problems
Example Product liability Telephone patients to Software completion of

class action law suit explain medical test a tax calculation
results
EXTENT TO WHICH SERVICE QUALITY LOW

HIGH TRAINING IS A CORE VALUE
Figure 8.10 The range of services and the extent of service customisation
customers at the centre of service and reminds employees that the firm exists to
help front-line service employees deliver excellent service. The work-force learns
that all operating systems and management actions are co-ordinated to ensure
that service personnel have all the resources, training and authority to deliver
total service quality to customers. This perspective emphasises a customer-
driven chain of command that places the customer and his needs instead of
manufacturing efficiencies at the centre of a company’s business strategy. When
successfully applied by management, this approach shifts information systems,
incentive plans, training and development, career planning and management
training from a ‘bottom line’ to a ‘top line’ emphasis.
The traditional, organisational control system stresses top-down decision mak-
ing and communications that strive for manufacturing efficiencies by sealing
off production systems from the uncertainty-inducing demands of customers.
This bottom-line approach strives for cost reductions and maximisation of net
income. Accounting measurement systems track costs as annual expenditures
and attempt to minimise them by applying rigorous measurement, control and
budgeting methods. Managers stress cost minimisation and productivity max-
imisation, often at the expense of customer satisfaction. A bottom- line orien-
tation reflects a preoccupation with building, achieving and sustaining low-cost
operations. Firms with few core competencies in mature industries are often
dismayed to find that this approach creates stagnant market share, rising unit
costs and shareholder dissatisfaction.
Putting service first makes a firm emphasise the importance of expanding
market share. Company expenditures for: 1) service training of employees, 2)
delayering, 3) redesign of information systems to measure customer satisfaction
and 4) enhanced incentive systems to spur sales to repeat customers become
‘investments’ in future income streams. The primary criterion for these expen-
ditures is ‘How much value they will add to customer service’. Companies in

service industries that adopt a ‘top line’ emphasis improve their competitive
advantage because it leads to customer loyalty and the lowering of unit costs
through growth in market share. From an industry standpoint, sustained cus-
tomer loyalty to the industry’s service and product mix erects an entry barrier
to foreign competitors. To the extent that they are relevant, the effect of currency
fluctuations are reduced because loyal customers will be less likely to switch
to cheaper products sold by foreign rivals. Lasting service improvements in
an industry reduce the attractiveness of substitute products. These effects lead
to fewer destructive price wars and higher profit margins because customers
clearly value the service-product mix.
The third principle of strategic, service quality improvement is using employee
empowerment to give front-line employees, and all employees for that matter,
the authority to make on-the-spot decisions to meet (or to exceed) customers’
requests for service. Figures 8.9 and 8.10 suggest that more opportunities for
repeat sales are created by investing in employee service-delivery training. Com-
pany initiatives empowering employees to customise service without thoroughly
training them first invites customer frustration since untrained employees lack
the knowledge to alter service offerings in ways that please and surprise buyers.
Raising employee empowerment in service delivery rests on excellent service
quality training for employees. Table 8.4 shows this relationship.
The fourth principle is abandon manufacturing assumptions in service qual-
ity delivery. When companies break down manufacturing assumptions about
gaining efficiency in the delivery of service, they must follow in some combi-
nation, the human resources practices shown in Table 8.4. The consequences
of successfully shifting from an efficiency-centred to a customer-centred service
focus are soon felt in the firm. These consequences include the tracking of the
losing or keeping of customers as well as the performance of employees who
deliver excellent service. Service delivery personnel should be able to see how
unit revenues hinge on excellent service delivery. Aside from real-time unit
performance data, they learn it through their paycheques which should be tied
directly to their service performance.
An example of excellent service delivery that uses service customisation
through phone contact is illustrated below.
An appliance manufacturer has abandoned its long-standing practice of licensing

appliance repair services from contractors who have been trained in company
procedures (out-sourcing). Now, it uses its own repairmen and it has completely
overhauled the way it delivers repair service.
From its customer service center in Tennessee, 300 customer service reps take
toll-free calls 24 hours a day from anywhere in the USA and Canada. These highly
trained service reps use a procedure to diagnose an appliance problem over the
phone. Using the customer’s description of the problem, and by using computer-
based diagnostic software, the customer service reps order repair parts that are
selected automatically from a warehouse near Nashville, Tennessee. Once the parts
are bundled, they are shipped by United Parcel Service overnight to the repairman’s
home that is the closest to the customer. The parts bundles come with a routing
itinery to optimise the repairman’s work time for the next day. Three hours prior
to his or her arrival at the customer’s home, the customer is called and reminded
that the repairman will be there within the next two to three hours.

Table 8.4 Perspectives on empowering employees to deliver excellent service

Organisational Practice Manager’s Perspective Employee’s Perspective
Select employees for their Value diversity in the work What you think and believe
interests and values in high force about service quality is more
quality service delivery important than who you are
Revise job descriptions Coach employees and develop The customer is at the centre
to emphasise teamwork a teamwork approach to each of service delivery
co-operation job in the company
Give teams of employees Decentralise information Employees’ work to provide

access to real-time data on systems and simplify them to service is related to unit
unit service quality, costs and capture features of service
productivity performance delivery and service results
Adjust incentive systems to Develop appraisal system that Employees who deliver
‘pay for performance’ stresses service behaviours excellent service receive
based on service outcomes incentives
Base significant portion of Teach employees the All employees can be

manager’s pay on quality of relationship between service ‘entrepreneurial’ and find
unit’s service performance enhancement and unit market new ways to deliver better
share and profit service
Move managers to where the Interact with customers and Managers are looking for
service is being delivered model good service work ways to enhance service, not
so they can check up on our
work
The repairmen keep a generic inventory of appliance parts in their vans and
they all work from their homes. The generic parts inventory is adequate to solve
about 70 percent of the appliance problems. The other 30 percent of the problems
are solved with the phone and computer-based diagnostic procedure followed by
the service reps.
The Tennessee town where the customer service centre is located has a capable
work force that was overjoyed to be picked for the company’s customer service
centre. A local college has placed numerous graduates in the company’s training
programme and surrounding towns are more prosperous because of the influx of
high-wage jobs.
The example shows how a company in a highly mature and intensely com-
petitive industry reinvented itself to emphasise customers’ needs. It shows that
communications systems, inventory management, warehousing, parts shipping,
repairmen’s jobs and community involvement can all be positioned to support
repair services that customers experience as highly customised. The firm altered
its employment practices to change the behaviour of managers and employ-
ees who deliver front line service. The strategy integrated several information
streams, rigorous training and highly motivated workers to deliver excellent
service.

If customers are the starting point to revenue growth in successful companies,

then the employees who create and deliver that excellent service must be valued
as much as its customers. Companies trying to improve their market share and
raise customer loyalty must train, support and reward employees who provide
excellent service. Over time, employees will earn more in those firms that break
away from the manufacturing focus to service delivery. Likewise, employees’
pay gap between firms delivering high and low quality service will widen and
become well known throughout the industry. Firms that choose the service
quality strategy will have the advantage of choosing new employees from a
higher quality applicant pool. Their less service-driven rivals will continue to
select employees from a shrinking pool of less qualified applicants.
8.7 Creating a Service-Driven Organisation

For ten years, service quality experts have extolled the potential for success in
the service-driven firm.39 Their steps to achieve a service-driven strategy are
summarised here. For a full treatment of the service improvement steps see
citations 34 and 39 in the References.
Step 1: Conduct a service audit. Audits mean measurement and measurement
means tracking customer satisfaction. The features of service that are important
to customers and how they are prioritised is the starting point to design a
customer service audit. An audit evaluates how well a firm rates in comparison
to its rivals’ service mix. Some examples of the kinds of questions that might
appear in such a customer survey are shown below.
1 What is the maximum service-delivery time you will tolerate without feeling
inconvenienced?
2 How long should it take to perform the service itself?
3 How much time can elapse before you take a negative view of our service?
4 What factors should tell us that the service experience has begun for you?
5 How many different employees should be involved to deliver service to
you?
6 What components of the service are necessary? Desirable? Unnecessary?
7 What service components must be controlled to ensure your service experi-
ences are excellent?
8 What components of service can vary by service episode without compro-
mising its quality?
9 Do parts that we buy from other companies affect your satisfaction with
our service?
10 What aspects of our service reduce your anxiety or feelings of delay?
Step 2: Develop a company-wide service strategy. A firm needs a ‘service
mission statement’ clarifying how its competitive advantage is based on service
quality delivery. Frito-Lay, a maker of snack foods defines service as ‘99.99
percent on-time product delivery’ to retail outlets. For USAA Insurance Com-
pany, the mission is ‘Service Comes First.’ Scandinavian Airlines System’s CEO,
Jan Carlzon says, ‘. . . service, as perceived by the customer, [is] the number

one driving force of the operation of the business.’40 In the simplest terms, the
service mission statement should answer the question: ‘Why should customers
choose us?’ All aspects of the company’s culture should reinforce the answer
to that question. A firm’s hiring and training programmes should have as their
central focus the creation of a work-force that knows how to deliver the service
that keeps customers coming back for more.
Step 3: Conduct ‘wall-to-wall’ employee training. Training employees to
deliver excellent service is an investment in future earnings. Managers who
believe that service training is a cost to be minimised by hiring people for
‘idiot-proof’ jobs jeopardise their firms’ future earning streams. Idiot-proofing
jobs echos the manufacturing approach because such jobs leave little real room
for employees to create meaningful service improvements. A costly side effect
of standardising the service mix can be a demoralised work force with high
turnover among those employees who may have the most potential to work
effectively in a service-driven environment.
Managers in companies that deliver excellent service know that there is a
link among customer satisfaction, employee morale and service quality training.
Studies in the retail sector show that customer satisfaction declines in stores
using part-time workers and having high sales staff turnover.41 The Marriot
Corporation, a large US hotelier, discovered that reducing employee turnover
by 10 percent would reduce customer nonrepeats by 3 percent and raise rev-
enues by $50 to $150m. At Ryder Truck Rental Company, managers found that
turnover and workers’ compensation claims dropped substantially for employ-
ees receiving training in service quality versus employees who did not receive
the training. The inescapable conclusion about training is this: customer loyalty
depends on employee morale and employees’ knowledge of how to deliver
excellent service.
Step 4: Implement the service improvement programme. By following the
employee empowerment imperative, most companies implement service quality
improvement programmes by expanding the discretion of front-line employees
as they work to improve service quality. A project (temporary) organisation
should be created to maintain a sharp focus on unfolding success as well
as troublespots in programme implementation. Typically project organisations
are set up for opening a new plant, initiating a new product line, starting a
strategic alliance or starting a company-wide service improvement programme.
The project organisation lasts as long as it takes to diffuse the programme
throughout the company. It is headed by a steering committee that reports
to top managers. Project teams can be organised to handle specific aspects of
service quality improvement. For instance, the project team in charge of service
training and development might design an application lab. In an application
lab, service specialists from the project team fan out to company departments
to conduct sessions to develop the department’s service mission and to identify
service operations that the department would like to improve with the project
team’s help. Using tools like the goods-services continuum and the service
spectrum, the project team can help a department customise service delivery
principles to its service mix.

During programme implementation, project teams regularly report their results

to management. In turn, management controls service systems to ensure that the
service quality programme is on schedule and meeting its goals. Therefore, the
implementation phase includes measurements of service quality improvements
as well as measurements of implementation success. As the work of service qual-
ity improvement teams diffuses through the firm, old systems are abandoned
or redesigned. Moments of truth can be applied to show where conventional
service systems have broken down. The activities described above break down
the status quo of a service model that is based on manufacturing efficiency.
Employees who are willing to deliver excellent service usually become dissatis-
fied with features of organisational culture that are based on the old model. In
turn, they learn how to make the customer the centre of service improvements.
Step 5: Make the service improvements permanent. To make service improve-
ments permanent, work force management practices such as performance mea-
surement, incentive system design and communication practices have to be
changed. Along with learning new service-focused job behaviours, employees
must be rewarded when they succeed in delivering excellent service. Through
the use of incentives, excellent training and valued rewards that are tied to ser-
vice, the firm can create new values in its culture that centre on service quality.
Once a new culture based on service is created, the service quality programme is
institutionalised in the company. Full institutionalisation can take as long as five
years. However, rising profits and market share will occur much sooner. Here
are some typical indications that a service quality improvement programme has
diffused throughout the company.
1 All employees understand the job behaviours which lead to excellent service.
2 New employees are trained in service quality as they are oriented to the
company and its systems.
3 Measurement of service quality reaches all aspects of company operations.
4 The company commits to ‘wall-to-wall’ service training.
5 A major component of pay for managers and employees is based on mea-
sured service excellence.
6 Recruiting and hiring systems reflect the importance of personal attributes
that are related to excellent service skills.
7 Older employees show the importance of service quality to new workers.
8 Rivals take notice of the company’s service improvements and try to copy
them.
Summary Points
• The four key aspects of organisational design are division of labour, alloca-
tion of authority, departmentalisation and span of control.
• Mechanistic designs vary in terms of division of labour, allocation of author-
ity, departmentalisation, and span of control. The mechanistic firm has high
division of labour, low delegation of authority, uniform departments, and
narrow spans of control. Organic designs have less division of labour,
greater delegation of authority, and wider spans of control.

• Division of labour is a management decision to subdivide work. It can

create economies of scale since people can specialise in certain tasks. This
can be a factor in sustaining competitive advantage based on being a low
cost producer.
• Delegation of authority is a management decision to give control of work
activities and goals to employees. It is a necessary aspect of superior–
subordinate relationships. There are five principles for effective delegation
of authority. When done broadly across the firm, delegation of authority
transforms to employee empowerment.
The benefits of delegation of authority for the firm include: 1) development
of competitive work climates, 2) increased employee creativity, 3) lowered
costs through smaller staffs, 4) employee participation in decision making,
and 5) more rapid employee development.
• Departmentalisation refers to how work activities are grouped together.
The four forms of departmentalisation are: 1) functional, 2) territorial, 3)
product, and 4) matrix. Large, complex firms blend all four forms of depart-
mentalisation in their designs. The choice of design is heavily influenced by
the extent of environmental uncertainty.
• Many large corporations have developed successful product-divisional struc-
tures only to find that integration of the product divisions has become dif-
ficult. This has led some of them to adopt more functional designs while
trying to preserve the flexibility of the product-divisional design.
• Organisational structure refers to the arrangement of roles and reporting
relationships which govern employee behaviour.
• Centralisation refers to the retention of authority to make decisions by top
management. Highly centralised firms exhibit high formalisation, standard-
isation and specialisation.
• Administrative ratio is the number of managers and administrators in rela-
tion to the number of employees engaged in production. It generally rises
as firms become more centralised and vertically complex.
• Formalisation is the extent to which employees’ work is controlled by
written documentation of rules, regulations and work procedures.
• Standardisation is the degree to which behaviour variation is allowed in a
job or series of jobs.
• Outsourcing is contracting with outside firms for goods and services that
support manufacturing, accounting functions purchasing, sales, customer
service, product development and personnel practices. In some ways it
resembles a strategic alliance.
• Decentralised organisations create work systems where authority is dele-
gated to employees. They exhibit less formalisation and standardisation
than centralised organisations. The decentralised organisation presents spe-
cific strengths and weaknesses which must be matched to strategic decisions.
• Co-ordination refers to the set of mechanisms which managers employ to
link the actions of organisational subunits to achieve a pattern of consis-
tent outcomes. The extent of co-ordination necessary in the organisation
is determined by the amount of information to be processed during task
accomplishment.

• Turbulent business environments create more information processing needs

than placid environments.
• Vertical co-ordination can be enhanced by using groups, a collateral organ-
isation, direct supervision, standardised work processes, standardisation of
outputs, use of performance appraisal, and management information sys-
tems.
• Horizontal co-ordination can be facilitated by the use of direct manager
contact, liaison roles, horizontal task forces, and permanent teams to manage
recurring work-flow problems.
• Interorganisational designs are conglomerates. Conglomerates can engage
in related and unrelated diversification. Strategic alliances are cooperative
arrangements between two firms and they are often used to help a company
enter global markets. Keiretsu are Japanese conglomerates and they dominate
the Japanese economy.
• Organisational control refers to the set of mechanisms used to keep action
and outcomes within predetermined limits.
• Process control is the standardisation of task performance. It can be achieved
by specifying work methods and setting work standards. Process control
can limit organisational flexibility if the firm operates in a turbulent envi-
ronment. Further, it can be external or internal. External process control
refers to organisational units that detect production process problems and
correct them. Internal process control is based in self-directed teams that
solve product or production problems with total quality management. Once
all companies in an industry understand and use TQM, it ceases to be a
basis for competitive advantage and simply becomes a rule of competition.
• Results-oriented control refers to a system which achieves control by spec-
ifying the results to be obtained by employees and their work units. The
most common form of results-oriented control is management by objectives
(MBO).
• MBO rests on superior–subordinate teamwork to: 1) establish goals, 2)
review goal progress, and 3) resolve conflicts and take corrective action
with respect to set goals. MBO capitalises on the important motivational
force of specifying outcomes to be obtained. MBO can create problems in
organisations if the process of documenting and recording goals becomes
more important than the goals themselves.
• Responsive firms are customer-oriented and delayered. In them co-ordination
is achieved through technology-based communications. The primary empha-
sis is on revenue growth within a reasonable cost structure; but cost control
is not a primary goal. Companies that use outsourcing to create lean staffs
and increase the extent to which customers have contact with the firm.
Boundaryless firms use lean corporate staffs, wide management spans and
empowered, self-directed teams.
• The complexity of service delivery requires the responsive firm to emphasise
employee training, reward system design and improvements to the qual-
ity of the employment relationship. The client/customer service spectrum
shows a firm the relationships among its types of service, the customer-
service provider interaction and the extent to which employees need more

service training. This tool can be used by a firm wishing to enhance its
competitive advantage through service quality improvement.
• Many firms go through downsizing and delayering prior to becoming
responsive and service driven. The job insecurity created by these two
activities makes employees reluctant to believe that their jobs can become
more secure if the firm achieves greater service providing capabilities. In
effect they doubt that there are increased profit opportunities in service cus-
tomisation. This attitude is a carry-over from long-held assumptions about
the central importance of manufacturing efficiencies in profitability. This
form of resistance to change must be managed and reduced.
• Manufacturing assumptions originate in scientific management. In scientific
management the goal is to seal off operating systems from the effects of
external uncertainty. This allows the firm to manage and control the rate of
flow of factors of production through its transformation process (conversion
of inputs to outputs). However, a major and less manageable source of
external uncertainty is customer demand for service. To make service a
source of profits, the firm must abandon the management and process
assumptions that originate in scientific management.
• Job designs in the responsive, service-driven firm require employees to
recognise sales opportunities as they complete a customised service trans-
action. A customised service episode (based on the analysis of moments of
truth) requires that employees have the authority and training to systems
that are based on measurements of customer satisfaction, response times and
cost effectiveness in service delivery. Service employee empowerment must
be at the centre of the firm’s attempt to give front-line service employees
the authority and training to deliver high quality service.
Review Questions
8.1 If a manager created a matrix arrangement to cope with high hierarchical

information loads, he would be practising organisational design. T or F?
8.2 The two most important features of division of labour are how the work should
be divided and how jobs should be grouped. T or F?
8.3 Mechanistic organisations would find the introduction of self-directed work

teams to be less cumbersome than organic organisations. T or F?
8.4 Delegation of authority must be an operating principle in a decentralised

organisation. T or F?
8.5 Once authority is delegated to a subordinate, the manager is not accountable

for the quality of the subordinate’s work. T or F?
8.6 ‘Manage by exception’ refers to a principle of delegation which requires the

manager to involve himself in his subordinates’ decision-making only when
unusual events occur. T or F?

8.7 You would expect organisations that practise delegation to have large corporate
staffs. T or F?
8.8 The functional design helps the organisation develop managers with consider-
able knowledge of field operations. T or F?
8.9 Departmentalisation can be successful if it combines a product and a customer

emphasis. T or F?
8.10 The territorial design helps the organisation develop managers with extensive
customer knowledge. T or F?
8.11 The product divisional structure is an excellent design for an organisation which
wishes to develop products to fit market ‘niches’. T or F?
8.12 The product divisional design lends itself well to the creation of ‘profit centres’
for a product or family of related products. T or F?
8.13 In the matrix design, the unity of command principle is often violated (an
employee can have more than one superior). T or F?
8.14 Outsourcing contributes to the flexibility and adaptability of organisations’

designs and strategic plans. T or F?
8.15 As a general rule, a matrix organisation will have to encourage delegation of

authority. T or F?
8.16 Unrelated diversification would not be a characteristic of a keiretsu. T or F?
8.17 Highly centralised organisational structures will have more formalisation and
standardisation than decentralised structures. T or F?
8.18 Decentralisation is often associated with empowerment and self-directed teams.

T or F?
8.19 An indicator of the extent of decentralisation in an organisation would be the

amount of authority salesmen had for autonomous price setting. T or F?
8.20 As an organisation grows in size, its hierarchy of authority remains the most
effective means for ensuring co-ordination. T or F?
8.21 The extent of environmental uncertainty and task uncertainty determine the
amount of information which must be processed during task execution. T or F?
8.22 Reducing the amount of attention that managers pay to employees would be
a feature of a delayered organisation. T or F?
8.23 Combining a management information system with an MBO system would

improve vertical co-ordination and control in the organisation. T or F?
8.24 In the product divisional structure we would expect to see liaison roles transform
into product or brand manager positions. T or F?
8.25 Increasingly difficult work standards are an example of a problem which occurs
in process control-oriented work systems. T or F?

8.26 Eliminating manufacturing efficiency from service delivery requires the firm to
alter the criteria that it uses for selecting and hiring employees. T or F?
8.27 Because service cannot be stockpiled or warehoused, it is unimportant to train

service delivery employees in effective inventory cost control. T or F?
8.28 Making service delivery a major feature of competitive advantage requires more
effective use of the line-of-sight principle. T or F?
8.29 Employees delivering excellent service would be likely to say that from one
period to the next they are unconcerned with how well their work unit is
performing. T or F?
8.30 Service-driven firms find ways to improve the quality and amount of upward
communication. T or F?
8.31 Service quality measurement programmes emphasise results-oriented control

more than process-oriented control. T or F?
8.32 Starting a price war and lowering costs is a faster way to gain market share
than by investing in service quality improvement. T or F?
8.33 In downsizing, a firm’s service quality would not be hurt if employees who
delivered experienced-based service for routine problems were laid off. T or F?
8.34 Employees of service-driven firms are highly motivated by across-the-board pay

rises. T or F?
8.35 Delayering and outsourcing, when done without employee participation and
employment security, can cause the relationship between job stress and per-
formance to become negative. T or F?
8.36 When firms conduct a service quality audit they often learn that customers
associate cost cutting and outsourcing with much lower service quality. T or F?
8.37 Which of the choices below represents the structure of a firm?

A The firm’s goals.
B The firm’s division of labour and co-ordination of work activities.
C Only how the firm delegates authority to various managerial positions.
D The firm’s pattern of formal communication channels.
E The firm’s listing of job titles.
8.38 Which of the choices below represents an organisational chart?

A The formal authority lines and manager-employee reporting relationships.
B The informal work groups and their connections to the firm.
C The total size of the firm.
D The number of employees in each department or subsidiary.
E The job requirements for each position in a department.

8.39 Which of the following choices represents a flat organisation?

A Narrow spans of control.
B Close supervision and limited delegation of authority.
C Wide spans of control.
D Uniform departments.
E Numerous promotion opportunities and rapid upward movement of employ-
ees.
8.40 Which of the following choices would work best to create horizontal and
vertical co-ordination in a firm?
A An assistant to the president.
B Cross-functional project teams.
C A technical mentoring programme.
D A management information system coupled with the use of liaison roles.
E A flat structure.
8.41 Which of the following choices is linked to a tall chain of command?
A Centralisation.
B Matrix designs.
C Loose, organic decision-making structures.
D Informal communication channels.
E Professional bureaucracy.
8.42 Which of the choices below would require a manager to have excellent project
and team management skills?
A Matrix.
B Territorial.
C Functional.
D Product divisional.
E Mechanistic.
8.43 Which of the following choices is the most commonly accepted basis for depart-
mentalisation?
A Communication patterns that are linked to unit tasks and goals.
B Span of control.
C Required groupings of jobs to accomplish work.
D Length of seniority of members of various departments.
E Production planning and output goals.
8.44 Which of the following choices should be used to complete the following
sentence? The design would be most effective for meeting business
conditions that required specialised products to meet variations in customer
tastes based on culture and customs.
A Matrix.
B Functional.
C Product divisional.
D Territorial.
E Combined product and territorial.

8.45 Which of the following choices shows how decentralision can strengthen the
firm?
A Reduce the chance of jurisdictional and priority disputes among various
departments.
B Smooth co-ordination problems in joint functions such as purchasing.
C Allow concurrent and multiple tasks to be co-ordinated across functional
departments.
D Prevent innovation from being restricted to specific projects.
8.46 When a firm’s problems are ill-defined and managers believe it needs to more
effectively handle change, the firm probably would follow which of the follow-
ing choices?
A Create a collateral organisation.
B Set up a matrix design.
C Adopt the product divisional design.
D Recentralise.
E Decentralise.
8.47 A results-oriented control system would be most characterised by which of the
following choices?
A The establishment of output control through goals and objectives (MBO).
B Carefully set work standards.
C Close supervision in the production division of a company.
D Quality control work that is separated from production or assembly work.
E Focus on the methods of production.
8.48 Which of the following choices should a company select that is trying to improve
its service quality?
A Make greater investments in technology to speed service delivery by using
computers.
B Increase investments in work force training to enhance service delivery.
C Delayer and move corporate managers to field units charged with service
delivery.
D Downsize and delay the decision to conduct wall-to-wall training.
E All of the above.
8.49 Which of the following choices represents one thing that firms delivering poor
service have in common?
A They have forgotten the central role of customers in revenues.
B They view service improvement as a priority that should be addressed
before outsourcing.
C They use project teams to oversee company change programmes.
D They have more employee empowerment as a result of outsourcing and
delayering.
E They have developed a service mix that is too complicated for the service
skill level of the front-line employees.

8.1 Europa Insurance Company operates in several countries in Europe. The firm
has experienced stiff competition from rivals recently purchased by Japanese
insurance firms. Europa is organised on a ‘product line’ basis with certain
divisions concentrating on types of related policies (group insurance, commercial,
maritime, family, auto and health). Customers have complained about policies
which do not meet their particular needs. Several have noted that policies are
‘designed more for the convenience of Europa than for its customers’. Further,
several sales managers have been criticised by customers as ‘lacking a customer
orientation’. With these considerations in mind, suggest a new design which
might improve Europa’s capacity to meet market needs.
8.2 At a dinner party your friend Phillip asks you about your ‘knack’ for developing
your subordinates into skilled managers who are recruited by other divisions of
your firm. You explain your technique as ‘constantly pushing authority down the
company hierarchy’ to see which subordinates can handle it. Phillip is intrigued
by your explanation. If he were to try to be a more effective delegator, what
advice would you give him?
8.3 What are the four issues facing a manager when he designs his organisation?
8.4 What are the disadvantages for employees who work in a product-divisional
firm?
8.5 What managerial skills would project or programme managers need to be

successful in a matrix organisation design?
8.6 Why do so many managers advocate decentralisation in theory but practise it

ineffectively?
8.7 Differentiate between co-ordination and control. What are some negative out-
comes associated with process control?
8.8 What are some of the benefits of conglomerate business structures?
8.9 What forces may be acting to undermine the strength of Japanese keiretsu?
8.10 Corporate responsiveness to customer needs is increasingly viewed in terms of

new structural arrangements in companies. What are some of the changes that
are being made in the design of firms to enhance their customer responsiveness
Case Study 8.1: Analysing a Change in Design

Lucien Able had recently learned of his appointment as plant manager of Tobric
Company Ltd. Lucien would be completely responsible for management of all
functions and personnel except purchasing and sales.

The Company’s Organisation Design

Tobric does business throughout the UK. It was started in 1955 by an entrepre-
neur who was convinced that he could produce electronic equipment cheaper
than others in the industry. Production operations were under the supervi-
sion and control of a senior vice-president. The company’s design is shown in
Figure 8.11. For many years, the company had operated a highly centralised
and functional manufacturing division in Manchester.
PRESIDENT Assistant to President
Executive Vice-President
Vice-President Senior Vice-President Vice-President

Purchasing Sales
V.-P. V.-P. V.-P. V.-P. V.-P.

Finance Traffic Planning & Manufacturing Personnel
Quality Control
Controller Manager Manager Manager Manager

Traffic Planning & Manufacturing Personnel
Quality Control
Figure 8.11 Tobric company organisation (old design)

Source: Adapted from R.C. Dailey, 1988. Understanding People in Organisations. St. Paul, MN: West.
The division did not have a general manager. Each manager in the Manch-
ester production centre reported on a line basis to his functional counterpart at
company headquarters in London. For example, the manufacturing department
manager reported to the vice-president in charge of manufacturing at the corpo-
rate office. This was also the arrangement for Tobric’s other four manufacturing
facilities in the UK.
The president was disappointed in the company’s overall performance. Trying
to improve the situation, he implemented a new way to manufacture, and he
used the Manchester plant as a test situation. A consultant’s report stated that the
two requirements for improved operations are to reduce costs and manpower.
He had to accomplish these two goals without losing any competitive position
in the market. Since several operational features would be new for production
employees, the consultants suggested that a pilot project be implemented before
making the changes at all company manufacturing locations.
New Operations Mean a New Design

In the Manchester facility, the president wanted to pilot test a change in the
design of the facility. He wanted to use a decentralised operation with a new
general manager position (Lucien’s new job). Figure 8.12 shows the new design
for the Manchester plant.

PRESIDENT Assistant to President
Executive Vice-President
Vice-President Senior Vice-President Vice-President

Purchasing Sales
V.-P. V.-P. V.-P. V.-P. V.-P.

Finance Traffic Planning & Manufacturing Personnel
Quality Control
General Manager
Lucien Able
Controller Manager Manager Manager Manager

Traffic Planning & Manufacturing Personnel
Quality Control
Figure 8.12 New design of Tobric (Manchester pilot project)
Lucien described his situation and new position as follows:
I am going into a situation involving a large number of changes. This will be

a new operation with new methods at Manchester. Most of all I will be trying
to manage a new set of relationships. Before this, the managers at Manchester
reported to their functional superiors in London. Now they will report to me,
and I’m a complete stranger to them. I’ve met with each of the vice-presidents in
London and I’ve learned how they dealt with subordinates in the old Manchester
design. I have decided to issue all instructions to them and I’ll clear this first with
London headquarters. I have noticed that some vice-presidents were cutting off
their connections with their former direct subordinates at Manchester. Still, two
other vice-presidents want to maintain their direct contact with plant personnel
informally. I have quickly realised that these two different intentions from vice-
presidents would create problems for me. I’m worried about how to manage both
the plant and the vice-presidents effectively.
1 How would you describe the structure of Tobric before and after the pilot
programme at the Manchester plant? What must top management do to
ensure the success of the new design?
2 What options does Lucien have to help ensure horizontal co-ordination at
the Manchester facility?
Case Study 8.2: How Hewlett-Packard Avoided the Decline

Suffered by IBM and DEC ∗
In 1990 David Packard, a founder of Hewlett-Packard, said ‘If we didn’t fix
things, we’d be in the same shape as IBM is today’. In 1990 as Mr Packard and
Mr Hewlett each approached the age of 80, they stepped back into management
decision-making at the company they founded even though they had not been
connected to operational decision-making for years. They did this because they

didn’t want the company to have the same problems as IBM or Digital Equip-
ment Corporation with their high-priced, technologically superior products and
declining profit margins.
By 1992, both IBM and DEC were in the red, their stock prices had been
halved, and management turmoil and work-force concerns were mounting. IBM
lost over $5bn and the company’s board dumped John Ackers, its CEO and hired
Louis Gerstner, Jr., a former McKinsey and Company consultant and one-time
CEO of RJR Nabisco. At that time, HP faced many of the same problems DEC
and IBM did: years of stellar performance, widespread corporate expansion,
customer loyalty and stagnant markets for mainframe computers. Even though
IBM pioneered the personal computer, it had lost substantial market share to
more nimble competitors such as Dell, Packard-Bell, Compaq and Gateway.
DEC continued to lose money as it pumped resources into the production of
mainframe computers at a time when the market demanded low-cost PCs that
could be networked. During the year ending October 1992, HP earned $881m
on sales of $16.4bn.
Unlike CEOs at IBM, Mr Packard and Mr Hewlett had retained their power
to cause change in their company. Between them they had hand-picked all
of the board members and, together, they owned 25 per cent of HP’s stock.
As the company’s founders and two of its most creative engineers, they still
commanded the loyalty and respect of HP’s technical personnel and management
staff.
Aside from the stature of its founders, HP was quite similar to IBM and
DEC in 1990. All three companies had grown tenfold during the previous 25
years and they were all prosperous, secretive and paternalistic. Each company
had adopted firm no-lay-off policies and each one had a culture of complacency
which rewarded employees for adopting the values and practices that had served
each company well for the past 25 years. None of the companies was ready for
the wrenching change that was to come as fundamental market shifts unfolded.
Since 1990, all three companies have undergone significant changes.
HP emerged as a redesigned and refocused company well before IBM and
DEC. IBM, being a much bigger company, has taken much longer to reposition
itself. During 1994, IBM continued to announce lay-offs even as it returned
to profitability. Its acquisition of Lotus Corporation signalled to the computer
world that it would challenge Microsoft in the all-important market for software
and operations systems. Industry analysts still believed that IBM would have to
make further lay-offs to complete its strategic repositioning.
Meanwhile, back in California, Messrs Packard and Hewlett bypassed their
headquarters staff and they went to the field to speak to groups of HP employees.
From their conversations they concluded that HP had grown too bureaucratic
and centralised. To reduce these rigidities, they began to move people, power
and product development decision-making away from corporate headquarters
to field operations.
As these shifts unfolded, managers who were comfortable at corporate head-
quarters found themselves moving to field operations. For example, Lew Platt,
* Excerpted from J. Pitta, ‘It Had to be Done and We Did It’, Forbes, April 26, 1993, 148–52.

head of HP’s computer systems group, had to transfer from Palo Alto to an office
20 miles away in Cupertino. Once he had settled in, Platt quickly developed a
plan to build a new computer workstation in the remarkable time of one year.
Significantly, he set out on this course without seeking approval from CEO John
Young.
Messrs Packard and Hewlett then engineered a smooth leadership transition
by easing out CEO Young and replacing him with Mr Platt. Mr Young served
on the selection committee which recommended Mr Platt for the job. Simi-
lar management changes at IBM and DEC were much more messy and both
companies had significant stockholder and public relations disasters as a result.
These problems put CEO replacements at both companies on the defensive and
forced them to discuss many sensitive decisions in the business press.
In 1992 a redesigned HP ousted DEC from the number two industry position
in the manufacture of workstations. At the same time, it consolidated its domi-
nation of the laser printer market by overwhelming Apple Computer Company
and several Japanese competitors. By 1995, HP was closing in on Sun Microsys-
tems, the industry’s lead company in the manufacture and design of computer
workstations.
The important ingredient in HP’s successes was the simple difference between
action and words. During the early 1990s, IBM and DEC executives planned and
devised strategies for profiting from the benefits and value of downsizing and
decentralisation. While he was IBM’s CEO, John Ackers proposed that Big Blue
should restructure itself into 13 autonomous divisions. Robert Palmer, DEC’s
new CEO, planned to reorganise DEC into nine business units. The point is this:
HP practised what it preached and decentralisation proceeded quickly in the
early 1990s under Mr Platt’s leadership. IBM and DEC are still struggling with
the implementation of decentralisation plans even after both companies have
returned to profitability.
Taking swift action and dispersing power have always been part of the man-
agement culture at HP. In the company’s early days, Messrs Packard and Hewlett
practised the simple strategy of dividing in half any division which reached 1500
employees. Each division has its own marketing, engineering, manufacturing
and human resources staff. The company’s founders did not want divisions to
grow so large that workers and staff lost their sense of pride in their work and
their urgency to make their divisions successful. This organising principle was
at the heart of the company when it was founded. Messrs Packard and Hewlett,
along with their other founding engineers, valued the entrepreneurial spirit and
they wanted the opportunity to stay close to all aspects of running the divisions
of the company. Thus, divisions in HP are highly focused and committed to
successful product lines which are run by managers with entrepreneurial spirit
and technical excellence. In contrast, Tom Peters, the management expert, views
DEC as the ‘one man, one product’ company which relies on an individual with
a good idea and a highly integrated product. For DEC, this was Kenneth Olsen
and his VAX computer line.
In IBM, those managers and engineers with entrepreneurial spirit are con-
fronted by a different set of obstacles. At Big Blue, the organisation and its
structure always take precedence over individuals and their product ideas.

Organisation men who are well-rounded and thoroughly versed in IBM’s cul-
ture and operating divisions are highly valued and their careers are put on the
fast-track. These individuals are moved and promoted about every two years
and quite frequently they begin posturing for their next promotion before they
have completely settled into their current job. The inside company joke was
that IBM stood for: ‘I’ve been moved’. There was considerable truth to the joke
because IBM had a department of 70 specialists who handled the paperwork for
IBM employees who were undergoing international transfers.
It isn’t that HP doesn’t transfer personnel too. However, at HP transfer
and personnel movement are initiated by the individual rather than being a
reflection of a giant cross-training and promotion programme for executives as
in the IBM system. In HP, employees can request transfers to available jobs,
but they must compete with qualified candidates from outside the company. At
IBM, promotion from within and systematic job transfers have always been a
way of life.
Vertical complexity is also sharply different in IBM and HP. Four levels of
managers separate David Packard from assembly line workers. At IBM this
separation swells to eight levels. With its countless executives and managers,
IBM does need eight levels in the chain of command to make its management
promotion and job rotation system work. However, any reasonable manager
realises that in a successful company, market and product strategy, and not the
job transfer and promotion systems, should drive the configuration of the chain
of command.
It should be noted that too much divisional autonomy and decentralisation
can also create complications for a company like HP. This arrangement can create
conflict among product lines and considerable duplication of resources among
product divisions. In the late 1980s, Mr Young tried to centralise control of the
company’s divisions from headquarters. He created a central product design
division which was responsible for creating all HP products. Conflicts among
divisions were handled by committees which bargained and negotiated solutions
which left neither party satisfied. Under the Young centralisation regime, one
vice-president, Robert Frankenberg, recalls seeking 19 signatures to institute a
one-time change in a pricing plan for a software product. Launching a new
networking product required approval from 38 committees. On the pathway
created by Mr Young, HP had clearly carved out a lane that had been well worn
by IBM and DEC.
Under Mr Young’s watchful bureaucratic eye, HP created management sys-
tems which suppressed creativity and product innovation. In the company
someone suggested that HP sell computers through the same 1-800 telephone
numbers that the company used to sell its computer supplies like power cables
and converters. The headquarters response was that HP didn’t do things that
way because price changes had to be submitted to a committee 45 days in
advance of any proposed changes. In the US phone-mail computer business,
companies such as Dell and Gateway are apt to announce 30 per cent price cuts
without any warning. A 45-day price deliberation cycle was the equivalent of
product suicide and HP began to suffer.

HP headquarters continued to look for more opportunities to centralise and

control. HP’s medical products group was not spared. Number-crunchers at
headquarters decided that all HP hospital customers had to pay within 45 days.
Ben Holmes, the HP medical products group manager, noted that ‘Hospitals are
typically slow to pay, but they always do – slow but sure’. When headquarters
clerks began to lean on hospitals, Mr Holmes got countless angry calls. It was
clear that HP bean-counters did not understand the payment constraints faced
by hospitals as they tried to collect money from the government, insurance
companies, employers and patients.
It was at this point that Messrs Packard and Hewlett stepped in and began to
transform HP into a more entrepreneurial oriented decentralised company. ‘I’m
a strong believer in finding out what the troops think,’ said Mr Hewlett. ‘We
had too damn many committees . . . decisions weren’t being made . . . overhead
is something that creeps in. It’s not something that overtakes you overnight.’
The founders’ shake-up at HP paid dividends as committees disappeared,
divisions once again chose their own pricing policies and product development
sped up to fill channels of distribution with new products. Mr Platt’s workstation
project resulted in an $11 000 machine that arrived on time and under budget.
And Messrs Packard and Hewlett once again slid into the background while
keeping a watchful eye on the company and any tendencies in it towards
creeping overheads.
1 Please explain HP’s transformation using the concepts advanced in this

module.
2 In your opinion, could HP’s practice of decentralisation go too far? Please

explain your reasoning using the concepts advanced in this module.
Case Study 3: Dumbsizing

Shareholder demands for higher returns and more aggressive competition have
evoked a widespread downsizing trend that is sweeping across nations and
through industries. Module 2 of the OB text describes the relationship between
job stress and downsizing. Downsizing creates economic insecurity in a work
force. Employees who have personally experienced downsizing might be less
charitable and call it ‘dumbsizing’. The vignettes to follow show how service
quality deteriorates when companies cut costs by downsizing and outsourcing.
Valuetech Decides to Save Some Money. . .

Valuetech expected to save thousands of dollars when it decided to lay off Ms
Lee. Ms Lee, a 17-year computer-aided designer was hired by a local contractor
that does work for Valuetech. ‘I took the project I was working on and finished
it here,’ she says. But instead of paying her £10 per hour plus fringe benefits,
Valuetech is paying her new employer £25 per hour, and Ms. Lee earns £15 an
hour without fringe benefits.

According to Ms Lee, Valuetech’s downsizing has left its engineering group

demoralised, burned out, and disinterested in their work. ‘When they send a
job over here and we say it will cost X, they just say go ahead’, she says.
Executives have taken to downsizing with a fervor driven by low-cost global
competitors, and return-happy investors. In turn they hope their efforts will
yield quickly rising profits and impregnable defences against hostile suitors.
Some downsizing decisions are hasty and they return to haunt the executives
who make them. The hobgoblins that emerge are: poor public relations, no
change in the bottom line, customers unhappy with service, vendors who leave
and never return, and employees who do the same or who stay on the job and
worry constantly about the next layoff.
Synergeticum Company Tries to Benefit from Downsizing. . .

Synergeticum recently announced across-the-board cuts in its health-industries
group that sold computer equipment and services to hospitals. The cuts dis-
rupted long-standing ties between its veteran salespeople and major customers
because their accounts were transferred to other divisions. It also outsourced
hundreds of smaller accounts without telling its customers. The experience of
a company marketing manager who recently resigned from Synegeticum paints
this picture: ‘I had customers coming up to me and saying, “I haven’t seen a
Synergeticum sales rep in nine months. Whom do I talk to now?”’
Resellers of the company’s equipment have also complained about diminished
technology and sales support. ‘There were months when I couldn’t find any-
one with a Synergeticum badge,’ complains a client who had grown used to
Synergeticum salespeople accompanying him on sales calls. ‘They walked away
from large numbers of clients,’ says Richard Cysco, CEO of Itrain systems, a
company that used to have an exclusive arrangement with Synergeticum. So far,
the winners in this industry segment have been Synergeticum’s rivals. In fact,
many laid-off employees simply took jobs with Synergeticum’s rivals and with
them came their customers.
Global Biscuit (GB) Tries to Boost Profits Through Cost Cutting. . .

The crushing debt incurred in the 1992 leveraged buyout of GB has found
many divisions under extreme pressure to cut costs and improve profit mar-
gins. Highly paid consultants recommended that the Snack Food Sales Division
(SNFD) be merged with the Crackers and Hard Candy (CH&C) salesforces.
This essentially combined mustards and condiments with pet treats candies
and salted pretzels and nuts. Unfortunately, the divisions sold vastly different
products in remarkably dissimilar markets. SNFD supplies grocery stores and
CH&C supplies chemists and convenience shops. A former CH&C executive
comments, ‘They have distinctly different outlets. To expect sales reps to wrap
their minds around all the products and represent everything in a bundle is
overly simplistic.’ Inadequate sales force service drove CH&C customers away
and buyers felt abandoned. Compounding that mistake, GB also slashed adver-
tising expenditures for CH&C products by 70 percent.

Northern Natural Gas Decides to Save Money by Outsourcing. . .

By replacing its 35 experienced veteran meter-readers with cheaper contract
workers, Northern hoped to save about £1m per year. ‘We thought we would
be able to get the same quality by outsourcing as we would with our own
employees,’ said Edward Lott a spokesman. That happy thought burst and
turned into a public relations nightmare for the UK-based company when one
of its new contract meter readers was accused of rape by a customer. Soon
6000 customers who had given keys to their homes to their meter readers
were on the phone . . . Northern forked over £60 per customer to have their
locks changed. Meanwhile, the company has stopped reading meters altogether
as it tries to decide if it should: 1) buy electronic reading equipment; 2) hire
another contractor or; 3) bring back all the veterans. At the moment, Northern is
suing Infomax, PC. the supplier of the alleged rapist-meter reader, for failure to
conduct proper background investigations on its employees. No doubt, Northern
is hoping that its assaulted customer will not get the same idea. . .
1 Create a diagram to show how the companies in case study number 3 could
develop a customised service focus as a basis for regaining their competitive
advantage? Please add an explanation to accompany your diagram.
References
1 Mintzberg, H. (1979) The Structuring of Organizations. Englewood Cliffs, NJ: Prentice
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8 Shirouzu, N. and Williams, M. (1995) ‘Pummeled by Giants, Japan’s Small Firms
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14 Porter, L. and Lawler, E. (1965) ‘Properties of Organizational Structure in Relation to

Job Attitudes and Job Behavior’, Psychological Bulletin 81: 23–51.
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MN: West.
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wood Cliffs, NJ: Prentice Hall.
22 Huse, E. (1966) ‘Putting in a Management Development Plan that Works’, California
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23 Levinson, H. (1970) ‘Management by Whose Objectives?’, Harvard Business Review 48:
125–43.
24 Peters, T. (1992) Liberation Management. New York: Alfred Knopf, 310.
25 Ibid., 88.
26 Ibid., 49–50.
27 O’Toole, J. (1974) Work and the Quality of Life: Resource Papers for Work in America.
Boston, MA: MIT Press, 18–29.
28 Hirschorn, L. and Gilmore, T. (1992) ‘The New Boundaries of the “Boundaryless”
Company’, Harvard Business Review (May–June): 104.
29 Ibid., 108.
30 Ibid., 109.
31 ‘Industrial Growth’ (1991) Occupational Outlook Quarterly, (Fall): 18.
32 Schlesinger, L. and Heskett, J. (1991) ‘The Service-Driven Service Company’, Harvard
Business Review, (September–October): 75.
33 ‘Profiles in Quality: Blueprints for Action from 50 Leading Companies,’ Bureau of
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Jones-Irwin, 1990, 24–49.
34 Albrecht and Bradford, op. cit., 30.
35 Ibid., 32.
36 Schlesinger, L., and Heskett, J., op. cit., 77.
37 Kreitner, R. (1992) Management, (5th edn.), New York: Houghton Mifflin, 589.

38 Tansik, D. (1989) ‘Balance in Service Systems Design’, Tucson, AZ: Dept. of Manage-
ment and Policy, Karl Eller Graduate School of Management, University of Arizona,
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39 Shaw, J. (1990) The Service Focus, Homewood, IL: Dow Jones-Irwin, 31.
40 Albrecht, K., and Zemke, R. (1985) Service America!: Doing Business in the New Economy.
Homewood, IL: Dow Jones-Irwin, 169–79.
41 Albrecht, K. (1988) At America’s Service: How Corporations Can Revolutionize the Way
They Treat Their Customers, Homewood, IL: Dow Jones-Irwin, 20.

Module 9
Managing Transitions: Organisational

Culture and Change
Contents
9.1 Organisational Culture: Its Meaning and Relationship to Successful 9/2
Strategy
9.1.1 What Is Organisational Culture? 9/2
9.1.2 Multiple Cultures in Organisations 9/3
9.1.3 Understanding Contributors to Organisational Culture 9/3
9.1.4 Developing High-Performance Organisational Cultures 9/8
9.2 Organisational Life-Cycle Theory 9/11
9.3 Organisational Change 9/13
9.3.1 Why Do Organisations Have to Change? 9/14
9.3.2 The Planned Change Process 9/15
9.3.3 Diagnosis 9/17
9.3.4 Resistance 9/18
9.3.5 Carry-Over to the Work Setting 9/19
9.3.6 Evaluation 9/20
9.3.7 Institutionalisation 9/21
9.3.8 Diffusion 9/22
9.4 Methods of Change in Organisation Development 9/23
9.4.1 Examples of Change Methods in OD 9/24
9.4.2 Interpersonal and Group Change Methods 9/24
9.4.3 System-wide Process Change 9/26
9.4.4 Grid Organisation Development 9/28
9.4.5 Does OD Work? 9/29
Summary Points 9/30
Case Study 9.1: A Turnaround at Tentex 9/37
Case Study 9.2: One Man’s Values Force a Company Into Bankruptcy: The 9/39
Story of Wang Laboratories

Module 9 / Managing Transitions: Organisational Culture and Change
Learning Objectives
• Characterise organisational culture and explain the importance of the fit
between it and the organisation’s mission, strategic plan and goals.
• Explain the roles of the founder (or chief executive officer) in preserving
strong organisation culture.
• Discuss the features of a strong organisational culture.
• Detail the relationship between competitive advantage, company strategy
and organisational culture.
• Develop the concept of the organisational life cycle and describe how organ-
isations and their systems change throughout the life cycle.
• Describe the process of planned change for organisations and the key prob-
lems which can surface in each phase of change.
• Describe the key elements of a multi-method and multi-level organisational
diagnosis.
• Develop methods to: 1) reduce resistance to change, 2)) minimise the carry-
over problem, 3) plan for the evaluation of a change programme, 4) institu-
tionalise the change and 5) diffuse the change.
• Differentiate: 1) interpersonal and group level change, 2) system-wide pro-
cess change and 3) Grid OD.
• Discuss those factors which contribute most to sustaining organisational
change and ensuring it is absorbed by the organisation.
9.1 Organisational Culture: Its Meaning and Relationship to

Successful Strategy
This module takes up the important topics of organisational culture and strat-
egies for planned change in organisations. The topics are the subjects of much
writing and analysis by business practitioners and observers of organisational
behaviour. Your job in this module is to understand the basic terminology and
assumptions which support each concept and to apply the logic in each area
of management thinking to two cases which describe dramatic changes within
two companies. Once you have the concepts, applying them to the cases and to
your own firm should be easy.
9.1.1 What Is Organisational Culture?

Most executives and observers of organisational behaviour would agree that
organisational culture is a difficult concept to define. When asked, managers
frequently define their organisation’s culture as the company’s style, atmosphere
or personality. If we were to ask customers and competitors about the culture of
a particular company, we would get a very different impression. Organisational
culture is the beliefs and values which are understood by employees.1 Organ-
isations use training and development, performance appraisal and orientation
programmes to transmit values (i.e., what is important about the organisation

and what it stands for) and beliefs (i.e., how organisational practices and systems
work) to employees. Communicated values and beliefs become shared employee
expectations. Organisational culture has several other qualities noted below.
1 Culture indicates the ‘way of life’ for organisational members who often take
its influence for granted. An organisation’s culture only becomes obvious
when contrasted with other organisational cultures or when it must change.
2 Culture is fairly stable over time and resistant to quick changes. Once a
culture is well developed, it can resist change despite turnover, changes in
product line or organisational acquisition activity.
3 An organisation’s culture involves internal and external aspects. Internally, a
culture might encourage product quality, cost effectiveness and minimising
production errors. Externally, the culture may promote customer service,
timely distribution, price competitiveness and social responsibility.2
4 Culture is known by employees and they can describe its characteristics. It
can be measured, evaluated and perfected.
5 Culture can develop in a random fashion or it can be managed if a firm
has a strategic plan that suggests specific properties for its culture. We will
have more to say about this important point in a moment. If there is no
conscious culture development, the organisation ‘forgets what it does well’,
or never learns what it can do well. Thus, culture is the expression of organ-
isational experience which personalises the meaning of the organisation for
its members.
9.1.2 Multiple Cultures in Organisations

Because of geographic dispersion and variations in business environments and
product lines, organisations develop subcultures which reflect variations among
subunits. Research conducted on computer manufacturers found that technical
and professional employees divided into ‘hardware types’ and ‘software types’.
Hardware types subdivided further into engineers and technicians and software
types subdivided into software engineers and computer scientists. Each group
had its own values, beliefs and assumptions about the proper way to design
computer systems.3 Organisational culture is reflected in the specific, professional
orientations and skills of groups of employees. If these professionals acquire their
work values and beliefs through their educational training, then they are bound
to exert an effect on their employers’ organisational cultures.
9.1.3 Understanding Contributors to Organisational Culture

The concept of organisational culture is worth study in its own right. However,
its true influence on organisational affairs emerges when we consider the quality
of the fit between it and the strategy of the organisation.4 When there is a strong
culture which integrates various subunit and occupational cultures, the organi-
sation will have excellent integration and methods for managing conflict when
it arises. However, there can be liabilities associated with a strong organisational
culture.2 First, the mission, goals or strategy of an organisation may change due,

perhaps, to an industry crash (e.g., mad cow disease) or a widespread price

war and the strong culture which supported past excellence may not quickly
change to support the new patterns required in the organisation. An example
of this problem is the growing tendency for companies to compete on the basis
of service quality excellence. These firms empower frontline employees to cus-
tomise service offerings that exceed customer expectations. To accomplish this,
companies invest heavily in service-improving technology and employee train-
ing. While these investments are being made, the companies must undo aspects
of their organisational culture which reinforce practices based on manufacturing
and economic efficiency. Failure to change the organisation’s culture in this way
can undermine the investments in technology and training.
Second, strong cultures may not mix well when one firm acquires another firm.
The managers in the acquiring firm expect certain changes to occur to bring the
new subsidiary in line with ‘company rules’. AT&T purchased National Cash
Register Company (NCR) during the late 1980s. The expectation was that the
merger would create a communications giant that could exploit the inevitable
synthesis of telephonic and computer-based communications. AT&T’s CEO,
Robert Allen, reasoned that AT&T should be in the computer manufacturing
business. He bought NCR, declared a revolution in communications technology
at AT&T and introduced its employees to the ‘Ma Bell’s’ way of doing things.
Six years and $5.3bn later, Mr Allen: 1) announced the sale of NCR, 2) laid off
40 000 workers and 3) received $16.4m in compensation. Merging organisational
cultures in the name of related diversification does not always work for the
interests of employees or shareholders. Given Mr Allen’s pay package, it did
seem to work well for him and AT&T’s management team.
Similar strains show in the merger in autumn 1995 of Merrill Lynch & Co. and
the British broker Smith New Court plc.5 Merrill Lynch paid $794m for Smith and
the merger has turned Merrill Lynch into a truly global company. Unfortunately,
the merger has created a culture clash that resulted in the high-profile departures
of Merrill’s head of research and Smith’s head of research. Smith veterans
complain about the Merrill executives’ tendency to pat themselves on the back
and their obsession with regulatory compliance. Merrill employees who had
once been big fish in its small London office are now little minnows swimming
in Smith’s much larger trading and sales operation. The two companies’ cultures
could hardly be less similar. Smith is a rough-and-tumble trading house while
Merrill Lynch is a Wall Street brokerage that serves a vast private clientele across
the USA.
Tensions between employees were at their highest in research. Merrill had
about 20 analysts, most covering pan-European business sectors, while Smith
had more than 100, who targeted UK sectors or individual countries on the
Continent. The styles and attitudes throughout the two firms were also very dif-
ferent. For instance, Merrill had separate floors for research and trading and the
communications between the two were highly formalised. Smith kept analysts
and traders close together and their communications were loaded with punning
headlines, provocative pictures and clear ‘buy’, ‘sell’ or ‘hold’ recommendations.
When the Merrill and Smith teams moved together in early 1996, an ‘us-versus-
them’ mentality broke out. A Smith veteran decorated his computer with a

miniature American flag at half-mast. Others named the coffee machine ‘André’
after Merrill’s head of strategy, André Sharon. Asked why, the analysts replied
that the machine was short, square and you couldn’t get much out of it. Mr
Sharon responded with a terse e-mail: ‘The coffee’s on me. Get it while you
can.’ Staffers on both sides of the merger left their jobs. They cited fears of the
coming turmoil. The beneficiary of this rocky marriage seems to be Goldman
Sachs International which has picked up several stars from Merrill and Smith.
Altogether, 10 Merrill and 10 Smith sales people have left since the merger was
announced in 1995.
Despite the upheaval, Merrill executives say the enlarged firm has kept Smith’s
approximately 20 per cent market share of London’s equities. The combined firm
now tracks far more business sectors on a global basis, with inputs from Merrill
analysts in New York, London and Asia. Senior executives say the effects of the
merger on the bottom line are still murky. Insiders insist that the culture clashes
in London will peter out because the merger helps Merrill be more global.
Third, some strong cultures threaten organisational goal attainment because
the cultures legitimise infighting, secrecy and empire-building. This is particu-
larly true in family businesses which do not properly prepare for the orderly
transfer of control to successors. Family businesses in their first generation of
management are often ruled by founders who are blind to the importance of
succession planning. While the existing culture may reinforce the founder’s
urgency, entrepreneurship and marketing emphases, the firm can be highly vul-
nerable to a period of extreme turbulence if the stubborn founder ‘dies in the
saddle’ without preparing for the orderly transfer of the business to a trained
successor.
Factors which Contribute to the Development of an Organisation’s Culture

It is generally agreed that an organisation’s culture depends heavily on the role of
the chief executive (or founder) and the close management of the organisation’s
socialisation process. Let us consider each.
The Chief Executive or Founder’s Role

Extremely successful companies owe a lot to their dynamic founders or charis-
matic leaders. It is significant that strong cultures of very successful companies
reflect the personal values of the founder. The imprint of Watson on IBM, Gates
on Microsoft, and Michael Dell on Dell Computer Company is obvious. A brief
description of Iacocca’s managerial style sheds light on Chrysler’s culture.
Down the hall he puts in long days running the company. ‘Some guys in this
business slow down, retire and take it easy,’ he says. ‘A couple of months later
they’re dead.’ Not Iacocca. He has spent almost 39 years in America’s pivotal
industry, and he still glories in the hurly-burly of his factory floors. Iacocca likes it
best when he can make managing a car company seem like a martial task, urgent
and vast and possibly heroic. Iacocca’s definition of management by consensus is
revealing. Consensus, he says, ‘is when we have a discussion. They tell me what
they think. Then I decide.’6
Socialisation

Socialisation transmits an organisation’s culture from one generation of employ-

ees to the next. Organisations which manage their mission goals/culture fit
recognise that haphazard employee selection, unchallenging job assignments
and fragmented employee development processes can erode a culture and cause
the company to drift from core organisational goals and strategy. Pascale notes
that organisations with strong cultures go to great lengths to help employees
understand it through the socialisation process.7 Pascale’s steps in this process
are reviewed below.
1 Realistic job previews (candid descriptions of the good and bad character-
istics of jobs) are used to communicate the company’s expectations for new
employees. Procter & Gamble structures a series of individual interviews,
group interviews and tests for brand manager positions.
2 Debasement and indoctrination are used to create humility in new employ-
ees so that they are open to norms about effort and performance excellence.
An example of this would be to give newly hired university graduates
projects with extremely low chances for success.
3 Employees are given intensive on-the-job training so that they master the
core areas of the business. The Lincoln Electric Company requires all new
engineers to work in welder assembly and production for six months before
they move to technical sales work. The company insists that all engineers
first know how to solve customers’ problems through thorough product
knowledge.
4 Adjust the reward and promotion system to define performance excellence
in the core areas of the business. Base rewards on merit.
5 Use top managers as personal role models for the company’s culture. They
should run sales meetings, have open door policies and reward entrepre-
neurship.
6 Reinforce the culture with stories about the organisation and its founder.
7 Use mentors to develop younger employees who exhibit personal charac-
teristics which are consistent with the organisation’s culture.
These recommendations for sustaining the organisation’s culture through well-

managed employee socialisation are shown in Figure 9.1. A company’s success
at following them depends heavily on management’s commitment to the link
between organisational culture and accomplishment of strategy. Thus, Figure 9.1
assumes that top managers 1) view the employment relationship as a core aspect
of the business, 2) embrace their role of mentors for excellence, 3) are comfortable
with the more personal or human aspects of running a business and 4) are open
to information from customers and other external constituencies about ways to
improve the business.
Try completing the brief questionnaire shown in Table 9.1. It will give you
an idea of your company’s current commitment to a strong culture. Total your
score and then read the interpretation below for the range into which your score
falls.
Strong culture score: 33 to 44. Your company has successfully integrated its
employee socialisation process to support company mission, goals and strategy.

Hire new employees who have a Challenge new employees with

documented record of innovation training in business ethics,
and creativity in products and customer service and product
processes quality problems
Use realistic job previews to Link skill building, performance

evaluate job applicants prior appraisal and social contact
to hiring them. among new employees and
seasoned veterans
Build mentor-protege relationships Involve executives in promotion,

between newly hired employees performance appraisal, goal setting
and seasoned managers and recognition activities
Rotate employees through entry- Require executives to be responsive

level jobs in a given core process and available role models; practice
(develop orientation to cross-training open communication and use
and multi-tasking) e-mail systems to talk to staff
Figure 9.1 Building a strong performance-oriented culture in the firm
Scores in this range indicate that you believe your company practises the social-
isation steps noted earlier. If the company has an effective strategic plan and
the work-force is well balanced in terms of age and skill, culture will continue
to reinforce the company’s strategy.
Average culture score: 18 to 32. You believe the company is inconsistent in
its socialisation practices and upper managers are not good role models for
performance excellence. Top management is not reinforcing the core values of
the business and there is evidence of an incomplete overall culture which ties
together subunits and occupational groups.
Weak culture score: 0 to 17. You believe the company has a weak culture and
ineffective socialisation. Symptoms of weak culture include: 1) poor fit of incom-
ing employees’ personal values and culture, 2) poor training of new employees
in the core aspect of the business, 3) reward and performance appraisal systems
do not make performance behaviours explicit, 4) reward systems are not merit
based, 5) top managers are poor role models (and mentors) and 6) folklore
emphasises failure as much as success.

Table 9.1 Company commitment to a strong culture

Always Often Seldom Never
1 Can you state the company mission? 4 3 2 1
2 Do 90 per cent or more of your co-workers 4 3 2 1
display commitment to the company
mission?
3 Do employees willingly place the company’s 4 3 2 1
goals ahead of personal interests if
required?
4 Are you personally committed to the 4 3 2 1
company’s mission?
5 Can every employee describe the company’s 4 3 2 1
core areas of distinctive competence?
6 Are employees committed to high standards 4 3 2 1
of performance excellence?
7 Does the company reward and promote 4 3 2 1
employees who excel in core areas of the
business?
8 Do customers, competitors and observers 4 3 2 1
value your company’s commitment to
product and service excellence?
9 Are employees thoroughly screened 4 3 2 1
to ensure a match with the company’s
commitment to excellence?
10 Does the company deal swiftly with a new 4 3 2 1
employee’s lack of commitment by providing
training or by dismissing the employee?
11 Do senior executives act as mentors to young 4 3 2 1
employees who exhibit qualities valued in
the company culture?
9.1.4 Developing High-Performance Organisational Cultures

Organisations can develop strong cultures. We have noted that a strong culture
is not always a good thing in a company. The qualities of a company’s culture
are much more important than its strength. For example, a strong, change-
resistant culture may impede growth, earnings and competitiveness. For years,
IBM emphasised organisational secrecy, a multi-layered bureaucracy and an
outdated production and market emphasis based on its domination of the large,
mainframe computer market. It watched helplessly as it lost over $7.5bn between
1990 and 1993 while its stock fell 50 per cent. Throughout the plunge, IBM
retained its strong culture. If companies pursue a high-performance culture they
must be concerned not only with the strength of their cultures, but also with
the degree to which the culture fits the company’s strategy. Company culture
should: 1) support the sources of financial strength (key financial performance
goals) ; 2) fit the company’s strategic goals (market position, industry rank
and product rankings) and 3) help the company adapt its core competencies to
market conditions. These are discussed briefly below.

1 The company’s culture should strongly reinforce its long-term financial

performance. A strong culture forges powerful bonds among work-force
motivation, company financial performance (ROI, ROE, ROA), company
controls and organisational structure.
2 The company’s culture must align with strategic or market goals. If a
company pursues the low-cost producer strategy, its culture must support
principles of lean staffing, few management layers, decentralised decision-
making and so on.
3 The adaptation aspect of culture emphasises flexibility and it encourages
the work-force to adapt to the firm’s financial and market strategies.8
Using these three qualities of organisational cultures, researchers tested the
three perspectives on 207 companies from 22 industries between 1977 and 1988.
They found partial support for the strength and fit hypotheses. The research
strongly supported the adaptation aspect. Long-term financial and market suc-
cess was strongly correlated with the adaptation aspect of organisational culture.8
Given these findings, the important managerial question becomes: ‘How can an
organisation develop a highly adaptive culture?’ Figure 9.2 lays out the general
thinking of culture experts who have pondered this question.
Founder/entrepreneur builds a business model on

the basis of a new product or service vision.
Entrepreneur builds out the firm and establishes professionals in

management layers. Designs and customises service systems to
reinforce employee honesty, commitment and loyalty to customers
The firm succeeds
A strong culture evolves and it emphasises employees

motivation and skills; ownership and shareholder
value and customisation of services and products
The next generation of top management preserves the founder's

values and business philosophy through innovation and change
of the firm's core values
Top management shows resilience and the will to change the

firm's business model if external business conditions change
Figure 9.2 How to build an adaptive work culture in the firm
As shown in the figure, the process starts with a charismatic founder who
creates a vision and strategy which fits neatly the context of the business.
As the business succeeds and grows, its adaptiveness is nurtured by leaders
who emphasise service to key stakeholders (owners, customers and employees).

To sustain success, the leaders formalise high-quality service by adapting and

changing organisational systems and structures. Last, the leaders recognise the
importance of commitment to service and product excellence rather than rigid
adherence to particular business strategies or techniques.
Since all organisational cultures have a natural tendency to evolve and to
reflect changes in markets, products and technology, management should try
to influence this evolution to optimise the three fits. The developers of the
model in Figure 9.3 use the analogy of organisational culture being like a well-
functioning family.9 They use the acronym HOME to represent history, oneness,
membership and exchange. These indicators of change in organisational culture
can create a cohesive organisational culture which optimises the three fits noted
earlier. An important underlying principle in implementing the HOME approach
to culture improvement is management’s trust and respect for the work-force.
Efforts to practise the methods in Figure 9.3 will be ineffective in organisations
with histories of labour–management strife.
Methods of change IIndicators of change to Outcomes

firm’s work culture
Make company history a subject

in new employee orientation
programmes Enliven and maintain the company’s High team
H
history in its current business activities cohesiveness
Tell stories of employees who
exemplified strong firm values
Require all top managers to be

mentors
Create shared expectations about Excellent
Do follow-up ethics and values O the meaning of the firm’s core customer
training for employees and managers business values service
Design a reward system to give

bonuses for excellent service
to customers
Raise the level of information sharing
M Process
Promote practices that emphasise among employees and their team
innovation
job security and work force flexibility members
Conduct wall-to-wall training in

customer service and product
quality Improve co-ordination among employees,
Reduced cycle
E vendors, employees, distributors and
Empower self-directed teams and time
customers
encourage participation in decision
making
Figure 9.3 Ways to change a firm’s culture
The second principle supporting HOME is improving the quality of the

employment relationship in the company. When a company’s management
team agrees to practise culture improvement by applying the HOME meth-

ods, it must seek competitive advantage in the market by improving the quality
of the employment relationship with its work-force. If HOME methods are based
on the two principles and applied throughout a company, the chances improve
for raising profitability, effectiveness and competitive advantage.
Figure 9.2 and Figure 9.3 show that the central aspect of organisational culture
is adaptation. Business strategies and top managers come and go, but successful
companies adjust to the driving forces in their industries. One of the ‘facts of
life’ for any company is its stage of development in the ‘organisational life-cycle’.
As much as, or more than culture, this driving force influences the strategic and
financial success of companies. We will take this subject up next.
9.2 Organisational Life-Cycle Theory

Like the people who work in them, organisations progress through stages.
Organisations are started, and if they avoid early failure, they expand and
mature. Through these various stages, the challenges and questions facing
organisations change. Managers need to understand organisational life-cycles
so that they can recognise organisational decline. They need to realise that the
kind of structures and activities which work in one stage of a company’s life-
cycle may not work in another. Therefore, the criteria used to judge success and
competitiveness may vary with a company’s stage of development. Life-cycle
theories of organisations share common stages of development. Table 9.2 shows
a conventional organisational life-cycle model.
Table 9.2 The life-cycle of the firm

Features Inception and Rapid growth and Steady growth and Consolidation and
start-up ops market expansion market maturity decline
Structure No formal piecemeal Decentralised,more Centralised, formal Rigid, top heavy,
layers more layers complex
Communication Informal and Budgets, audit trails, Formal, long-range, Breakdown,
pattern face-to-face, few emerging rules and formula-driven poor downward
barriers regs communication
Decision style Individual and Professional and Professional and Emphasis on
entrepreneurial managerial managerial process vs. results,
boss-centred
Rate of growth Uneven, rapid Rapid, positive and Slowing or stopped Shrinking in core
or episodic sustained by product and emphasis on business areas;
(with product line expansions process gains (cost profit and market
introductions) reductions) capitalisation decline
Hierarchical Low Increased vertical Excess vertical Significant
complexity complexity complexity and delayering
rising administrative and excessive
costs administration costs
Age, size and Young, small and Larger with separate Large, product Shrinking and
responsiveness flexible divisions (no divisional structure unwinding of
diversification) and diversification diversification

The changes shown in Table 9.2 underscore the fact that organisations, as
they age, become more formalised, complex and differentiated. These qualities
describe the three stages, but they need not cause decline. The table stresses
the related features of the duration of each stage and the types of changes
experienced by companies in a particular stage. Since the duration of a particular
stage is highly variable, it is impossible to specify how long each stage will
last.10 Companies can have short life-cycles with missing or very short stages. If
a company produces a single product that creates a fad, it may grow rapidly and
then decline quickly if it has not diversified its product line. Some companies
skip maturity and swoon directly into decline.
The types of changes experienced by organisations and their leaders also
differ according to the stage of the organisation’s development. For instance,
Dell Computer is, now, after 11 years of unprecedented growth, a very different
company from the one founded by Michael Dell in his University of Texas
dormitory room. The company started by Mr Dell began as a computer repair
and components business run by the then-college sophomore. By 1994 Dell
was a $2.8bn company which was building and shipping PC clones world-
wide through its highly successful direct marketing approach. By late 1994, the
company was experiencing cash-flow problems and Mr Dell, at the ripe old age
of 34, was rethinking his management of the company and its structure and
systems. While he still is the company’s largest stockholder, CEO and Chairman
of the Board, he has created and filled numerous high-level executive positions.
He has reined in general sales and administrative expenses and greatly improved
the company’s cash flow. He has managed this while the company has risen
from the fifth largest to the fourth largest maker of personal computers. Dell
stock is trading at the top of its range and investors look forward to healthy
earnings based on expanding domestic and global sales.
The example above highlights how the experiences of a highly success-
ful entrepreneur and his company are very different during the late high-
growth/maturity phase and the inception phase. By the time Apple Computer
Company was a $1bn company, its founder, Steven Jobs was only a large stock-
holder. Likewise, Mitchell Kapor, founder of Lotus Development Corporation,
had walked away from Lotus, once it had about 1300 employees and world-
wide sales of $275m. In 1995 IBM purchased Lotus for a record $3.6bn, paying
a 65 per cent premium for all of the outstanding Lotus stock. These examples
can be linked by the idea that not all companies survive and prosper under the
individuals who founded them. Not infrequently, new, highly successful com-
panies grow beyond the capacity of the founder to manage them successfully.
Mr Dell seems to be the exception to this rule. He has the managerial skills
needed to make his company successful during its continued high-growth phase.
Other founders lose interest in the challenges of being an executive (instead of
a product innovator or designer) and major stockholders or creditors of the
company force them to step down when the company encounters a period of
poor performance. This was the case in the Mrs Fields Cookie Company exam-
ple (Case Study 7.2, Module 7). More often than not, a restless entrepreneur
welcomes the change and simply goes on to build another successful company.

While decline is shown in the model, it is not an inevitability for mature

companies. Rather, it may happen to any company which loses its adaptiveness
regardless of its life-cycle stage. Managers who are alert to organisational decline
should watch for changes in these 14 factors:
1 Excess personnel (and excessive job classifications).
2 Tolerance of incompetence (failure to dismiss poorly performing employees).
3 Cumbersome administrative procedures (excessive red tape and regula-
tions).
4 Unusually powerful staff who overwhelm line decision-makers and deride
them as conventional and unsophisticated.
5 Form over substance, e.g., the planning system and its rules become more
important than the results of planning.
6 Few clear goals and criteria for measuring organisational success.
7 Reluctance to tolerate conflict or preferring harmony over disagreement in
spite of its potential damage to decision-making.
8 Loss of effective communication and excessive centralisation of decision-
making.
9 Outdated organisational structure.
10 Increased scapegoating by leaders (a rise in political behaviour at the top of
the management hierarchy).
11 Resistance to change.
12 Low morale.
13 Special interest groups become more vocal (resist changes in technology and
methods).
14 Decreased innovation (fewer new products are developed and introduced
in the market).11
By monitoring the 14 indicators of decline, successful managers can try to
protect their companies against decline when the company is highly successful.
The number one reason for organisational decline is a management team that
is over-confident and inattentive.12 Once an organisation is in decline, the man-
agement team that presided over the decline will not be able to marshal people
and resources to stop it. Building an adaptive company culture during the early
stages of the life-cycle is the best way to ward off decline.
9.3 Organisational Change

We all know from personal experience that organisations adapt and change. For
instance, your favourite sports team adds new players, changes coaches or man-
agers and convinces the city fathers to build the team a new stadium. Likewise,
companies acquire undervalued or poorly managed firms and begin the process
of removing unproductive managers, selling unprofitable assets and improv-
ing customer service. This is the evolution of organisations. They are neither
good nor bad. However, the way the changes are implemented and managed
is crucial for employees and the customers they serve. The implementation and
management of organisational change is the focus of this section of the module.

9.3.1 Why Do Organisations Have to Change?

All organisations must interact with a task environment composed of suppliers,
customers, competitors, regulatory agencies and social interest groups. The
task environment presents the focal organisation with the task of managing
environmental uncertainty which is composed of environmental complexity and
environmental change. Environmental complexity refers to the number and
variety of external constituencies which an organisation faces. Environmental
change refers to the stability of the constituencies and whether or not they change
rapidly or slowly over time. These two dimensions of the task environment can
be combined as shown in Figure 9.4.
Environmental uncertainty
1 2
Stable LOW UNCERTAINTY LOW MODERATE
UNCERTAINTY
Beer distribution
Hotels Public utilities
Legal services Government agencies
Environmental
change 3 HIGH MODERATE 4 HIGH UNCERTAINTY
UNCERTAINTY
International finance
Fashion design Computers
Advertising Telecommunications
Shifting
Simple Complex
Environmental complexity
Figure 9.4 Understanding environmental uncertainty
Figure 9.4 shows that task environments create forms of uncertainty which
challenge managers to develop plans for implementing and managing change.
Moving from the upper left-hand corner to the lower right-hand corner of the
figure, environmental uncertainty increases at a geometric rate. Organisations
which face high uncertainty must plan actively to manage change. Thus they
must have the ability to monitor and survey their environments constantly.
Organisations must be engaged in a proactive search to anticipate rather than
simply react to environmental change. To meet the challenge of externally
induced change, organisations can try several things.
1 Change goals and strategies. Organisations may introduce new products
and services, or segment markets. These are examples of changes in goals
and strategies. The development and marketing of the distance-learning
MBA programme by Heriot-Watt University is an example of changing
goals and strategies.
2 Technology. The introduction of an e-mail system to facilitate communica-
tion and to reduce the load of paperwork in an organisation is a change in
organisational technology. The displacement of 20 per cent of the work-force
in an insurance company due to the use of computer-based expert systems
is another example.

3 Structure. Organisations can modify themselves by changing from a func-

tional to a product or territorial design while shifting from centralised to
decentralised decision-making. Hewlett-Packard underwent a major struc-
tural change when it moved many corporate employees to plant and field
operations to speed up its decision-making and customer service.
Change can also be provoked by shifts in the internal environment of the

organisation. Indicators of poor organisational health such as diminished pro-
ductivity, increased customer complaints, increased absenteeism, increased
grievance rates and strikes all point to problems which may emerge as an
organisation attempts to deal with its external environment. Organisations often
implement and manage change triggered by these forces by installing one or all
of the changes noted below.
1 Job design. The work performed by individuals or teams can be modified to

provide more opportunities for satisfying the needs of employees. At either
level, jobs can be altered to provide more variety, autonomy, feedback,
significance and social interaction.
2 People. The organisation improves the quality of service and speeds up
decision-making by developing a programme of employee empowerment
based on the use of self-directed teams. Significant expenditures are usually
made in employee training to make these improvements succeed.
3 Control systems. The organisation can alter its performance appraisal and
reward systems. These changes encourage new behaviours which employees
believe will result in their receiving rewards which they value.
Experts in organisational change agree that managing corporate transforma-

tions requires changing the behaviour of employees and organisational culture.13
The belief is that successful firms adapt their cultures quickly to fit new internal
and external environmental realities. Beer defines three conditions which must
be managed to make a successful corporate transition.13
1 Dissatisfaction with the status quo among employees who must change
their behaviour.
2 The need for a model or vision of the future, which will guide the
redesign of the organisation.
3 The need for a well-managed process of change to help employees modify
their attitudes and behaviour.
Planned organisational change has several qualities which distinguish it from

specific techniques of organisational change. The major characteristics of planned
change in organisations are shown in Table 9.3.14
9.3.2 The Planned Change Process

The three conditions noted above necessitate that organisational change follows
a predictable sequence. Kurt Lewin has suggested that change involves three
basic stages of unfreezing, changing and refreezing.15

Table 9.3 Qualities of planned change in organisations

1 It focuses on a whole organisational unit (work group, department, division or the entire
organisation).
2 It is based on behavioural science knowledge at both the micro and macro levels.
3 It is not associated with business planning or forecasting.
4 It involves the creation and reinforcement of managed organisational change.
5 It uses strategy, structure and process changes in the organisation.
6 It has the primary goal of improving organisational effectiveness.
Unfreezing
Unfreezing occurs when employees feel dissatisfied with the old culture and pro-
cesses in the organisation. Unfreezing represents the ‘constructive destruction’
of ineffective company processes and features. It may also entail management’s
realisation that the company’s work system, training and development system,
performance appraisal system or structure do not fit strategy.
Organisational crises are especially likely to stimulate unfreezing because they
demand immediate attention. Likewise, unfreezing may be precipitated by forms
of employee discontent which appear as labour grievances, work stoppages,
discrimination lawsuits and whistle-blowing. In each case, management has
probably overlooked an opportunity to reach a settlement. For instance, the
Mitsubishi Corporation of America is being sued by female workers in one of its
American plants for sexual harassment. The company affirms its tough stand on
harassment and refuses to co-operate with government lawyers. The 29 plaintiffs
in the case claim that the pattern has been in place at the plant for five years.
Mitsubishi’s one production facility has 4200 workers and about 800 of them
are women. The $250m suit is the largest sexual harassment case in American
history. This case is a serious threat to the company’s reputation in the USA.
Losing this case would cost the company precious market share among American
women and the company would be branded with an unsavoury reputation in
the industry.16
Changing
Changing occurs when an action plan is implemented to move the organisation
and its members to adopt new behaviours and accept changes to culture. A
planned change can be as simple as a product training seminar for sales staff
or it can be a restructuring designed to shift the organisation from a centralised
functional design to a decentralised service oriented design. For changing to
be successful, the firm must have a model to explain improved organisational
functioning, and an employee-supported plan for adopting the model.
Refreezing
Refreezing occurs when newly developed behaviours, work designs, organisa-
tional structures and processes are adopted and become permanent parts of the
firm and its culture. During refreezing, the change process can be examined for
its subjective and objective successes. Refreezing also includes the transplanting
of successful outcomes of the change process to other firm units and subsidiaries.

Key Issues for Managers in the Change Process

Successful management of change requires managers to be prepared to confront
several important challenges. Figure 9.5 shows the major elements of the change
process. Each aspect of this process and the typical management challenges in
each is discussed below.
Thawing out the firm
Recognising the
need for change
Diagnosis Changing the firm's features
and processes
Resistance
Selection of
change methods
Carry-over Solidifying a new
Evaluate the results model of the firm
(of change)
Institutionalise change
(new culture)
Diffuse the change
to subsidiaries
Figure 9.5 The key features of the organisational change process
9.3.3 Diagnosis
Diagnosis is the collaborative process between the organisation and a change
agent to bring organisational problems into focus. A change agent is an expert
in the application of behavioural science knowledge to organisational diagnosis
and change. Diagnosis is an integral part of the unfreezing process and it is
usually triggered by an internal or external event which has created uncertainty
for managers. Diagnosis need not be reactive. For instance, some companies use
360-degree performance appraisal systems to uncover problems in self-directed
teams. Data from this appraisal method detect problems before product or
service quality are affected.
An effective analysis of organisational problems requires the use of a multi-
level diagnosis. This examines problem symptoms at the organisational, group
and individual/job levels of functioning. Using the multi-level approach to diag-
nosis is reasonable because symptoms of ineffective organisational functioning
appear throughout the firm. If the change programme planners fail to recognise
the symptoms of poor functioning in levels of the firm, then they run the risk of
developing solutions that do not address all of the causes of poor functioning.
Table 9.4 shows the features which should be diagnosed at each level of the
organisation.
A diagnosis can be made more effective if the change agent uses a steering
committee to guide it. A steering committee is composed of members who are
high performers, are respected by their peers, have an interest in the effectiveness

of the firm and have excellent communication skills. It is indispensable for

sustaining an effective diagnosis and for moving successfully through the stages
of planned change. The steering committee is temporary and it lasts as long as
the programme of planned change. It reports to upper management and it has
latitude to make decisions about the change process shown in Figure 9.5.
Table 9.4 Multi-level diagnosis in planned change

Diagnosis at the organisational level entails the examination of:
1 The history of the organisation including critical events which shaped it.
2 The product and service mix.
3 The nature of the external environment and those components on which the organisation
depends heavily.
4 The organisation’s resources in terms of capital, technical capability and people.
5 The strategic plan.
6 The extent of vertical and horizontal differentiation.
7 The extent of vertical and horizontal integration.
8 The characteristics of the organisational communication system.
9 The characteristics and number of output measures.
Diagnosis at the team level entails the examination of:
1 The basic tasks of work teams.
2 The systems in place to back up work team processes (performance appraisal, reward,
goal-setting).
3 Teams which manage core processes.
4 The effectiveness of team problem-solving processes.
5 The management of conflicts among teams.
Diagnosis at the individual/job level entails the examination of:
1 The diversity of the work-force.
2 The leadership styles of key executives.
3 The motivational basis for job performance.
4 The level of job satisfaction.
5 The extent of employee empowerment.
9.3.4 Resistance
Resistance happens when employees fear that the personal and organisational
costs of change will exceed the benefits. They feel that they or the organisation
or both are threatened by the change. The other side of the resistance ‘coin’
is preference for the status quo. It may be so comfortable that employees
fear any alterations, which might cause 1) economic uncertainty, 2) knowledge
obsolescence, 3) loss of personal power, 4) increased conflict or 5) changes in
work relationships. Resistance is usually asymmetrical in terms of organisational
power. Those who resist the change are often better organised and more vocal in
their resistance than those who advocate change and improvement. The ‘burden
of proof’ falls upon the advocates for change and they have to convince everyone
that change is for the best.
Resistance to change can be reduced by involving those who are affected by
the outcomes of the planned change. A change strategy should emphasise the

importance of employees ‘taking ownership’ for the process and its outcomes.
An effective steering committee helps make planned change participative. Excel-
lent examples of managed employee participation in planned change include:
1) designing performance appraisal systems, 2) setting up individualised fringe
benefits programmes, 3) designing cost-saving programmes which generate work
group bonuses for productivity gains, 4) employee empowerment programmes
designed to improve service quality, 5) total quality management programmes
and 6) installing self-directed work teams.
All change programmes need not be participative. Participation in change
programmes becomes less important if: 1) time is crucial or a crisis exists, 2) top
management has all the information necessary to make the decision to implement
the change, 3) the outcomes of the change programme will have little effect on
employees, 4) employee acceptance of the change is not crucial for change
programme success and 5) employee skill development is not a significant focus
of the change programme. These aspects of participation management are at
the heart of the Vroom–Yetton–Jago Normative Model that was presented in
Module 6.
9.3.5 Carry-Over to the Work Setting

Some change programmes are conducted off the work site and participating
employees are supposed to sustain the behaviour change back on the job. Your
firm may send middle managers to university-based training programmes to
learn just-in-time inventory control, total quality management, self-directed team
design and service quality improvement. In other cases, employees may be sent
to other divisions to learn about new methods which the company expects the
employees to implement in their work units. For instance, one division may base
part of its employees’ pay rises on the new skills which they learn each year. The
methods for designing and implementing a ‘skill-based compensation system’
may require several training sessions for employees who must implement it in
their divisions. In other instances, a company may send teams of managers to
team-building workshops where they improve their group’s problem-solving.
In these situations, the transfer of learning is imperilled if the newly learned
behaviours, methods and procedures are not reinforced in the work setting
where they are required. The key question is: ‘What must be done to cause the
effective transfer of new behaviours and learning to the work environment?’
Research suggests that the successful transfer of new behaviours, knowledge
and attitudes to the work setting depends on:
1 The elements in the change process correspond to specific features of the
work environment.17
2 The change is perceived to be immediately useful in the work environment.18
3 The changed attitudes or behaviours are supported by others in the work
environment.19
To illustrate the three points, assume that management believes that a Scanlon
programme needs to be developed to reduce waste and to improve product
quality. The programme would have a greater chance of success if all affected

employees believed that waste and product quality were serious problems.
Further, if employees think a set of measurement criteria could be developed to
assess employees’ effectiveness in lowering waste and raising product quality,
then the change would have a greater chance of success. Finally, if employees
and managers in other work units liked the programme and inquired about their
eligibility for a similar one, the chances for success in all work units would rise.
The carry-over problem is solved by motivating newly learned behaviours.
New behaviours learned in a change programme must be reinforced by man-
agers and co-workers in the work setting. Thus, managers must understand
and value the new behaviours and reinforce them in subordinates. This can
be accomplished by creating ‘assignments’ which are designed to extend pro-
gramme learning to the work setting. The assignments involve manager and
employee teams who are responsible for implementing action plans developed
in the off-site work. They bridge the gap between the ‘learning environment’
and the ‘work environment’.
Overcoming the Carry-Over Problem

A number of companies have created their own methods to overcome the
carry-over problem. Motorola Corporation of Schaumberg, Illinois has created
‘Motorola University’ to conduct all of its employee and executive training in-
house. All Motorola employees receive 40 hours of refresher training annually.
Motorola University customises its training programmes by simulating manage-
rial systems, production methods, customer satisfaction systems and work team
processes. The faculty is made up of consultants, engineers, scientists and former
managers. In 1993, the company spent $130m on education, or about 3.8 per
cent of total payroll. It is hard to argue with the results of Motorola University’s
success in training. Over the last five years the company profits have increased
47 per cent and sales per employee have doubled. The company estimates that
every $1000 spent on employee training returns $30 000 in increased productiv-
ity over a three-year period. Such production upgrades and the elimination of
waste resulting from training have produced savings of $3.3bn, and a highly
motivated and committed work-force.20 The example of Motorola University has
implications that go well-beyond the solving of the carry-over problem.
9.3.6 Evaluation
Once organisations begin to benefit from change programmes, managers are
often so pleased with the results that they pay little attention to understanding
why the successes occurred. Managers are often willing to judge a programme as
successful on the basis of the ‘good reactions’ expressed by employees who par-
ticipated in it. This is known as anecdotal success. While it is important, it tells
management very little about the soundness of the improvement programme’s
goals or the quality of its implementation process. Additionally, managers are
quick to try change programmes which have become popular in their industry.
The adoption of such ‘fads’ never leads to thorough programme evaluation. This
is particularity true since the fads are often installed in organisations without
any diagnosis. At best, fads superficially ‘skim the surface’ of symptoms of

poor organisational functioning. Much like overweight people who pursue each
new ‘fad diet’ that comes along, some managers jump on every bandwagon:
‘TQM’, ‘employee empowerment’, ‘building the service company of the next
century’ and so on. Table 9.5 shows the areas where managers should eval-
uate the outcomes of a change programme. A strong programme of change
would spell out in advance the areas of improvement to be quantitatively mea-
sured. The responsibility for designing the measurement tools and making the
measurements would fall on the steering committee. The organisation benefits
most from planned change when it makes an effort to develop a ‘profile of
programme outcomes’ which measures gains and losses using items from the
categories noted in Table 9.5. These categories can be adjusted to fit the specifics
of any company’s planned change programme.
Table 9.5 How to tell if the OD programme did any good

Desired change areas Indicators of successful change
Employee attitudes and Employees describe the programme as worthwhile and
feelings satisfying
Employees show more work involvement
Employees are more committed to the firm
Employee knowledge Employees demonstrate new skills
Employees describe the co-workers as more skilled and
capable
Employee behaviour Employees say that they have new problem solving skills
Employees use new methods on the job
Customers Customers say service and quality are better
Better response times for service delivery
New forms of product and service customisation
The firm Rising productivity
Lowered absenteeism and turnover
Lower grievance rate
Improved quality, less waste and fewer defects
One final distinction regarding programme measurement is necessary. All of

the outcomes shown in Table 9.5 refer to the effects of the planned change. None
of them captures the effectiveness of the implementation process. Therefore, a
steering committee would need to suggest the value of assessing the quality of a
planned change process. Such measurements might include cost considerations,
the time necessary to meet programme milestones, employees’ satisfaction with
the nature of the change process and top management’s judgement of the
programme’s ease of installation.
9.3.7 Institutionalisation
If a change programme achieves favourable outcomes, the firm will want to
make the change a permanent part of its systems, culture and structure. When
planned change achieves institutionalisation, it becomes part of operations in
spite of managerial succession, attrition or other alterations in other aspects of
the organisation. Institutionalisation becomes less likely if:

1 Formal evaluation of the programme is not conducted.

2 The change programme is not multi-level (addresses lower, middle and
upper management issues) and multi-method (addresses individual/job
characteristics, group process issues and organisational design issues).
3 The change programme takes too long to complete.
4 The change programme does not involve constituencies outside the organi-
sation.
5 Promised rewards are not provided.
6 The change programme generates employee expectations which cannot be
met (e.g., promotion opportunities do not increase).
7 New members are not exposed to the programme, i.e., it ignores organisa-
tional culture.
8 Key ‘idea champions’ who support the change programme leave the firm.
9 The organisation’s environment changes in some way or profits decline and
cause management to abandon institutionalisation.
9.3.8 Diffusion
Most change programmes do not include the entire organisation. They start
small and build momentum during the early project successes. Diffusion refers
to the institutionalisation of the change throughout the firm. Walton has studied
the diffusion process for change programmes in Volvo and Shell UK These pro-
grammes were very extensive and broad based. The programmes’ characteristics
had several common features.
The work restructuring approach pursued in the companies embraces many
aspects of work, including the content of the job, compensation schemes, scope
of worker responsibility for supervision and decision-making, social structure
and status hierarchy. The design of each element is intended to contribute
to an internally consistent work culture: one that appropriately enlarges the
workers’ scope for self-management, enhances their opportunity for learning
new abilities, strengthens the sense of connectedness among workers, increases
their identification with the product and manufacturing process and promotes
their sense of dignity and self-worth.21
Walton noted that diffusion is not guaranteed. The Volvo programme expe-
rienced significant diffusion, and changes became an operating characteristic of
the company’s culture. It also did not hurt to have the company president (Peyr
Gyllenhammar) fully behind the programme. He wrote a book entitled People at
Work which detailed the Volvo experiment in work design for semi-autonomous
work groups. In this case, publicity and a high-level idea champion aided the
diffusion process. Walton identifies seven factors which can undermine diffusion:
1 Low support and commitment from top management. In many cases,
executives give permission for planned change, but they do not become
involved personally.
2 The work methods in the focal unit differ from other units, prompting
participants to conclude ‘It won’t work here’. If the programme uses a
steering committee, some of these arguments can be headed off.

3 The change agent becomes preoccupied with diffusing a particular tech-

nique rather than the goals for change which can be adapted to other
work units.
4 No rewards are provided for successfully managing the change pro-
gramme. This means that the company continues measuring performance
the old way and fails to recognise those employees who made the change
programme successful.
5 Labour undermines the programme because it believes the programme
will weaken its hold on employees. Placing labour representatives on the
steering committee avoids this.
6 Concern that projects begun in non-unionised locations will fail to be
implemented by unionised locations.
7 Conflict between the operating characteristics of the work unit undergoing
the change and the bureaucratic machinery in the rest of the organisation.
A feature of many successful OD programmes is less bureaucracy. This
often proves to be a threat to ‘home office’ managers who do not believe
field units can be effectively decentralised.
9.4 Methods of Change in Organisation Development

Organisation development (OD) is a science, an art and a set of methods for
changing how organisations function. Some of the confusion about OD occurs
when managers fail to recognise that all three elements must coexist. With this
disclaimer made, the following definition of OD is offered: OD is a system-wide
application of behavioural science knowledge to the planned development and
reinforcement of organisational strategies, structures and processes for improving
an organisation’s effectiveness. A strong emphasis is placed on interpersonal and
group processes.14 The definition stresses the application of behavioural science
knowledge. This distinguishes OD from other change strategies which might
rely on the use of knowledge in accounting, engineering or marketing. It is
possible, however, that projects designed to change accounting, marketing or
engineering procedures could also use behavioural science knowledge. The fact
that change is planned differentiates OD from random, chaotic or disjointed
events in organisations. OD emphasises interpersonal and group processes.
The field emphasises improvement in managerial style and the effectiveness
of work group problem-solving. Finally, OD rests on the assumption that all
organisational change affects employee behaviour.
As we just noted, a change agent assists organisations in managing the change
process. Change agents are usually motivated by a set of assumptions which
underlie OD itself. The assumptions are noted below.
1 Employees are growth seeking and they desire self-fulfilment.

2 Employees can assume delegated authority and they try to contribute to
organisational goals.
3 Open and honest communication in organisations is desirable.
4 Most organisations can benefit from improved trust and co-operation.22

While these four items are often viewed as professional assumptions held by
change agents, other OD experts believe the change agents’ assumptions should
be less assertive and should focus instead on: 1) helping a firm to generate valid
data about its current operations, 2) helping employees clarify their desired
outcomes and 3) helping a firm make strategic choices based on a diagnosis (see
Table 9.2) of their current state and desired outcomes.22
9.4.1 Examples of Change Methods in OD

When organisations change themselves, there are many OD methods to choose
from. OD change methods can be classified as: 1) interpersonal and group (OD’s
origin), 2) systemwide process changes and 3) Grid OD. Large-scale change
programmes in organisations often include methods from all three categories.
9.4.2 Interpersonal and Group Change Methods

Interpersonal and group-based OD techniques were initially developed by the
National Training Laboratories in Bethel, Maine in the late 1940s. Under the
sponsorship of the Office of Naval Research and Massachusetts Institute of
Technology, Kurt Lewin and his colleagues developed the T-group procedure.23
T-groups or sensitivity groups change methods concentrate on the interaction
in face-to-face groups. These encounters are managed by a change agent (facili-
tator) to provide members with realistic experiences in interpersonal relations.14
If the group’s purpose is to help members gain deeper personal knowledge
and development, then the group is referred to as an encounter group. While
encounter groups are uncommon in industrial applications, they are widespread
in society. They are used in psychotherapy and drug rehabilitation programmes.
Support groups are problem-focused groups which unite individuals and pro-
vide support for a problem shared by its members. Examples of support groups
are Alcoholics Anonymous, Weight Watchers, groups composed of divorced
parents and groups of parents with handicapped children.
T-Group Procedure Used in Industry

T-groups begin in an intentionally unstructured manner. A facilitator starts
the process by stating that the purpose is to help members learn more about
themselves and the processes which govern the group. After this orientation,
groups usually follow this pattern: 1) small talk begins and ceases fairly quickly
because members conclude that ‘the group is going nowhere’, 2) frustration
sets in and the group tries to establish a leader who ‘announces’ an agenda of
activities, 3) more frustration unfolds as the group recognises that the task is still
ambiguous and the self-appointed leader loses influence, 4) hostility is directed
at the facilitator for ‘not doing his job’, 5) the facilitator uses the process of
‘frustration ventilation’ to focus on the origins of hostility in the group and 6) the
facilitator encourages a process of member feedback about interpersonal styles
and members’ perceptions of others in the group. This sequence of events can
produce much anxiety for members, especially those who are shy. The facilitator
may try to protect these individuals by slowly engaging them in interactions.

However, most facilitators agree that some sustained level of anxiety is necessary
to cause change and personal learning. Table 9.6 shows the goals in most training
groups. It also shows some of the problems that occur when firms try to improve
working relationships using T-groups.
Table 9.6 Why T-groups do not work in firms

T-group goals do not align with profit-making and other important goals:
1 Emphasise personal style and others’ feelings instead of profit and performance
2 Personal awareness is more important than improved work methods
3 Group influence process are changed without consideration of profit making and
performance relationships
4 Member satisfaction and cohesiveness may actually undermine the firm’s performance and
goal attainment
T-group applications may trigger these problems in profit making firms:
1 Negative, personal feedback among T-group participants may undermine existing work
relationships
2 The learning in the T-group environment may not transfer well to the work setting
3 There are few documented studies that show how firms have benefited from T-group
applications
4 T-group applications are perhaps more useful in the limited area of stress management
practices
Observers and T-group facilitators argue that the method can improve organ-
isational functioning if four conditions exist: 1) the T-group must be structured
and problem-focused so that learning can be transferred back to the work set-
ting, 2) the use of T-groups should be tied to an ongoing OD intervention, 3)
T-group activities should probably be confined to the beginning of an interven-
tion (to help unfreeze the organisation) and 4) the culture of the organisation
must support the use of T-groups.24 The organisation’s culture must support and
encourage conflict confrontation (rather than suppression), employee empower-
ment and information-sharing.
Team-building has been developed in response to the problem of carry-over
in T-groups. It focuses on work groups, project teams or newly created work
units which must work together to achieve organisational goals. A task oriented
method of work group process improvement, it emphasises the solving of real
organisational problems. Team-building objectives are summarised in Table 9.7.
Table 9.7 Objectives of team-building

1 Developing methods to make decisions and set goals.
2 Handling conflict between project teams and functional units.
3 Improving relationships between the group’s manager and its members.
4 Solving product or service quality problems.
5 Integrating new members in formal or project groups.
6 Clarifying job requirements and work expectations for members.
7 Attacking departmental or organisational co-ordination problems.

Typical Steps in a Team-Building Programme

There are several variations in the use of team-building. A typical application
might contain these steps:
1 Team-building workshop. Off-site structured group exercises unfreeze atti-

tudes and prepare the groups to accept change.
2 Data collection. Team members fill out a questionnaire to measure culture,
leadership styles and facets of job satisfaction.
3 Data confrontation. Change agents present work teams with step 2 data.
Using group problem-solving, the teams develop lists of recommended
changes.
4 Action planning. The teams develop specific plans to bring about the
changes isolated in step 3.
5 Team-building. Barriers to effective work group decision-making are iso-
lated and solutions are developed.
6 Intergroup team-building. Teams with interdependent goals establish col-
laborative methods to handle them.25
Organisations which regularly assess the fit between culture and mission,
goals and strategy, find that team-building is an excellent tool for ensuring
the fit between these crucial elements in organisational effectiveness. Managers
recognise that team-building should be a regular process for diagnosing and
attacking problems before they threaten integration in the firm.
9.4.3 System-wide Process Change

Survey feedback is a widely accepted form of system-wide process change. It
consists of collecting questionnaire data from employees, summarising the data,
feeding them back to employee groups and then using the groups to diagnose
problems and develop action plans to solve them. The basic steps in the survey
feedback method are as follows.
1 Top management sets up a steering committee to assist a change agent

who develops a valid organisational survey and interview procedure to be
administered to employees.
2 The survey is pilot-tested on the steering committee and selected employees.
After modification, it is administered to the work-force to gather survey data
in a specified period of time.
3 Off-site, the change agent analyses the data (to ensure the confidentiality of
participants).
4 Results are fed back to the firm by following a ‘cascading’ procedure. The
feedback sequence is: steering committee; top management; division man-
agers and department managers; self-directed teams or individual employ-
ees.
5 The heads of work units and their employees construct action plans to
address problems detected by the survey analysis.

6 Using the action plans, the change agent and the steering committee present
top management with a list of change priorities.
7 The steering committee and change agent work with units to install action
plans.
8 Programme evaluation is conducted to assess change in employee reactions,
learning, behaviour and organisational outcomes.
In survey feedback the steering committee can design a questionnaire with the
help of the change agent; or a pre-packaged, standardised survey such as the
Survey of Organizations (developed by the Institute for Social Research, University
of Michigan) can be used.26 , 22
The Survey of Organizations covers communications, decision-making, leader-
ship style, employee satisfaction and other organisational aspects. The danger
in using pre-packaged surveys is that they may overlook unique features of
the firm under study and members may devalue the information from the
survey because it misses key issues. Survey feedback is much more than the
techniques of questionnaire design, data-gathering, survey analysis and feeding
back results. Effective survey feedback assumes that meaningful team-building
activities will facilitate the process through each step noted above. The biggest
flaw in most survey feedback programmes is the mechanical application of each
step. Change agents and steering committees sometimes respond to requests
to conduct a survey only to find top managers disregarding survey results.
The illustration below shows how a survey feedback programme can lose its
effectiveness.
A team of change agents was asked by the partners of a small software manufacturer
to help them improve company functioning. The change agents interviewed upper
level managers which led to the preliminary diagnosis of ‘poor communication’ in
the company. In a meeting, the change agents encouraged managers to organise
a steering committee of respected and concerned employees who had an interest
in improved company-wide communications. The partners rejected this suggestion
and encouraged the change agents to ‘develop a survey and gather data as quickly
as possible’. The change agents selected a pre-packaged ‘communications audit’
questionnaire for use in the project. The partners found the device to be inadequate
in several ways, but the decision was made to administer it anyway. None of the
partners filled out the survey.
Two months after the survey was administered, the results had been analysed
and were ready for distribution. During that time, company sales had fallen sharply
and several key department heads had resigned. In spite of low commitment to the
feedback process, the partners continued to back the OD project and the feedback
process started. The change agents worked to convince employees and management
to accept the data and to take responsibility for change in their work units. They
organised the data by work units, fed it back, trained supervisors in how to develop
a plan to correct problems shown by the data, and kept the partners informed
of project progress. Despite these efforts, a number of problems developed in the
feedback and planning stages.
1 Supervisors and department heads ducked responsibility for change. They

relied on the change agents to ‘tell us what to do’.

2 The change agents found themselves defending the project to work unit
employees at a time when the work units should have been working on action
steps to correct problems.
3 During feedback sessions, employees were preoccupied with specific question-
naire items and some expressed doubts about the survey’s validity.
4 Some supervisors expressed the opinion that the partners were not personally
committed to the change process since they had not filled out the questionnaire
themselves.
5 Some units complained about the fact that the feedback meetings lacked
direction.
The change agents did a post mortem on the project and reached several conclu-
sions. First, they thought that they should have been more directive and insisted
on the creation of a steering committee which would have taken responsibility for
developing a more relevant survey tool. Second, the change agents thought they
should have insisted on top management’s direct involvement with the different
phases of the project. Third, they knew they should have used a questionnaire
modified to fit the needs and language of the company. Fourth, they should have
adjusted the survey feedback process to reflect changes in sales and employee
turnover. More effort should have been made to involve middle management in
the project so that they would have a stake in the outcomes of the project.
The example illustrates how easy it is for change agents (and the organisation)
to get caught up in the technology and milestones of a survey feedback pro-
gramme and forget that survey feedback is really a programme of organisational
self-examination. The change agents also overlooked the importance of commit-
ment and involvement at the crucial levels of top and middle management.
When change agents are caught up in the ‘technology’ of survey feedback and
top management is looking for quick results, the self-examination portion of the
change process is lost.
9.4.4 Grid Organisation Development

Grid OD is a comprehensive, long-term effort directed at changing the entire
organisation. It was developed by Robert Blake and Jane Mouton of Scientific
Methods Inc.27 The basic assumption of the method is that company success can
be achieved only if there is a simultaneous concern for high performance and
the maintenance of a psychologically healthy work environment. The Grid OD
programme is called a pre-packaged OD method, because it follows a diagnostic
procedure which always leads to emphasis on concern for performance and
concern for people (see Figure 9.6).
Grid OD follows a six-step procedure. It may take a large organisation several
years to complete all six steps. The first three steps are designed to remove
communication barriers while the last three are designed to foster better planning
and goal-setting. The steps are briefly described below.
1 Grid seminar. This is a structured team-building activity designed to

encourage unfreezing by having participants diagnose their own managerial
styles. Top managers usually attend the Grid seminar first.

2 Intragroup development. Work teams attend seminars designed to extend

Grid concepts to improve team decision-making processes. This step includes
an analysis of group decision-making capabilities and obstacles to effective
group decision-making.
3 Intergroup development. Work groups which have high co-ordination
needs work through a set of structured activities to break down communi-
cation barriers. The emphasis in this phase is on intergroup co-operation.
4 Development of an ideal strategic model. This phase focuses on deepening
understanding of co-ordination needs and on developing an ideal model
which represents where the organisation would like to be in terms of
financial goals, structural design and employee satisfaction. The model is
developed by top managers.
5 Attaining the ideal strategic model. Task-forces are created to develop a
plan for closing the gap between the organisation’s current level of func-
tioning and the ideal model developed by top managers.
6 Stabilisation and process critique. The results of changes are evaluated
using quantitative data by internal evaluation project teams and external,
independent evaluators.
The longevity of Grid OD suggests that it is more than a fad to practising

managers. However, there are potential problems in it. First, due to its pre-
packaged nature, it may not suit all firms. Second, many firms do not finish all
six steps because key events can cause managements to suspend Grid work. The
Grid OD system is vulnerable since it does not account for such contingencies.
Third, Grid OD has many phases and changes in each phase. This makes it
hard to figure out which elements in the various steps have caused favourable
outcomes.
9.4.5 Does OD Work?

In the previous sections of the module, we have reviewed the characteristics of
several OD methods. A successful OD plan depends on matching the method
and the depth of the intervention. The depth of the intervention refers to how
personal and behaviour focused (as opposed to impersonal and organisation
focused) the intervention is. Any management should be wary of the claims in
all-purpose, pre-packaged OD programmes that ignore the depth of intervention.
If the change required is broadly based (i.e., changing an organisation’s culture)
then the OD programme must use several methods.
A review of OD programme successes indicates that multi-method approaches
have more positive effects on organisational effectiveness and employees’ need
satisfactions than single-method programmes.28 A review of T-group team-
building, job enrichment and job-design programmes concluded that no one
method was successful in all instances. Improvements in organisational func-
tioning were obtained when methods were combined. A successful combina-
tion of interventions might be one in which: 1) all employees participated in
goal-setting, decision-making and job redesign, 2) employee empowerment was
created through self-directed teams and 3) the company was delayered.

HIGH
1,9 9,9
Country Club Management Team Management
9 Attention to needs of people for Work accomplishment by
satisfying relationships leads to a committed people;
8 friendly work atmosphere. interdependence through
a 'common stake' in organisational
CONCERN FOR PEOPLE 7 purpose leads to relationships of
trust and respect
6 5,5
Organisation Man Management
5 Adequate organisational performance is
possible through balancing the necessity
4 of work with maintaining employee morale.
3 1,1 9,1
Impoverished Management Authority-Obedience
2 Exertion of minimum effort to get Efficiency in operations results from
required work done while just arranging conditions of work in such a
1 sustaining organisation way that human elements interfere to a
membership. minimum degree.
LOW
1 2 3 4 5 6 7 8 9
CONCERN FOR PRODUCTION
Figure 9.6 The managerial grid
Effective use of OD techniques requires accurate diagnosing of problems,

creating dissatisfaction with the status quo throughout the company, selecting
the proper combination of OD techniques and evaluating the outcomes of the
programme.
Summary Points
• Organisational culture is the shared beliefs and values which produce norms
for employee behaviour. It has external and internal aspects. Large firms
have multiple cultures and management must integrate them. Organisation
culture is shaped by the founder or chief executive and perpetuated by the
socialisation process.
• Organisations learn to manage planned change because they face task envi-
ronments with varying levels of environmental complexity and environ-
mental change. Environmental complexity refers to the number and vari-
ability of external elements while environmental change refers to the amount
of change which external elements exhibit over time. When organisations
detect environmental change, they alter goals and strategies, technology
or structure. If firms detect a change in their internal environments, they
may alter job design, select different people and train and develop or alter
control systems like performance appraisal and compensation.
• A strong organisational culture must fit the organisation’s strategic and
financial goals. The main feature of any strong culture should be adaptabil-
ity.

• Organisational culture is reflected in the quality of the employment rela-

tionship. It supports organisational culture through history, oneness, mem-
bership and exchange.
• The life-cycle model covers inception, growth, maturity and organisational
decline. Managers can detect and delay the symptoms of organisational
decline.
• The process of planned change consists of unfreezing existing patterns and
structures in the organisation, changing them and refreezing the changes as
new organisational culture, methods and structure. For planned change to
happen, employees must be dissatisfied with the status quo, the organisation
must have a model or vision of the future and a well-managed process of
change must be followed.
• Organisational diagnosis is a collaborative process between a change agent
and an organisation to create solutions to pressing problems. It is a key part
of the unfreezing process. Effective diagnoses are multilevel because they
examine individuals and their jobs, work group functioning and organisa-
tional attributes like structure, co-ordination and culture.
• Resistance to change is a widespread belief among employees that the
costs of change will exceed its benefits. Resistance may be based on: 1)
knowledge obsolescence, 2) loss of personal power and 3) changes in work
relationships.
• The carry-over problem in planned change is the erosion of new learning
in the work setting when it is not reinforced by managers and workers.
The transfer of new learning can be increased if: 1) the change process
corresponds to the work environment, 2) changes are immediately useful
and 3) new attitudes and behaviours are supported by managers.
• Change programmes suffer from poor programme evaluation. Programme
evaluation should assess: 1) employee reactions, 2) employee learning, 3)
employee behaviour change and 4) organisational outcomes.
• Institutionalisation is making a planned change a permanent part of the
organisation’s culture.
• Diffusion is the orderly transfer of planned change from one organisational
unit to another. It is jeopardised by low commitment to it by top managers,
work unit variability, inversion of OD technique and OD goals, unavailabil-
ity of rewards, union sabotage or red tape.
• OD is a system-wide application of behavioural science knowledge to the
planned development and reinforcement of organisational strategies, struc-
tures and processes for improving an organisation’s effectiveness. It has a
strong emphasis on interpersonal and group processes.
• Change agents are those behavioural science experts who assist organisa-
tions in managing planned change and OD interventions.
• OD intervention methods can be classified as 1) interpersonal and group
based, 2) system-wide process changes, or 3) pre-packaged and process
focused.
• T-groups are the origin of the OD field and they focus on the ‘here and
now’ of interpersonal relations in groups. This intervention is the most
personalised and it penetrates most deeply into the organisation.

• A more focused group-based change method is team-building. It is a more

structured method for improving the problem-solving effectiveness of work
groups. Team-building is an important feature of the changing and refreez-
ing stages of planned change.
• Survey feedback is a system-wide process change method in OD. It empha-
sises the construction of a steering committee, development of a ques-
tionnaire, analysis of questionnaire data from employees, feedback of the
questionnaire data, and planning to solve problems brought to notice by
the questionnaire data.
• The Grid OD method is a highly structured, objective process which moves
an organisation through six distinct phases in a long-term change process.
The first three steps concentrate on improving communications in the organ-
isation while the last three focus on planning and goal-setting. The Grid
OD method is not a passing fad; yet there is considerable confusion about
which elements of the process create positive change.
Review Questions
9.1 The demographic features of a company’s work-force is a determinant of

corporate culture. T or F?
9.2 Organisational culture is an ‘intangible’ feature of a company and it cannot be

measured. T or F?
9.3 When management focuses on the fit between organisational culture and
strategy, the property of adaptability is highly relevant. T or F?
9.4 If an acquired firm has a poor fit between its culture and its strategic plan,
then it will be easier for the acquiring firm to alter the culture of the acquired
firm. T or F?
9.5 If there is a good fit between organisational culture and strategic plan, the
founder or chief executive can be less concerned about his role in maintaining
a strong culture. T or F?
9.6 From an operational standpoint, the centre of a strong organisational culture

is an emphasis on service to stakeholder groups. T or F?
9.7 Without effective training and development and employee orientation pro-
grammes, it is still possible for a company to have a strong organisational
culture. T or F?
9.8 Since the quality of the employment relationship is a key contributor to an

adaptive organisational culture, it stands to reason that downsizing and delay-
ering may undermine organisational culture in the short run. T or F?

9.9 Organisational life-cycle theory suggests that managers must be alert to signs
of organisational decline and that strategy must be developed to stave off
indefinitely organisational decline. T or F?
9.10 Companies that maintain a strong culture have socialisation processes which
clearly exhibit the characteristics of the firm’s culture to new employees. T or
F?
9.11 The ‘mentoring’ process can be a critical feature of a successful programme for
transmitting organisational culture from one generation of employees to the
next. T or F?
9.12 Organisational structure change is one response to external, environmental

uncertainty. T or F?
9.13 Altering job design and control systems would not be the planned change
methods selected when managers detect changes in environmental uncertainty.
T or F?
9.14 Planned change can be successful without creating widespread dissatisfaction

with the status quo among employees in the work unit targeted for change. T
or F?
9.15 Resistance to change occurs in the ‘refreezing’ phase of the change process. T
or F?
9.16 An effective organisational diagnosis focuses on the organisational level while

ignoring the group and individual/job levels. T or F?
9.17 If a planned change focuses on the individual/job level, it will still be necessary
to create a steering committee to manage the change process. T or F?
9.18 The most important component of evaluation in the planned change process is
the assessment of employee reactions to the change programme. T or F?
9.19 Team-building does not directly target the nature of interpersonal relations in
a work group. T or F?
9.20 If employees judge the benefits of a change programme to exceed its costs,
then diffusion has occurred. T or F?
9.21 In a unionised work environment, a change agent can help ensure diffusion of
planned change by having a union representative serve on a steering committee
in charge of overseeing the change process. T or F?
9.22 The T-group method enjoys considerable support as a method of organisational

change. T or F?
9.23 The carry-over problem is more likely to affect interpersonal and group-based
change processes than system-wide change processes. T or F?
9.24 Frustration venting is a feature of the process of change in the T-group method.
T or F?

9.25 Team-building lessens the carry-over problems associated with T-group training.
T or F?
9.26 Data collection is a feature only of the survey feedback approach to OD. T or
F?
9.27 The ‘cascading of data’ in the organisation represents a critical aspect of survey
feedback. T or F?
9.28 Survey feedback could be a standing feature in a programme to assess employ-
ees’ acceptance of organisational culture. T or F?
9.29 If a change agent adopts a pre-packaged survey to assess current features of
an organisation, he is less likely to need a steering committee to govern the
change programme. T or F?
9.30 The Grid OD method is best for an firm with managers who already know what
the key problems are in the organisation. T or F?
9.31 Which of the following is not an important component of organisational cul-

ture?
A short history and recent changes.
B shared norms and organisational values.
C symbolism.
D employee socialisation and indoctrination.
E pervasiveness and durability.
9.32 Which of the following is probably not a function of organisational culture?
A shaping employee behaviours through social control.
B reinforcing corporate ethical values.
C building unquestioned employee support for new corporate goals.
D enhancing the value of social, group-based rewards.
E helping new employees make sense of organisational systems.
9.33 A strong organisational culture reflects:
A employee beliefs which are intense and positive about the organisation.
B a restriction on employee creativity and innovation.
C widespread bureaucratic rules and regulations.
D the value of intense competition among employees.
E the importance of personal traits commonly associated with leadership
success.
9.34 The most unlikely basis for an organisation’s culture would be:
A the vision of the CEO or company founder.
B strong mentor–protégé relationships throughout the organisation.
C the number and size of company retail outlets.
D reward and promotion systems throughout the company.
E the personal values and business ethics of the founder of the company.

9.35 An example of an external force for change is:

A an increase in the grievance rate among employees.
B an increase in the rate of requests for job transfers.
C government regulation.
D installation of a new system for selecting and hiring job applicants.
E a new organisational structure which relies on a matrix design.
9.36 A person who manages the process of change in an organisation is called a:

A project manager.
B OD Grid manager.
C group facilitator.
D change agent.
E consultant.
9.37 Organisation development:

A is a single-shot programme to change the way an organisation functions.
B is a systematic application of behavioural science knowledge to change the
way an organisation functions.
C works primarily to change individual employee behaviour and attitudes.
D uses exclusively principles of OB modification to cause change in organisa-
tions.
E is largely confined to interventions which alter either the structure or the
strategy of the organisation.
9.38 All of the following would be subjects in an organisational diagnosis except:

A job design.
B job analysis.
C organisational structure.
D organisational communication systems.
E pay and promotion systems.
9.39 When a change agent wants to reach as many employees as possible to assess
their opinions about organisational functioning, he should use .
A management by objectives
B total quality management
C survey feedback
D team-building
E the managerial grid
9.40 When an outside change agent provides task oriented assistance to new teams
or project groups charged with achieving organisational goals, he is most likely
to be using .
A T-groups
B OB Mod
C job redesign
D group-based incentives
E team-building

9.41 A support group aims to:

A focus members’ attention on task performance issues and group work
goals.
B improve the quality of face-to-face interactions among group members.
C make the membership more stable by increasing cohesiveness.
D help members better handle a problem shared by all group members.
E broaden the level of co-operation among organisational groups which must
co-operate to get the job done.
9.1 Develop the term organisational culture. What are the most prominent features
of the concept?
9.2 What differentiates a strong culture from a weak culture in an organisation?
9.3 Organisations adopt programmes of planned change when they detect changes
in their task environments. Their responses can include changing goals and
strategies; altering technology; restructuring the organisation; setting up new
work systems; attracting and hiring new people; or altering the control sys-
tems. Regardless of the approach taken, what fundamental characteristics must
underlie any planned change programme?
9.4 Lewin’s change model stresses the three phases of unfreezing, change and
refreezing. Briefly describe the key problems which surface in each stage of his
model of planned change.
9.5 Practitioners of organisation development (OD) are called change agents. Discuss
the importance of the assumptions which govern change agents’ professional
work relative to the module’s definition of OD.
9.6 The T-group method in OD has not been widely accepted as a successful way
to change organisations. Comment on why it has not.
9.7 How does survey feedback differ from the Grid OD programme?
9.8 Strategy should match competitive advantage and both should be strongly
reinforced by organisational culture. What are the primary fits between strategy
and culture that help assure a hard-to-copy competitive advantage?
9.9 Entrepreneurship is probably most necessary during the inception and decline
phases of the organisational life-cycle. Why is it usually less common during the
decline phase of the organisation’s life-cycle?

Case Study 9.1: A Turnaround at Tentex

Adrian is an expert in designing management systems. He works for Ten-
tex, a manufacturer of computer software and peripheral computer equipment.
Recently the company has been experiencing low sales growth, high sales man-
ager turnover, quality assurance problems with products and stagnant market
share. Adrian was placed in charge of a task-force with these goals: 1) improve
sales, 2) cut sales manager turnover and 3) design a plan to reduce customer
complaints.
Adrian’s task-force investigated each of the problems by interviewing sales
managers to get their view of the sales and turnover problems. They learned
that salespeople and sales managers felt they had little control over pricing and
‘too much red tape between them and customer complaints’. Sales personnel
felt it was inefficient to address sales problems by going through a customer
complaints department. Sales managers also believed that their pay system
was unfair because many salesmen earned more than they could because the
salesmen qualified for commissions while managers could not. To correct the
pay imbalance, many managers had gone back to sales or had left the company!
They also noted that salesmen really had no incentive to act on customer
complaints because success in sales was not dependent on follow-up customer
satisfaction.
The task-force conducted a number of interviews with departing sales man-
agers. The major reasons given for leaving were: 1) frustration with the current
incentive system for managers, 2) low company responsiveness to the need for
sales managers to act directly on customer complaints and 3) limited control
over pricing.
A Look at Plant Operations

The task-force interviewed plant employees to investigate product quality prob-
lems. The interviews uncovered several problems: 1) raw materials scarcity and
frequent purchase of inferior component parts, 2) a ‘who cares?’ attitude among
equipment assembly personnel, 3) widespread belief that a lay-off was imminent
due to sluggish product demand, 4) distrust of management by employees and
5) bitterness over a loss of incentive bonuses for rank and file workers. Produc-
tion managers had received bonuses but they had been smaller than in previous
years.
After Adrian’s task-force had studied the problems in depth, it was decided to
set up a planned change programme with several features. First, a set of ‘change
committees’ was created with members who were especially interested in getting
the various problems solved. For example, in the sales division, a committee
was constructed with five salespeople and two sales managers. Adrian also had
representatives from five valued customers meet with the committees to provide
input. Another committee composed of sales managers and company officials
was created to address the related problems of sales manager turnover and pay
incentives. A production committee was created to address the problems noted
by production employees.

Next, the task-force set up a planning task-force to study all of the ideas and
proposals generated by the three decentralised committees noted above. The
work of the planning task-force was divided into two phases: 1) assessment of
ideas in terms of their impact on the entire corporation and 2) organisation of
company resources to back approved change programmes.
Adrian’s group kept membership on the four teams to seven members. He
then organised a two-day ‘task-force retreat’ with his group and the four teams.
The groups spent the first day brainstorming their individual problem assign-
ments. Adrian’s team considered all of the task-force ideas and produced a
summary. During the morning of day two, the teams re-evaluated their ideas
in light of the work done by the other teams. During the afternoon of day two,
Adrian’s task-force managed separate sessions with each task-force to help them
develop action plans for correcting the identified problems. At the end of the
second day, the planning task-force was asked to present their reactions to the
proposals generated by the two sales committees and the production committee.
Two weeks after the retreat, Adrian’s task-force issued a report detailing an
action plan for correcting all of the problems in sales and production as well as
the steps for achieving the goals given to his task-force at the beginning of the
project. The report was distributed to all members of the four committees as
well as those employees who would be affected by the outcomes of the proposed
action plans. Task-force recommendations are summarised below.
Sales Manager Compensation and Customer Complaints

1 Sales manager bonuses would be installed and tied to target goals for
market penetration, sales growth and specific annual targets for increased
levels of customer satisfaction.
2 The customer complaints department would be abolished and its employees
would be offered the opportunity to retrain as sales personnel.
3 Authority for pricing decisions would be decentralised and authorisation for
price changes up to five per cent would be made jointly by the salesperson
and the sales manager.
Production System Changes

1 The production managers would design a programme to educate suppliers
regarding: 1) delivery times, 2) acceptable supply defect rates and 3) pricing
of parts. After suppliers completed the training, they would be given six
months to conform to requirements or they would be dropped from Tentex’s
list of ‘preferred suppliers’.
2 A TQM programme was set up to address production quality and cost
control problems. Production teams could earn team bonuses equal to 50
per cent of the cost savings generated by their improvements.
3 The TENTEX WORLD newspaper was to be initiated in the production divi-
sion. It would contain updates on sales, production output, compensation
policies, success stories on quality circles, etc.

4 A liaison team composed of the plant manager and key production man-
agers would be created to advise top management on the creation and
installation of a productivity bonus programme.
The top management planning committee authorised all of the changes noted
above. Adrian’s team set up an evaluation mechanism which measured pro-
gramme success in: 1) employee reactions to the programme, 2) employees’
knowledge of all programme changes, 3) changes in employee behaviour and 4)
changes in hard measures (turnover, sales and customer complaint rate).
The task-forces acted as liaison teams to the work units which were installing
the changes. The top management planning task-force was kept abreast of
programme developments by Adrian who became the change programme co-
ordinator. The rest of his task-force members went back to their functional units.
They were involved in implementation issues on an ‘as needed’ basis.
1 How is the organisational culture at Tentex impeding progress in sales and
production?
2 How does Adrian’s change programme address the problems which usually
surface in planned organisational change?
Case Study 9.2: One Man’s Values Force a Company Into

Bankruptcy: The Story of Wang Laboratories ∗
The story of Wang Laboratories makes for great theatre. Through the leadership
and vision of a Chinese immigrant named An Wang, Wang Laboratories rose to
$3 billion in sales before it went through bankruptcy proceedings in the early
1990s. The crash of the once high-flying computer company left unresolved
many of the questions surrounding publicly held companies which were run as
family businesses and the obligations that managing families had to employees,
customers and shareholders.
After leaving Shanghai and earning a PhD at Harvard, An Wang invented
a magnetic storage device which became the centre of computers prior to the
advent of the memory chip. By 1964, his company had scored a huge mar-
ket success with the first version of the desktop calculator. Wang personally
oversaw the development and market introduction of this product. With its
success, his judgement of products and markets would go unchallenged as he
took his company to public ownership and numerous sales records. Since he
quickly understood the importance of the commodity-like qualities of calcula-
tors (low margin, many competitive models with similar product features), he
created a new product called the Wang Word Processing System. Aligning Wang
Labs hardware and word processing software gave the company an early and
formidable lead in the software word processing wars which are still raging.
Between 1977 and 1982 the company experienced unprecedented growth thanks
* Sources: A. Serwer, 1993. ‘Wang Laboratories – Can This Company Be Saved?’ Fortune (19 April): 86–90;
‘An American Tragedy’, The Economist (22 August 1992): 56–8; C. Kennedy, 1992. ‘Fall of the House of Wang’,
Computerworld (17 February): 67–8.

to the word processing system. During that period its sales grew tenfold and
the number of employees rose from 4000 to 25 000.
Wang’s optimism about his company’s potential was neatly captured by his
belief that he would overtake IBM by the mid-1990s. During his company’s
highly successful 1977–1982 run, he ignored his advisers’ warnings that he
should emulate IBM and produce an all-purpose computer which would run
a variety of software besides Wang Labs products. Wang’s specialised word
processors and midsized-computers were soon to be smoking rubble due to the
1980s onslaught of personal computers developed first by IBM and soon copied
by a host of lower-cost producers. Wang’s market share plunged and once-loyal
users of Wang products complained that they wanted computers which were
compatible with the products made by other computer makers. They were no
longer willing to buy Wang’s proprietary equipment which worked only with
Wang software. The computer hardware and software markets had changed so
dramatically that Wang Labs never recovered from the erroneous judgement of
its founder.
Another critical An Wang mistake was traceable to Chinese tradition. He
wanted a corporate culture which reflected his Chinese, family-centred beliefs.
‘As the founder, I would like to maintain sufficient control so that my children
might have a chance to demonstrate whether they can run the company,’ he
wrote in his autobiography. In a management decision which symbolised his
traditional values and his willingness to ignore the advice of the company’s
board of directors, he appointed his son Fred as president of the company in
1986. Many board members expressed privately their belief that Fred lacked the
experience and maturity to handle the job. An Wang responded to the critics of
his decision by saying: ‘He is my son, he can do it.’
In Fred’s short three-year tenure in the job, the magnitude of An Wang’s
error became painfully clear. During this time, the company did not introduce
a single new product and it accumulated nearly $1bn in new debt. By 1989
cash reserves had vanished, creditors resisted lending the company any more
money and An Wang made a very tough decision. He fired his son. A year later
An Wang died and analysts predicted the imminent failure of the once high-
flying computer company. Most agreed that the Chinese tradition of keeping the
business, regardless of its size, in the family was a fatal mistake.
Richard Miller, a former high-level General Electric executive took charge
of Wang Laboratories and he immediately took steps to make the Wang Labs
culture more flexible and adaptive. He sold non-core businesses, initiated the
company’s first lay-offs and led the company into the production of compatible
personal computer manufacturing. In a deal struck with IBM, Wang Labs agreed
to resell IBM machines in exchange for cash. After investors poured $25 million
into this joint venture, funding was curtailed and Miller had no choice but
to take Wang Laboratories into bankruptcy. That decision spelled the end of
Miller’s tenure as company CEO.
In early 1993, Joseph Tucci was recruited from Unisys Corporation to lead
Wang Labs. By 1993, the company had lost over $2bn and demand for its
products was at an all-time low. Tucci recognised that Wang’s tradition as a
maker of integrated hardware and software was over. He is now trying to

reconfigure the company as a provider and servicer of imaging software capable

of storing computerised documents. Presiding over a company now made up of
1800 employees, he knows that he still must deal with the anti-change culture
which was built by An Wang.
An Wang was a brilliant analyser of markets and developer of products. He
built a successful company with a culture that revolved around his personal
values and beliefs. That strong culture and its rigid values developed over 40
years of leadership under Mr Wang. Many would argue that what made Wang
Laboratories so successful also caused its downfall.
1 Using the argument of culture fits, develop reasons why the culture in Wang
Laboratories became dysfunctional.
2 Use the symptoms of organisational decline to prove that Wang Laboratories

was headed for bankruptcy.
3 How closely does Wang Laboratories conform to the life-cycle theory of

organisations? Please explain.
References
1 Smircich, L. (1983) ‘Concepts of Culture and Organizational Analysis’, Administrative
Science Quarterly 28: 339–58.
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in Organizations’, Administrative Science Quarterly 28: 359–76.
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Press.
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Decline’, Sloan Management Review (Spring): 47.
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Break the Entitlement Habit That’s Killing American Business. New York: AMACOM.
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Decline’, Academy of Management Journal: (March): 126–38.

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Criteria Measures’, Academy of Management Review 5: 531–42.

Appendix 1
Answers to Review Questions and

Worked Solutions to Case Studies
Contents
Answers to Review Questions A1/1
Worked Solutions to Case Studies A1/24
Answers to Review Questions
Module 1
Answers to True/False and Multiple Choice Questions
1.1 T. 1.7 F. 1.13 T. 1.19 F. 1.25 B.

1.2 T. 1.8 F. 1.14 T. 1.20 T. 1.26 A.
1.3 F. 1.9 F. 1.15 F. 1.21 B. 1.27 B.
1.4 F. 1.10 T. 1.16 F. 1.22 A. 1.28 C.
1.5 T. 1.11 F. 1.17 F. 1.23 C. 1.29 E.
1.6 T. 1.12 F. 1.18 F. 1.24 C. 1.30 B.
Answers to Short Essay Questions
1.1 These employees may not be promotion oriented because of their beliefs that
promotions (and pay rises) are based on luck and being in the right place at
the right time. They may also believe that promotions and other rewards are
based on favouritism and not performance. They would be less compelled
to argue strongly for their points of view in the face of opposition. They may
respond more quickly in a positive manner to organisational announcements
which they believe affect them in a favourable way. Finally, they may blame
themselves more quickly when a project or a task fails.
A supervisor can influence an employee’s locus of control by changing: (a)
work rewards; (b) job challenge; (c) the relationship between job perform-
ance and job satisfaction; and (d) the amount of participation in decision-
making that he expects from subordinates.
Organisational Behaviour Edinburgh Business School A1/1

Appendix 1 / Answers to Review Questions and Worked Solutions to Case Studies
1.2 Current analysis of the relationship between performance and job satisfac-
tion emphasises that performance indirectly causes job satisfaction through
the mediating effects of rewards and the perceived equity of rewards.
This analysis posits that job satisfaction is an outcome of employee judge-
ments about the fairness of rewards provided by the organisation (extrinsic
rewards) and by the task at hand (intrinsic rewards). The link is easily
broken if employees believe that: (a) intrinsic or extrinsic rewards are inad-
equate; (b) performance is measured poorly; or (c) rewards are unfairly
distributed.
A supervisor can encounter problems if he believes that happy workers
are productive workers. He may unduly emphasise social and job security
rewards over direct extrinsic rewards such as pay and bonuses. Also he may
de-emphasise the assessment of performance in favour of employee satis-
faction. Those employees who are highly motivated by challenging tasks
expect regular feedback on their performance (they have high achievement
needs). If it is not forthcoming and regular, their satisfaction may drop.
Finally, the supervisor who emphasises job satisfaction over performance
forgets the importance of organisational productivity. Ultimately, organisa-
tional productivity is a function of individual performance on the job.
1.3 The need for power is the most powerful socially acquired need from the
organisation’s perspective. There are two aspects to the need for power
motive. It can be personalised or socialised. The expression of a person-
alised need for power in the organisation leads to disruptive work rela-
tions, favouritism, nepotism, distrust among co-workers and deterioration
of employee confidence in organisational systems such as goal-setting, per-
formance appraisal and compensation. A manager with the personalised
power need expects subordinates to be personally loyal to him and he is
likely to interpret organisational events in personal as opposed to task-
related terms.
A manager with a socialised need for power is more inclined to motivate
subordinates by expressing confidence in their abilities, delegating authority
to them and acknowledging their success with recognition and praise. It
should be noted, however, that the manager with a socialised need for
power can resort to the tactics above if he is frustrated in obtaining the
influence he desires in the organisation.
1.4 The most fundamental change in the manager’s job is the shift from control-
ling the behaviour of subordinates to supporting and facilitating the work
of interrelated, self-directed work teams. The old version of the manager’s
job stressed traditional supervisory work such as performance review, work
scheduling, designing budgets and so on. Now, most of these activities
have been delegated to self-directed teams. The managers who remain in
delayered organisations will focus their work on integrating the work of
teams, designing information systems that give teams real-time performance
data and improving the quality of products and services.
A1/2 Edinburgh Business School Organisational Behaviour

1.5 The company’s mission statement can be a business-like expression of termi-

nal and instrumental values. The emphasis on these values will vary from
country to country, and manager to manager. If the company’s mission
statement is to be relevant across the cultures of countries where it conducts
business, then time and effort must be expended to train all managers who
are involved in international transactions. Only through training will man-
agers who accept international assignments be able to uphold the company
mission’s terminal and instrumental values.
Module 2
Answers to True/False Questions

2.1 T. 2.2 T. 2.3 T. 2.4 T. 2.5 T.
2.1 Complete freedom from stress is death. Low stress levels in jobs encour-
age employees to sleepwalk through their work and careers. Low-stress
work environments may occur in organisations that are too bureaucratic
and ignore the motivating aspects of employee discretion in work. For-
malised work systems usually limit employees’ autonomy and workers
may experience less job satisfaction as they psychologically withdraw from
work. This outcome erodes worker productivity, but it may also encourage
under-stressed (stimulated) employees to abandon dead-end jobs for more
challenging work. The less productive workers settle into a work routine
of low accountability and mind-dulling organisational detail. Ambitious
employees who expect more challenging work will head for the door.
2.2 Managers and supervisors who are responsible for helping other employ-
ees or are responsible for their career progress can experience job burnout,
especially if downsizing is the method of cost reduction preferred by man-
agement. While responsibility for physical assets may be significant, it is
usually far less stress inducing than the responsibilities that managers feel
for the employment security and careers of their subordinates. Managers
in downsizing companies trying to reduce costs or to raise earnings often
experience little accomplishment, emotional exhaustion and depersonali-
sation. Managers with these reactions experience job burnout especially
strongly if they are frequently called upon to create or implement down-
sizing plans. Their sense of helplessness to protect their subordinates’ jobs
and careers (let alone their own) undermines their internal locus of control
and they find their jobs to be chaotic and uncontrollable. This is a potent
mixture that can immobilise an effective manager and cause him to become
fatalistic about his own career and economic security. When managers and
their employees experience these effects, it is not surprising to find that
they are self-absorbed and ineffective at improving output productivity or
service quality.

2.3 Corporate stress-management strategies seem to break down into two types:
problem-focused and emotion-focused interventions. Problem-focused stress
interventions practised by individuals include time management, getting
help from a mentor and clarifying work expectations. When the organi-
sation installs problem-focused interventions it may be designing a solu-
tion for specific symptoms of employee job dissatisfaction or job stress.
For example, job redesign and rotation, enhanced job security, flextime
and firm-sponsored day care can all be used to reduce job-caused stress.
Emotion-focused interventions try to help employees cope more effectively
with job stress (as opposed to trying to lower the level of job stress in
various aspects of the job). These strategies can be called individual and
organisational coping strategies. For individuals, emotion-focused interven-
tions include exercise, meditation, social support and counselling.
Organisationally, stress-coping strategies can include on-site wellness pro-
grammes, sabbatical leaves for eligible employees and employee assistance
programmes (EAPs). Employers are trying to create incentives to motivate
employees to participate in wellness programmes. Such programmes may
begin with a full-scale profile of the employee’s health risk factors in terms
of lifestyle, driving habits, diet, exercise, weight, cholesterol level, blood
pressure, use of alcohol and so on. Some employers then use these data to
identify employees who are ‘at risk’ and they make an effort to encourage
those workers to adopt healthier habits. Some observers believe that such
programmes can lead to decisions that may discriminate against employees
who do not fit the company’s ‘profile of a healthy employee’.
Module 3
3.1 F. 3.7 F. 3.13 F. 3.19 F. 3.25 C.

3.2 F. 3.8 F. 3.14 T. 3.20 C. 3.26 B.
3.3 F. 3.9 T. 3.15 F. 3.21 D. 3.27 B.
3.4 T. 3.10 F. 3.16 F. 3.22 B.
3.5 F. 3.11 T. 3.17 F. 3.23 D.
3.6 F. 3.12 F. 3.18 F. 3.24 D.
3.1 The expectancy theory suggests a number of useful managerial actions

which could substantially improve motivation and performance on the
job for those employees with sufficient job abilities. These actions would
influence the motivational force to perform, expectancy, first level outcomes,
instrumentality and the availability of second level outcomes.
A Carefully define the meaning of good performance on the job. Consult
with employees to see if the definition of good performance fits with
their understanding of their job demands.

B Determine the rewards which employees value by using a survey or

employee interviews.
C Set attainable goals for performance.
D Provide timely and meaningful feedback about performance.
E Administer rewards for performance gains.
F Make sure no negative second level outcomes are associated with high
performance.
G Check to make sure that the motivational system operates equitably,
in that high performers on the job receive significantly larger rewards
than good or acceptable performers on the job.
3.2 Herzberg’s content theory of motivation draws heavily on Maslow’s hier-

archy. Maslow’s theory is a general theory of motivated behaviour which
applies to a variety of life situations. Herzberg’s theory addresses largely
the causes of job satisfaction and job dissatisfaction. To a lesser extent,
Herzberg’s theory is a theory of employee motivation.
The physiological, safety and social needs of Maslow’s hierarchy represent
lower order needs which ‘maintain’ the individual when they are satisfied.
These needs are finite and organisations address them with money and
forms of fringe benefits and guaranteed employment. Herzberg’s ‘hygienes’
correspond closely to the maintenance level of Maslow’s hierarchy. Herz-
berg’s hygiene factors include money, good working conditions, fair com-
pany policies, fair supervision and amiable co-workers. The growth ele-
ments of Maslow’s hierarchy consist of the two facets of self-esteem and
self-actualisation. Herzberg’s ‘motivators’ are analogous to the growth ele-
ments. Herzberg contends that these factors trigger motivation and sustain
high levels of job satisfaction. Representative examples include: increased
authority, recognition, promotion, job challenge and achievement.
3.3 Both theories are process theories of motivated behaviour. They explain the
same phenomena from different perspectives. Expectancy theory is a cogni-
tive process theory which emphasises the significance of inner psychological
states which channel and focus behaviour to meaningful personal ends. B
Mod avoids psychological explanations for behaviour and relies exclusively
on articulating the role of the environment in shaping motivation and
behaviour. The B Mod approach could be labelled deterministic.
With their common process orientation, the two theories share other sim-
ilarities. Both suggest that the connection between behaviour and its con-
sequences is extremely important for sustaining motivation and perform-
ance. Both theories emphasise rewards. While rewards are called positive
reinforcers in the B Mod formulation, and second level outcomes in expect-
ancy theory, they function in exactly the same way in both theories. A
third similarity is the relationship between a contingency of reinforcement
and instrumentality. In a contingency of reinforcement the relationship is
between behaviour and its consequences (positive, negative or neutral). A

contingency of reinforcement suggests the degree or strength of the connec-

tion between behaviour and its consequences. This relationship is similar
to the connection between first level and second level outcomes in instru-
mentality. Instrumentality has a decided cognitive quality. In B Mod, a
contingency of reinforcement is simply the connection between behaviour
and the environmental consequences it induces. Cognitive interpretations
have nothing to do with a contingency of reinforcement.
3.4 Working from employee-based issues to organisation-based considerations;

the first concern would be that employees must have sufficient ability
to do the work. Managers’ should find out if performance deficiencies
can be linked to employee abilities. Second, employees must have proper
understanding of their job demands so that they are not confused about the
meaning of good job performance. Closely related to this is that employees
must be capable of gathering performance feedback information and acting
on it with the help of supervisors to correct performance deficiencies. A
fourth consideration in B Mod programme success is that the target jobs
should not be heavily machine paced. If employees have no control over
the pace of work or work procedures, then they will have little latitude for
trying different methods to improve performance. Fifth, employees must be
convinced that work hygienes are in place and acceptable. Hygienes include:
fair pay, likeable co-workers, decent working conditions, fair supervision
and reasonable company policies. It is pointless to develop and install a B
Mod programme if employees are dissatisfied with current hygiene.
The sixth consideration is the willingness of supervisors to trust employ-
ees and involve them in the design of the B Mod programme. Employees
are the ‘true job experts’ in any performance improvement programme.
Their expertise must be directed toward the design of a meaningful pro-
gramme that helps them achieve the rewards they value. The success of
a B Mod programme pivots on the level of employee commitment to it.
Their involvement in programme design strengthens their commitment to
its goals. The last consideration concerns managers and supervisors them-
selves. They must also be committed to the programme. Their behaviours
must be consistent with the underlying values of B Mod. For instance, they
must create meaningful performance goals prior to the baseline audit; they
should encourage employee participation to solve performance problems;
and they must find new ways to reward excellent performance. They must
be willing constantly to re-evaluate programme design to make it more
meaningful to employees and to the organisation.
3.5 The first employee should experience felt negative inequity while his
colleague probably experiences felt positive inequity. We could expect
employee number one to do any or all of the following:
A Work three fewer hours per week or cut his effort level if he stays on
the job for 41 hours per week.
B Ask for an assistant to help him manage his work load.

C Seek a transfer or leave the job if the labour market is favourable.

D Choose some one else to compare to.
E View the imbalance as temporary and speak to the boss about it.
F Convince his colleague to slow down.
Module 4

4.1 F. 4.9 F. 4.17 F. 4.25 T. 4.33 B.
4.2 F. 4.10 T. 4.18 T. 4.26 F. 4.34 A.
4.3 T. 4.11 F. 4.19 T. 4.27 F. 4.35 B.
4.4 T. 4.12 F. 4.20 T. 4.28 F. 4.36 B.
4.5 T. 4.13 F. 4.21 T. 4.29 F. 4.37 E.
4.6 T. 4.14 T. 4.22 F. 4.30 E. 4.38 D.
4.7 F. 4.15 F. 4.23 F. 4.31 A. 4.39 B.
4.8 F. 4.16 T. 4.24 F. 4.32 B. 4.40 A.
4.1 All three errors are made by supervisors (raters) who are not properly
trained to make accurate judgements about their subordinates’ performance.
These errors occur because supervisors are poorly trained observers of their
subordinates’ work behaviour; if the firm does not emphasise the importance
of performance appraisal; or because supervisors are not rewarded to be
effective in their performance appraisal work.
The three errors noted in the question are all threats to the validity of the
performance appraisal system. Halo effect refers to the problem of making
judgements about performance dimensions based on a general impression
of the subordinate. Recency error occurs when the supervisor bases a per-
formance evaluation on recent work behaviour, rather than considering all
relevant employee work behaviour during the time between appraisals.
Similarity error occurs when the supervisor gives undue emphasis to sub-
ordinate performance qualities which resemble those of the supervisor.
4.2 A job analysis improves the content and empirical validity of the perform-
ance appraisal system. One of the results of a job analysis is the creation
of job descriptions. They improve employee understanding of job demands
and the skills necessary to be effective in the job. They also have added
value in communicating work expectations to new employees. So too, they
can be used as hiring and training tools. A job analysis identifies task
interdependencies. Knowledge of these task interrelations can improve co-
ordination and integration among employees. Finally, a job analysis leads to
better performance appraisal administration procedures through the devel-
opment of specific guidelines for managers to follow in their observation
and rating of employee performance behaviours.

4.3 The manager must begin by considering the environmental issues which
affect the quality of goal-setting. The primary concerns are the clear spec-
ification of the goals to be achieved and the description of the intrinsic
and extrinsic rewards available for successful goal achievement. Second,
the nature of the goal-setting process must be specified. This entails con-
sideration of participative, autocratic or generalised goal-setting procedures.
Third, the attributes of goals must be developed. Thus, the manager must
set clear, difficult and challenging goals with ample formal and informal
feedback. Fourth, the level of employees’ commitment and acceptance of
goals must be determined. Last, the desired levels of performance, job
satisfaction and job motivation should be discussed.
4.4 The dichotomy is useful because it shows that rewards in organisations

have different origins and effects. Extrinsic rewards occur in the context of
work while intrinsic rewards originate in the content of work. While it may
be difficult to differentiate intrinsic and extrinsic rewards clearly for each
employee, the motivational impact of the rewards is heightened by recog-
nising the differences between them. When a manager tries to make this
distinction, he is emphasising the importance of raising motivation and per-
formance levels by adjusting rewards to the individual differences among
his subordinates. Making the reward distinction also leads to finer distinc-
tions among extrinsic rewards, such as: direct, indirect and non-financial
compensation. In turn, the organisation can then establish meaningful writ-
ten policy to control the allocation of extrinsic rewards. Managers who
differentiate extrinsic and intrinsic rewards are making a useful refinement
in the motivational and performance systems.
4.5 The organisation should be most concerned with rewarding performance

which is measured with a valid and reliable performance appraisal system.
However, organisations often have other reasons for distributing rewards
which are not always related to performance. They are:
A Effort. While it may be commendable to recognise effort, there may not
be a dependable relationship between effort and performance.
B Seniority. Often the organisation rewards tenacity to stay with a job.
While loyalty and staying power may be admirable employee qualities,
again, they may be unrelated to performance.
C Equality. Many managers escape difficult employee pay decisions by
giving all their subordinates the same pay, bonuses and rises. This
upsets the experienced pay equity of high-performing employees.
D Power and influence. Some groups of employees are able to increase
their reward levels at the expense of less powerful or less well-organised
groups. Obtaining guaranteed pay levels then becomes an indicator of
economic power to influence organisational decisions.
4.6 A gainsharing plan is a group-based reward system which gives employ-

ees bonuses when they achieve cost savings. Gainsharing plans require

dependable information about production costs in terms of time and capital

resources. In gainsharing plans, employees and the firm ‘share’ cost savings
based on a pre-established formula. It is possible for employees to obtain
bonuses during periods of declining company sales because they may con-
tinue to find ways to reduce costs. These plans rely heavily on employee
involvement to find more efficient means of production.
Profit-sharing plans are more passive forms of group-based reward systems.
They depend on the firm’s success in the market instead of its success in
controlling the cost of production. Profit-sharing is usually done once a year
while gainsharing may operate on a monthly cycle.
Four key elements to consider in the design of a gainsharing plan are:
A The ability of the market to absorb more output.
B The extent to which seasonal demand for output exists.
C The number of employees in the production unit to be covered by the
programme.
D The quality of labour–management relations.
The plan must interest employees and they must understand it. The employ-
ees’ knowledge of the plan should strongly relate to their knowledge of the
company’s financial and strategic goals. The plan should minimise delays
between excellent performance and receiving of the financial incentives. Top
management should be able to show that performance, product quality and
service quality have all risen due to the improved pay plan.
4.7 The principal advantage of the Rucker Plan over the Scanlon Plan is the
fact that the former does not require the creation and maintenance of a
screening committee and its supporting production committees throughout
the company. In this way, the Rucker Plan is less reliant on the creation of
a hierarchical reporting mechanism tasked with creating, cataloguing and
evaluating employee productivity improvement suggestions. The Rucker
Plan seems to be more decentralised which may make it more useful in
companies which are using self-directed teams to improve responsiveness
to customer needs.
4.8 The immediate negative effects of downsizing and delayering may out-
number the positive effects. Despite the fact that the firm may create the
potential for an increase in its net income in the wake of taking these two
decisions, the cost of the decisions, in terms of severance packages for
eligible employees, may create a substantial charge against current earn-
ings. In the longer term, the decision to downsize and delayer may reduce
substantially the pool of talented employees who could perform well in
senior management positions. This undermines the morale of employees
since management must rely on executive search firms (with much higher
cost structures) rather than install and use a ‘promotion-from-within’ policy.
As delayering and downsizing cut through a firm, high value product and
service development projects may be abandoned or ignored by employees

who suddenly have job security fears. After these two decision have been
taken, customers may find it more difficult to obtain service and product
information from less well-trained and knowledgeable employees. In the
near-term, any rises in customer dissatisfaction may trigger declining rev-
enue and marketshare.
Module 5

5.1 F. 5.7 F. 5.13 T. 5.19 T. 5.25 C.
5.2 F. 5.8 F. 5.14 T. 5.20 B. 5.26 A.
5.3 F. 5.9 T. 5.15 F. 5.21 A. 5.27 C.
5.4 F. 5.10 F. 5.16 T. 5.22 B. 5.28 A.
5.5 T. 5.11 F. 5.17 F. 5.23 C.
5.6 T. 5.12 T. 5.18 T. 5.24 B.
5.1 Job designs based on scientific management ‘fail’ in the sense that they do
not take into account higher-order needs. Application of scientific manage-
ment creates jobs which are highly specialised. The approach can disrupt
existing social relationships, causing employee dissatisfaction with opportu-
nities to interact in the work setting. Since the approach emphasises work
fractionalisation and machine pacing, employees may also experience less
challenge, less personal accomplishment and less knowledge of the results
of their work. These conditions may cause them to become bored and to
rust out on the job.
While there are a number of ways to deal with the negative psychological
impact of jobs designed through scientific management, four commonly
accepted approaches are: (a) flextime; (b) job rotation; (c) job enlargement;
and (d) self-directed teams and employee empowerment. The first inter-
vention allows employees to decide their arrival and departure times from
work. In this system, employees must work the core hours of 10 a.m. to
2 p.m. and they must also meet the hours requirement for the standard
work week. Job rotation consists of the managed circulation over time of
employees through a cluster of related jobs. Job enlargement refers to the
addition of related task activities to the employee’s core job activity. Finally,
self-directed teams integrate the social and technical aspects of work so that
team effort is the focus of the job design effort.
5.2 Evidence now indicates that not all employees prefer to have jobs which
provide opportunities for higher-order need satisfaction. For instance, some
employees may not be interested in greater challenge, opportunities for per-
formance feedback and more delegated authority. For a variety of personal
reasons, they eschew these outcomes in their work because they have low
growth need strength. It is questionable whether or not such employees

will respond positively to increases in job range and they certainly will not
respond positively to changes in job depth. Thus, organisations must assess
employees’ growth need strength prior to initiating new job designs based
on improvements in job range and job depth.
5.3 QWL refers to planned efforts to create greater opportunities for employees
to satisfy their personal needs through work experiences. These programmes
often rely heavily on employee empowerment. The relevant forces are:
A Greater work-force diversity. Reduced barriers to labour flows across
national boundaries have expanded the diversity of the European labour
force. The labour force has also changed to accommodate migration
trends, more minorities and higher worker expectations about the influ-
ence of work on life satisfaction.
B Greater acceptance by unions of employers’ efforts to improve QWL
for workers. Frequently, new labour management contacts make room
for QWL interventions.
C A better understanding by managers and their organisations of the
impact of QWL programmes on productivity. The pioneering efforts
of Volvo and Saab-Scandia have inspired other organisations to install
QWL programmes. The efforts of these firms to document the results
of their QWL programmes aid decision-makers who are investigating
the feasibility of QWL programmes for their firms.
D The support by governments which creates a climate which favours
the proliferation of QWL programmes. Tax incentives for labour
retraining help create the conditions for greater use of job rotation
and job enlargement practices. Success with these programmes can
lead to more concentrated efforts in QWL.
5.4 Flextime systems allow employees to control decisions regarding work

arrival and departure times. Giving employees control over this impor-
tant decision is an example of increased autonomy. Increases in autonomy
lead to an increase in experienced responsibility for work decisions.
A flextime system can have beneficial effects on organisation–employee
relations. Virtually all employees will respond positively to flextime because
it allows them to integrate their personal and work lives more successfully.
Thus, it can be an important first step in the process of increasing the
growth need strength for all employees in an organisation. When a firm
installs a flextime system, it is showing its employees that they are trusted
to work effectively under conditions of greater personal control over work
decisions.

Module 6

6.1 F. 6.8 T. 6.15 F. 6.22 F. 6.29 A.
6.2 T. 6.9 T. 6.16 F. 6.23 F. 6.30 B.
6.3 F. 6.10 F. 6.17 F. 6.24 F. 6.31 E.
6.4 F. 6.11 T. 6.18 F. 6.25 F. 6.32 C.
6.5 T. 6.12 T. 6.19 F. 6.26 A. 6.33 A.
6.6 F. 6.13 T. 6.20 F. 6.27 C. 6.34 C.
6.7 F. 6.14 F. 6.21 F. 6.28 D. 6.35 D.
6.1 Project teams work best under these conditions: (a) the problem or its
solution affects the entire organisation; (b) the usual decision hierarchy
has not adequately resolved the problem in the past; (c) the solution will
require commitment from most or all of the organisation’s members; (d) top
management values employee participation and development; (e) sufficient
time exists to arrive at a satisfactory solution; and (f) top management
intends to involve many employees in the implementation of the solution.
The management requirements for project teams are: (a) keep the team’s life
span short; (b) rely on voluntary participation; (c) select members for their
expertise and keep the process simple; (d) co-ordinate the team with top
management to ensure prompt management review of project work; and (e)
keep support staff small and operating systems simple.
6.2 The manager can choose to influence cohesiveness by controlling factors in

creating a work group or by influencing the group after it is formed. In
the first situation, the manager could (a) influence group composition by
altering member similarity or diversity; (b) manage the size of the work
group; or (c) control the basis for interpersonal attraction (proximity, attitude
similarity, attractiveness of group goals and activities).
Once a group is formed, the manager still has the capacity to influence
the level of cohesiveness exhibited by the work group. He can: (a) clarify
group goals and activities; (b) handle disturbances quickly; (c) create a
common enemy for the group to compete with; and (d) carefully time
positive feedback to match work group successes.
6.3 No. Managerial experience and research evidence agree that high cohe-
siveness in teams can be related to either high or low performance. The
factor which integrates these inconsistent findings is the degree of agree-
ment between the team’s norms and the organisation’s team performance
requirements. When a team is cohesive, and its performance norm is consis-
tent with the organisation’s standard for team performance, then the team
will be a high performer. On the other hand, if a cohesive team has a
performance norm which counters the organisation’s performance standard,
then it will not be a high-performing team.

6.4 Groupthink occurs in work groups which are highly cohesive, value con-
formity and lose their capacity to criticise their decisions. These symptoms
indicate its presence: (a) members believe the group is invulnerable; (b)
members believe the group cannot fail; (c) some members function as
mindguards to prevent negative, external information from reaching other
members; (d) the group’s position can be justified on morality alone; (e)
those opposed to the group’s actions are characterised as insensitive, igno-
rant and ineffective; (f) pressure is applied to dissenters; (g) members are
afraid to speak out because they believe they are the only ones to disagree
with the ‘majority view’; and (h) the absence of criticism is mistaken for
unanimity.
6.5 In the most basic sense, the group begins with a keen preoccupation with
its composition, structural characteristics and maintenance activities. Work
groups in their early development may have members who believe the costs
of membership clearly exceed its benefits. During forming and storming,
work groups tend to focus on their composition, appropriate roles, develop
norms and solidify the leadership position (if the group starts as a ‘leaderless
group’). These activities greatly reduce the group’s experienced process
losses through maintenance activities.
In the norming and performing stage, the emphasis on task activities contin-
ues to grow and process losses subside. Actual group performance begins
to rise. As the work group refines its abilities to detect process losses and
its task activity emphasis consistently exceeds its emphasis on maintenance
activities, then it becomes a mature group.
Work groups in the last two stages of development must prevent groupthink
and maintain norms in the face of task changes and group composition
changes. In conclusion, the mature, performing group must devote some
of its energies to membership stability and socialisation of new members
while maintaining a strong task focus. If membership declines or becomes
turbulent through the addition of new members, or if the environment or
the group’s tasks change in some way, the mature group can be pushed out
of the performing stage.
6.6 This answer can be found in Table 6.6. It is important to note that a work
group experiencing the problems noted in Table 6.6 could not be defined
as a mature, stage 4 group. The 12 items noted all represent process losses
which undermine creativity and innovation in a work group. These prob-
lems surface in immature groups which have not developed a norm about
the importance and value of deviance (creativity). Thus, members who
demonstrate creative flair (and who value it personally) may be censored
by members with more personal and positional status.
6.7 Groups tend to be very undisciplined in creative problem-solving since they

often evaluate the first creative suggestion offered. Once the evaluation
process has started (deferral of judgement is suspended) in a group, fur-
ther creative contributions diminish in number. The group has prematurely

jumped to idea evaluation. If the suggestion were made by a group member

with high personal and positional status, participation becomes ritualised as
less powerful members ‘rubber stamp’ the suggestion. If the group is also
highly cohesive, the conditions for groupthink are created. Without a norm
about the importance of deferral of judgement, work groups face serious
process losses.
6.8 The methods noted in the question are somewhat ‘stylised and ritualistic’
methods for enhancing work group creativity. A manager will improve
his group’s creativity if he: (a) carefully defines the work group’s task or
problem; (b) develops a norm to separate idea generation from idea evalua-
tion; (c) monitors process losses and avoids groupthink; (d) gains approval
for making merit-based rewards available to members who make substan-
tial contributions to group success; and (e) gains approval for distributing
group-based rewards contingent on the group’s contributions to organisa-
tional success. Work group creativity is very dependent on the availability of
rewards as well as the composition of the group and the task(s) it performs.
6.9 Determining the proper level of team involvement in decision-making is

influenced by: (a) the time available to make the decision; (b) the signifi-
cance of quality in the decision; (c) the extent to which the subordinates’
commitment to the decision is critical to implementation; and (d) the extent
to which the group has information that can influence the decision’s quality.
6.10 Such organisations will have to integrate complex information flows that
will keep groups apprised of their real-time performance. Some of that per-
formance will reflect how well they serve the needs of other self-directed
teams in the organisation. For instance, teams in procurement will have to
work closely with customer service representatives who simultaneously: (a)
diagnose product problems; (b) order repair parts; and (c) dispatch field ser-
vice representatives. The high levels of interdependence among work teams
that are all focused on delivering superior products backed by excellent ser-
vice will require organisations to maintain a very flat organisational struc-
ture. The structure facilitates horizontal communication and co-ordination
in a management system that favours decentralisation of decision-making.
This arrangement removes barriers between customers and the company’s
self-directed workteams.
Module 7

7.1 F. 7.7 F. 7.13 T. 7.19 T. 7.25 D.
7.2 F. 7.8 F. 7.14 F. 7.20 T. 7.26 E.
7.3 T. 7.9 T. 7.15 T. 7.21 D. 7.27 B.
7.4 F. 7.10 F. 7.16 F. 7.22 A. 7.28 A.
7.5 T. 7.11 T. 7.17 F. 7.23 B. 7.29 C.
7.6 T. 7.12 T. 7.18 F. 7.24 C. 7.30 A.

7.1 The project team is a highly productive group that places little emphasis on
the expression of legitimate and coercive power. The team manager must
have expertise and referent power because the team’s characteristics will
neutralise his opportunities to exert authority. The high level of cohesive-
ness, previous team successes and skill of members will reduce opportunities
for exercising legitimate power, coercive power and perhaps reward power.
Opportunities to exhibit legitimate power are reduced because the project
team is protected from the rest of the organisation. Coercive power would
be inappropriate and unnecessary because the team is highly cohesive and
has a record of success. The level of professionalism and members’ interest
in product development may mean that members find the design work itself
to be a more important reward than any rewards controlled by the project
manager.
7.2 The difference between personal and positional power is the most important
distinction to understand relative to a person’s power at work. This differ-
ence shows the significance of developing personal power (expertise and
referent) to gain the respect of subordinates, peers and superiors. Since per-
sonal expertise is problem focused in areas valued by the organisation, the
person in question will be sought out by other employees. This will aid him
in the acquisition of referent power. In career and promotion terms, these
two sources of power will translate to more positional power (legitimate,
reward and coercive power).
7.3 You must address the extent to which marketing (or sales) influences stra-
tegic management outcomes. In general, strategic management outcomes
can be influenced by a department in the organisation if it: (a) can success-
fully compete with other departments for scarce resources; (b) is a boundary-
spanning unit which reduces uncertainty for other organisational subunits
(manufacturing, product development and sales); (c) conducts work activ-
ities central to production of goods and services (generating information
on market projections, customer needs and competitors’ strategies); and
(d) prevents other subunits from offering substitute services (erects barriers
around its activities).
7.4 Politics is inevitable in organisations. The major objection of top execu-

tives is not to politics per se. Rather, they object to the use of power to
achieve unapproved outcomes by unapproved methods. This occurs when
individuals pursue personal gains by unauthorised methods. In such cases,
the organisation usually loses. The insider trading scandals which rocked
Wall Street during the 1980s are excellent examples of the effects of political
behaviour driven by greed.
7.5 Managers are individuals who are responsible for the performance and
productivity of one or more subordinates in a work unit. Leaders are indi-
viduals who influence others to pursue goals. Managers tend to perform

various roles while dealing with diverse demands which compete for their
time at a moment’s notice. The manager’s job is at times chaotic as he
shifts from interpersonal to informational and decisional roles. The effective
manager is able to detect when he must shift from one role to another.
Leaders and leadership deal with much broader issues. For instance, the
leader is concerned with the motivation of subordinates and the preserva-
tion of the values which define the organisation’s culture. Leadership is a
much broader phenomenon than management in the organisation. Theo-
ries of leadership are complex, especially those which try to integrate the
leader’s personality, behaviour and the demands of the leadership situation
(contingency theories of leadership). No integrated theories of management
exist. Instead, the roles of the manager have been articulated.
7.6 The study of leadership first addressed the analysis of leader traits. It then
shifted to consideration of leader behaviour or style. The last phase of
leadership analysis has tried to integrate the two previous approaches with
the demands of the leadership situation. The trait approach to leadership
has been abandoned as a ‘pure’ explanation for leader and organisational
effectiveness. This occurred because the traits were not empirically related
to organisational effectiveness and they were hard to measure. The trait
approach survives as a contributor to understanding how the leader’s
personality interacts with the leadership situation. The leader behaviour
or styles approach shifted the emphasis in the study of leadership from
traits of leaders to leader behaviours which focused on group perform-
ance (initiating structure) and group morale (consideration). While leader
behaviours are observable, the styles approach still suffers because it does
not adequately consider the situation the leader confronts. The contingency
theories of leadership pay particular attention to the leadership situation
while considering the leader’s motivational pattern (Fiedler’s theory) or
the behaviours of the leader (path-goal theory). Fiedler’s theory empha-
sises the importance of matching the leader’s motivational pattern to the
favourableness of the leadership situation. Path-goal theory focuses on task
characteristics and subordinate characteristics. It implies that leaders can
become skilful at the various behaviours called for by the leadership sit-
uation. Fiedler’s theory posits that the leader’s motivational pattern (task
oriented or relations oriented) is not susceptible to change. This negates the
usefulness of leadership training.
7.7 The recommendations noted below do not exhaust all the options available
to a firm which wishes to help its employees be more entrepreneurial.
Rather, they suggest a pattern to be developed and nurtured if the firm
wants to be more effective at adapting to change by training and rewarding
employees to be more innovative.
A Do not attempt to profile entrepreneurial qualities and select new
employees or give employees project assignments on that basis alone.
B Create a policy which specifies how much time employees can devote
to special projects and new ideas. Make this concept a part of the
organisation’s culture.

C Create organisational arrangements which challenge employees to

explain their innovative ideas to other employees with proven records
of innovativeness. Create innovation review teams with the resources
to back new product and service ideas.
D Give innovative employees an entrepreneurial stake in the success of
their product or service (the company joint ventures with the innovative
employee).
E Decentralise product and service development as much as possible by
creating special units with the freedom to innovate. The managers who
run these units should have excellent political skills for shielding the
units from bureaucratic interference while providing technical informa-
tion about customer needs.
F Ensure that top management knows that it must act quickly on new
product ideas generated by innovative teams. This also means that
the work of the teams should be presented by team members to top
management. This highlights the importance of high-quality feedback
in innovation.
G Allow innovation groups to develop their own work norms.
H Let leadership in innovation teams develop based on expert power
and referent power. Try to minimise the use of legitimate and coercive
power in innovation teams.
7.8 By definition, a start-up company is highly entrepreneurial and it is proba-

bly headed by an individual who is opportunity oriented. The company’s
culture will be highly adaptive and employees would be comfortable with
few rules and little formality. If the company tried to create formalised,
administrative systems before it had solved product and service innovation
problems and marketing and distribution activities, it would cede its com-
petitive advantage to its more nimble rivals. Therefore, there is a period
of time for the start-up company when it would be a mistake to over-
administer the natural growth of the company.
7.9 Upward management is important in downsized organisations because hier-

archical control will probably be less emphasised in the delayered and
downsized organisation. Further, managers’ spans of control are much wider
in the flattened structure of downsized companies. For instance, it would
not be unusual for spans to widen from 9–11 subordinates to as many as
60–70 subordinates in fully downsized organisations. Since managers’ jobs
will be transformed from exerting hierarchical control to integrating and
facilitating the work of self-managed teams in most downsized companies,
more information about performance problems and decision-making will
have to flow upward.

Module 8
8.1 T. 8.11 T. 8.21 T. 8.31 F. 8.41 A.

8.2 F. 8.12 T. 8.22 T. 8.32 T. 8.42 A.
8.3 F. 8.13 T. 8.23 T. 8.33 F. 8.43 C.
8.4 T. 8.14 T. 8.24 T. 8.34 F. 8.44 E.
8.5 F. 8.15 T. 8.25 T. 8.35 T. 8.45 C.
8.6 T. 8.16 F. 8.26 T. 8.36 T. 8.46 A.
8.7 F. 8.17 T. 8.27 F. 8.37 B. 8.47 A.
8.8 F. 8.18 T. 8.28 T. 8.38 A. 8.48 B.
8.9 T. 8.19 T. 8.29 F. 8.39 C. 8.49 A.
8.10 T. 8.20 F. 8.30 T. 8.40 D.
8.1 Europa was right in creating a product divisional structure to focus company
resources on related groups of insurance products and services. However,
its external environment has become more turbulent with well-financed
competition and demands from customers for more responsive policy design
and service. To meet these challenges, Europa must preserve its product
orientation while developing a much stronger customer orientation. The
company can do this by overlaying a customer and territorial design on its
current product design. It could restructure its product/service divisions to
include a dual emphasis on territorial operations and specific classifications
of customers. Thus, each product division must have territorial components
which focus on countries and their regions. Also, the firm might assign
responsibilities for various customer classifications to managers who are
designated as ‘product and service group’ managers. These changes would
benefit Europa by making it much more responsive to customer needs and
help it meet competition in various countries.
8.2 Delegation of authority is a prerequisite to successful management. This is

true because managers must work through their subordinates to accomplish
goals. Phillip must realise that first he must understand the work of his
subordinates and he must be able to set realistic expectations for their work.
He might want to consider these guidelines:
A Subordinates must be given authority to match their responsibility.
B Decisions should be delegated to the work level where a knowledgeable
employee can act responsibly on behalf of the organisation.
C The superior should become involved in subordinate decision-making
only when a work exception is encountered.
D Superiors must ensure that employees know how to discharge their
responsibilities.

E Superiors cannot delegate their responsibility for task outcomes to sub-

ordinates.
8.3 The first issue is division of labour which is related to how the work of
the organisation should be broken down. The second issue is delegation of
authority, i.e., how much latitude employees are given to make decisions
on behalf of the organisation. The third issue is departmentalisation which
concentrates on grouping the work and the employees of the organisation.
The last design issue is span of control or the number of subordinates who
report to a given manager.
8.4 Employees can experience job frustration and work ambiguity when they are
working on problems which require guidance and resources from employ-
ees in other product divisions. The product divisional structure is designed
to focus communications and efforts inside divisions on specific product
issues. This design does not help to preserve or enhance communication
and co-ordination between product divisions. Employees could experience
career obstacles if they worked in product divisions which produced ‘lower
status’ products or if their divisions were not generally recognised as being
a proving-ground for top management talent. Heightened political game-
playing can also occur in the product-division structure since many organ-
isations structure their product divisions as profit centres. This creates the
conditions for the ‘transfer pricing’ problem. This problem occurs when one
division has transactions with another and the organisation must establish
a cost-based or market-based price for these transferred products/services.
8.5 Organisations operating in complex and intensely competitive environments

are interested in the answer to this question. Successful project and pro-
gramme managers must:
A Be able to co-ordinate their work with the work of functional managers

who provide employees to work on the project and programme teams.
B Be effective disturbance handlers since the organisation has delegated

considerable authority for project resources and tasks to them. The
principal sources of disturbances are most likely to come from cus-
tomers, other project managers, functional department managers and
project team members.
C Be able to eliminate job uncertainty for project members in the areas of

merit-based performance rewards and performance appraisal.
D Be very effective advocates for their projects so that higher management

is constantly aware of project benefits and need for immediate decisions.
E Have considerable project expertise and the ability to translate project

features into the business languages of marketing, R&D, accounting,
finance, behavioural management and operations management.

8.6 Managers always have responsibilities for outcomes. Organisations are ratio-
nal entities which thrive and grow by reducing uncertainty and removing
exceptions from the processes of producing goods and services. Centralised
organisational designs create a more pervasive feeling of uncertainty reduc-
tion than decentralised designs. As you move further into the centralised
organisation (away from boundary functions like marketing research, legal
and contractual relations), the more numerous are the opportunities to cre-
ate centralised management systems. Indeed, if the boundary functions
perform their work effectively, the more protected and internal produc-
tion process departments can operate in a centralised fashion. Over time,
managers from boundary-spanning departments and those from production
and control oriented departments develop different views on the values
of decentralisation. Organisational and managerial ambivalence about the
centralisation–decentralisation issue surfaces because the nature of work
changes from the boundaries to the centre of the organisation.
8.7 Co-ordination is a set of mechanisms which managers employ to vertically

and horizontally link the actions of organisational subunits. Co-ordination
mechanisms help organisations process information which can quickly over-
whelm the vertical hierarchy if the external environment is complex and
unstable. Control is a set of mechanisms used to keep the actions of employ-
ees within pre-determined limits. Control can be obtained by standardising
production processes or by pre-specifying outcomes or results.
Poor process control can cause employees to experience job frustration,
confuse documentation with action, work under unrealistic management
expectations and lower their performance and effort if management raises
standards in a unilateral fashion.
8.8 Conglomerates create ready internal markets for the products and services
of subsidiaries. Further, if a conglomerate is composed of subsidiaries that
operate in cyclical and counter-cyclical industries, then some spread of risk
may be achieved by the parent company. Other benefits may be lowered
transaction costs if the conglomerate has a financial subsidiary that can
reduce borrowing and expansion costs by providing below-market financ-
ing. Finally, employees and managers may have more job and career options
in the conglomerate.
8.9 The very high value of the yen in relation to other key currencies forces the
keiretsu to demand price concessions from suppliers in order to maintain
already narrow profit margins. As the yen strengthens in value, it requires
more price rises for Japanese products sold in global markets. Price ceilings
in those markets may inhibit Japanese producers from raising prices even as
the yen strengthens. Thus, Japan’s exporting keiretsu turn to their suppliers
and they expect them to lower their prices. There is every reason to believe
that supplier companies are expected to support the exporting subsidiaries
in the keiretsu. The profits of these suppliers would be used to offset currency
exchange losses caused by a strong yen. Through an extended period of
a strong yen, the co-operative fabric in the keiretsu would indeed fray.

The orderly world inside the keiretsu is also being disturbed by bargain-
hunting Japanese consumers. Price discounting is more common in Japan
and consumers there are more conscious of product value and price. Smaller,
less efficient firms are failing in record numbers. This depletes further the
pool of firms that, like pilot fish, swim alongside the huge keiretsu.
8.10 Organisations are simplifying their structures and reducing the number of
layers. Middle management layers are eliminated and manager spans are
widened through the use of empowerment and self-directed work teams.
Support staff are being reassigned to operations in plants and distribution
facilities. This is a trend that further thins the corporate staff and increases
all employees’ contact with customers. Work-force empowerment increases
the delegation of decision-making authority to employees who have been
trained to improve product and service quality. The goal of empowerment
is reduced labour costs and shorter cycle times in such activities as customer
service, vendor activities and product development. Team-based work sys-
tems are designed to replace middle managers and their control over oper-
ational activities. Thus, the team becomes the centre of decision-making for
work-scheduling, budgeting and quality improvements.
Module 9
9.1 F. 9.10 T. 9.19 T. 9.28 T. 9.37 B.

9.2 F. 9.11 T. 9.20 F. 9.29 F. 9.38 B.
9.3 T. 9.12 T. 9.21 T. 9.30 F. 9.39 C.
9.4 T. 9.13 T. 9.22 F. 9.31 A. 9.40 E.
9.5 F. 9.14 F. 9.23 T. 9.32 C. 9.41 D.
9.6 T. 9.15 F. 9.24 T. 9.33 A.
9.7 T. 9.16 F. 9.25 T. 9.34 C.
9.8 T. 9.17 T. 9.26 F. 9.35 C.
9.9 T. 9.18 F. 9.27 T. 9.36 D.
9.1 Organisational culture was borrowed from anthropology and applied to

organisations. It refers to the shared beliefs and values which produce
norms for employee behaviour. It is recognisable by employees and top
management is responsible for ensuring that it fits with the organisation’s
mission, strategic plan and goals. The most prominent features of culture
include: (a) it is a pervasive feature of the organisation taken for granted
by employees; (b) it is stable over time and resists changes; (c) it has an
internal and external component; (d) it can be measured; and (e) it can be
managed closely or it can evolve in a random fashion.

9.2 A strong culture develops because top management fully understands its
guidance function in sustaining the clarity of culture. Part of the guidance
function is the review of systems designed to instil the culture in new
employees and reinforce it in veteran employees. This brings the importance
of the socialisation process into sharp focus in the strong culture. In strong
cultures, the introduction of the organisation’s culture to new employees
begins before they are hired, with realistic job previews. Once hired, new
employees learn humility and find themselves being trained in the core
areas of the business. Further, employees receive rewards for documented
performance success in core business areas. All employees in the strong
culture are exposed to folklore which reminds them of how key predecessors
advanced the enterprise and senior executives find and groom protégés who
exhibit personal qualities which reinforce the organisation’s culture. The
strong culture concept cannot be left to chance.
9.3 Firms need to recognise three fundamental properties which govern the
success of planned change: (a) the programme must create employee dissat-
isfaction with the status quo in the firm; (b) top management is committed
to the process and helps develop a vision of the firm for the future; and (c)
a well-managed change process must be implemented to show employees
how they can alter their behaviour and work attitudes.
9.4 The key problems facing firms going through change are: (a) diagnosis;
(b) resistance; (c) carry-over; (d) evaluation; (e) institutionalisation; and
(f) diffusion. Diagnosis occurs in the unfreezing process because it is the
basis for gathering objective information about the symptoms and causes
of organisational problems. Diagnosis is most effective when it is multi-
method and multi-level. Resistance occurs because employees prefer to
keep the status quo. They may also resist planned change because they fear
job loss, knowledge obsolescence, loss of personal power or disruption of
social relations at work. Carry-over is the absence of support for change
in the existing work environment. Carry-over losses can be minimised
by making the process participative, ensuring that the planned changes
closely parallel specific features in the work environment and by requiring
managers and supervisors to support the changes. Evaluation refers to the
systematic assessment of the change programme’s effects at four levels: (a)
employee reactions; (b) employee learning; (c) employee behaviour; and (d)
organisational outcomes. Institutionalisation refers to the absorption of the
change programme by the organisation’s culture. Finally, diffusion occurs
when change programmes are modified to fit the needs of other work units.
9.5 OD is a system-wide application of behavioural science knowledge to the

planned development and reinforcement of organisational strategies, struc-
tures and processes for improving an organisation’s effectiveness. Since the
definition stresses behavioural science knowledge, OD practitioners would
have to espouse organisational humanism as a guiding philosophy in their
work. There are other assumptions that should support the work of the
practising change agent.

A Employees are growth seeking and they desire self-fulfilment.

B Most employees want more authority and they want to contribute to
organisational goals.
C Open and honest communication in organisations is desirable.
D Most organisations need more trust and co-operation.
9.6 Training group methods may be the origin of OD but they have not fared
well in business applications. They fail because they probably penetrate too
deeply and force organisational members to confront personal issues which
are too anxiety producing to be helpful in the formal work relationships in
businesses. They may also fail for the following reasons:
A The method often appears to be ‘aimless’ because the facilitator does not
take charge of the process and set priorities and goals for improvement
in the T-group.
B The carry-over problem is a significant threat to T-group learning which
may be intensely personal. New behaviour based on such learning may
be quickly extinguished in the existing work environment.
C T-group training failure to influence decision-making, productivity, effi-
ciency and absenteeism is well documented.
9.7 The survey feedback method relies on a careful diagnosis which consists of
a multi-level and multi-method appraisal of current organisational function-
ing. A diagnosis is guided by a change agent and a steering committee to
oversee the process. The Grid OD method begins with a seminar which uses
T-group methods and team-building. Further, the Grid OD method assumes
that organisational ineffectiveness springs from poor communication, poor
planning and poor goal-setting. Thus, it is a pre-packaged programme
while survey feedback is not. Survey feedback methods use high levels of
employee participation to: (a) generate an empirical profile of organisational
functioning; (b) respond to the data generated in the diagnostic phase; and
(c) plan action steps to correct organisational deficiencies in effectiveness
and quality of worklife. The Grid OD method begins with top management
participation to unfreeze the organisation in the Grid seminar. At a later
stage, top management is again the focus of attention when it develops an
ideal strategic model for the organisation. It is therefore true that the Grid
OD method reflects the existing hierarchy of authority in the organisation.
This is less true for survey feedback.
9.8 The organisation’s culture should fit the company’s financial performance
goals. All work units should have financial targets that support company
goals for return on assets, return on investment and earnings per share. The
culture should align or fit with the company’s business environment. If a
key market performance strategy is improved service after the sale, then the
organisation’s culture should possess strong customer oriented values. The
culture of the organisation should stress the value of adaptation so that the
work-force has more flexibility to seize emergent key success factors in the
market.

9.9 Several internal factors depress entrepreneurial forces in declining organi-

sations: (a) organisational structure has become too rigid and complex (too
many layers); (b) communication systems have become too formalised and
they tend to filter out ideas that deviate too much from established norms;
(c) decision-making processes favour form over substance and there may
be widespread groupthink; and (d) the organisation is shrinking in terms
of talented people and available resources. From an industry standpoint,
entrepreneurial behaviour is also limited by the existence of standardised
products and processes that are widely understood by companies through-
out the industry.
Worked Solutions to Case Studies
Module 1 Case 1.2
1 In very large organisations, employees, with fraudulent motives, can manip-

ulate systems and payment methods for long periods of time before they
are detected. Also, decentralised decision-making in widely dispersed busi-
ness units emboldens employees with graft on their minds. Barings Bank
certainly discovered this painful fact too late once Nick Leeson’s huge trad-
ing loses were detected. In small organisations, all employees know each
other and due to necessity they are more cross-trained because specialisation
tends to be a costly luxury in very small firms. Thus, in small operations,
everyone knows what everyone else is doing.
2 His delay tactic may have had several origins. He may have feared for the
loss of his job in spite of the protections provided by the False Claims Act.
Managements often view whistle-blowers as complainers or malcontents
who openly question current business practices and executives’ motives.
Perhaps Mr Walsh may have felt that the internal controls would have been
insufficient to allow him to perform his job once he made his allegations
known. Being a meticulous person, perhaps he felt that he needed an
overwhelming case and four years of data gathering was necessary to build
a strong case.
Did he gain by delaying . . . ?
Being a bit of an economist, he may have reasoned that his reward would
be larger if he delayed his announcement. Thus, he stood to increase his
reward by waiting longer to report it. Of course he may have thought
that someone else knew about the scheme, therefore he had to make his
charges when he did. Perhaps he gained some satisfaction from providing
documentation of fraud which was so overwhelming that GE would not be
able to avoid punishment and criticism.
3 Perhaps the False Claims Act should be changed to limit the amount of a
reward to a set sum. As it is now written, the whistle-blower has a pow-
erful incentive to delay making any charges because the award increases,

the longer the wrongdoing continues. Firms should strive for strong cul-
tures which value ethical behaviour. Ethics training should be required
for all new employees and refresher training should be given periodi-
cally to employees. Ethical practices should be codified and written down.
When employees conduct business in an exemplary manner, they should be
acknowledged and recognised. Likewise, employees with seniority should
be recognised for their commitment to the company and their high personal
standards of honesty and integrity. When a company does uncover evidence
of wrongdoing punitive action should be swift and fair. Companies should
create dependable audit systems to track costs, payments and management
decision-making.
Module 2 Case 2.1
1 Sam and Nora’s lives match closely the stressors that are shown in Figure 2.2.
Economic uncertainty has become a factor in their lives because Sam cannot
find work as a plumber and Nora is strongly contemplating quitting her
job. Sam experiences technological uncertainty as he strives to complete his
training in computer service and repair. While his knowledge of plumbing
is not obsolete, his poor employment prospects in that field force him to
retrain so he can gain access to a more dynamic labour market. Nora’s
job creates for her difficult task and interpersonal demands. She resents
work that she must do that is not teaching related. She also feels physi-
cally threatened when she has to perform hall monitoring work. Her recent
episode with the irate parents shows the extremely stressful nature of her
interpersonal job demands. Both Sam and Nora are under pressure to raise
their two small children on a dwindling income. Household and childcare
responsibilities are wearing them both out, particularly Sam.
2 Sam and Nora’s stressors will not resolve themselves quickly. Their plight
shows the precarious nature of a family’s existence in the 1990s. Both of
them are hard working and ambitious. Sam’s work as a plumber offers
bleak possibilities because of typical long-term swings in the business cycle
and the commercial construction industry in particular. Nora’s fearfulness
and dissatisfaction with her teaching job reflects the general coarsening of
professional life for many teachers in public schools. The social problems
that infest families rapidly invade schools and threaten all but the most
hardy teachers with job burnout. Sam and Nora are probably on the right
track. Sam is working to retrain himself and he’ll probably be able to
find a good job once he achieves his certification as a computer service
technician. Nora’s job stressors are more pressing because she is rapidly
losing her will to continue as a teacher. She should take advantage of
the school system’s employee assistance programme and seek professional
counselling. She should also reach out to other teachers and her superiors
for help and support. If she fails to take these positive steps, she may
quickly find that she cannot work.

Module 2 Case 2.2
1 This company appears to have toxic brew of stressors that touches all of
its employees. The case shows how more complex task demands combined
with a smaller work-force doing more work create widespread job over-
load for the survivors of downsizings. When these effects are added to
the demands of instantaneous communications created by cellular phones,
electronic and voice mail and beepers, managers and employees are easily
overcome with work overload. In addition, those managers who remain in
the company have much wider spans of control because technology-based
communication advances make it possible for them to oversee the work of
many more subordinates. The net effect for managers is more interruptions,
less ability to escape from work and longer work weeks.
2 The inherent danger in downsizing is that its benefits are entirely temporary
and is easily copied by rivals. Downsizing may reduce costs that are rising
due to excess capacity in an industry created by declines in total sales or
new entrants (less regulation or lower entry barriers). If an industry is made
up of rivals that wish to be low-cost producers, the industry will experience
periodic rounds of downsizings and very intense price competition or price
wars to rectify the capacity problem.
Companies that try to sustain low costs with fewer employees flirt with
losing their best customers because those employees who provided the best
service may be the ones who were laid off. Intellectual capital and know-
how disappear through downsizing. In service-based companies customers
will quickly switch to competitors when they detect the inevitable service
decline, especially if service is outsourced.
The combined negative effects of lost employees and more reluctant cus-
tomers may overwhelm any improvements in the cost structure of the com-
pany. These effects can also neutralise any short-term productivity gains
created by fewer workers using more complex technologies.
Module 3 Case 3.1
1 The company is addressing both lower-order and higher-order needs of

accounting personnel. The quiet hour improves employees’ satisfaction for
security and safety needs. It affords some ‘privacy’ to work on meaningful
tasks which tie in with employees’ higher-order needs. The accounting
department allows its employees to use the hour to work on jobs that are
more conceptually complex and challenging than the routine work of the
department. If the programme lasts, some of the accounting employees
may experience improved satisfaction with the job itself. This outcome is
associated with challenging and meaningful work.
It is evident that the AMP programme addresses hygienes and motivators
simultaneously. The hygienes of co-worker and supervisor relations have

been improved in the programme. Since the AMP programme focuses on

creative and complex projects that require concentration, accountants may
have improved higher-order need satisfaction in their work.
2 The programme could affect the effort to perform and instrumentality of

employees in other departments. This would happen because employees
from other departments would perceive the AMP programme as a reward
available only to the accountants. Five hours of ‘quiet time’ each week
is a reward that offers considerable freedom and escape from the usual
job interruptions. Since the AMP programme is not yet company wide, it
would not be surprising if employees from other departments considered
cutting back on their effort levels. In addition, their beliefs about dependable
relationships between performance and rewards may deteriorate. Some high
performers from other departments may believe that they too should have a
quiet hour each working day. To the extent that Lancaster does not soon go
corporate wide with the programme, the instrumentalities of employees not
covered by the programme will weaken. At the margin, the company could
lose some high performers. More likely, however, is reduced performance
and motivation and increased job dissatisfaction for employees not covered
by AMP. It is also likely that relationships between accounting and other
departments may deteriorate, thus adversely affecting critical co-ordination
needs.
Module 3 Case 3.2
1 Mr Rodgers makes a point to differentiate equitable treatment of employee

and rewarding employees for their documented goal achievement. He states
that equity ‘refers to adjustments in that raise to more closely align salaries
of equally ranked peers’. Some pay experts would equate this statement
with ‘equal treatment’ and not with equitable treatment. Let’s suppose that
a Cypress executive hired a new manager at a pay level which was 10 per
cent higher than current managers who performed similar work. Under
the Cypress system, over time, the pay of these managers should ‘catch
up’ with the manager who was hired at the top of the pay bracket. Given
his statement about merit, however, the manager in question may actually
widen the pay gap with respect to his peers because he qualifies for hefty
merit awards. No matter how fair the pay system, those managers with
high performance and lagging salaries will experience felt negative equity.
Secondly, Mr Rodgers seems to ignore the fact that employees make equity
comparisons not only about outcomes (adjustments in raises) but also about
inputs (level of effort, years of training, past performance). His company’s
goal-making and tracking system is so outcome driven that it ignores the
critical issue of placing the right person in the right job. If a poor match
is evident (an employee with no goals or a high deficiency rating), some
effort is made by managers and executives to aid the ‘deliquent’ employee.
However, he does not comment on what eventually happens to such an
employee. A computerised and constantly updated goal-setting system does

not ensure that accurate and valid equity comparisons will be made by
employees subject to the system.
2 The system appears to be widespread and well understood as a critical

component of the management information system. The various reviews
and updates would seem to indicate that there are serious efforts made
by the company to help employees set effort levels that lead to good
performance (no goal deficiencies). Over time, this should stabilise and
raise the expectancies of employees, as long as management does not place
undue pressure on them to create more goals than they can reasonably
handle. Likewise, instrumentalities should be in the high positive range
because Mr Rodgers states that merit rewards are linked ‘to the quality
of past performance’. In turn, the need for achievement of employees
should be strengthened, and over time, employees would develop belief
systems that are consistent with an internal locus of control. Feedback to
employees about their goal accomplishment would help them create realistic
expectancies and instrumentalities.
The importance of feedback in this system cannot be over-emphasised.
Since employees formulate their own goals, they are expected to make
reasonable decisions about their levels of effort. There seem to be safeguards
against some employees creating too many goals or creating goals that are
unrealistic. All of these forms of feedback should raise levels of employee
persistence if the board creates a ‘raise budget’ which is widely seen as
fair (distributive fairness) as well as fairly distributed (procedural fairness).
Clearly, the company could have inadequate results in the market through
no fault of the work-force. Presumably the board of directors would lower
the ‘non-negotiable’ raise budget to reflect less-than-adequate corporate
performance. Management would still have to adhere to the principle of
instrumentality in reward allocation under lower company performance.
The Cypress goal-setting, tracking and reward-allocation system is
admirable because it merges very important motivation principles with
computer-based control and communication. If the system also contains ele-
ments to prevent the abuse of employees (work overload without adequate
resources to get the job done), then it should support performance and
quickly generate information which leads management to good decisions
about promotion, termination, training and development and so on.
Module 4 Case 4.1
1 This question can be answered directly from the theory of goal-setting.

The performance appraisal system is a direct pathway to valued extrinsic
and intrinsic rewards. If the company’s goal is the construction of a new
behaviour oriented appraisal system, it will be necessary to consult with
employees who perform the jobs that will come under the new system.
These employees are certainly knowledgeable about critical work activities,
and they most certainly are affected by the information generated by the

system. Therefore, to deepen their motivation to perform effectively, their

active involvement in the design of the system will enhance their commit-
ment to the new system and deepen their acceptance of the information
produced by it. On balance, the involvement of employees in the design
of a behaviour oriented appraisal system leads to higher performance, job
satisfaction and job motivation. The company must avoid the temptation to
apply a single BARS system to widely different groupings of jobs. If that is
done, the validity of the system will be compromised.
2 The steering committee was a temporary project group which lasted as long
as the design and implementation phase for the new appraisal system. It
functioned as a powerful communication mechanism which legitimised the
creation of the new system. All the members had a deep interest in perform-
ance appraisal, so it is possible that they would become staunch advocates
for a new way of conducting this important organisational task. Committee
members also functioned as project experts who could answer employees’
questions about the new system. In this way, employee expectations about
the new system were kept in line with the development of the behaviour
oriented system. The steering committee smoothed the transition from the
old system to the new performance appraisal method. It is also important
to note that members of the steering committee became knowledgeable in
effective performance appraisal practices. This would make these individ-
uals valuable to the organisation because their expertise could be used to
refine the performance appraisal system.
Module 4 Case 4.2
1 A number of factors could cause a gainsharing programme to be suc-

cessful in a joint venture. First, the Winshare programme has convinced
employees that there is a clear connection between the profits of the
company, employee suggestions for improvement, team implementation of
productivity-enhancing improvements and quarterly gainsharing bonuses.
This is the expression of the line-of-sight principle which means employees
know there is a clear pathway between their performance efforts and the
programme’s rewards.
A second factor related to programme success is the high employee par-
ticipation. It is channelled and focused through the work of empowered
Win Teams that ensure the review of all improvement suggestions and the
implementation of the suggestions. A third success factor is the group-based
incentive system that is based on decision-making and empowerment. A
portion of the programme’s success is probably due to the fact that par-
ticipation and empowerment are more important than group-based finan-
cial rewards. The programme pays much closer attention to performance
enhancement through team decision-making than to a complicated reward
scheme. Employees know that if they can improve profitability by improv-
ing internal operations, then they will benefit financially on a quarterly

basis. Finally, the full backing of top management and executive involve-
ment in programme design signalled to employees that this was a serious,
long-term programme to improve the competitive strength of the subsidiary.
2 The principles of effective reward system management most evident in this

case include:
A The plan captured the attention of employees. Evidently employees
have taken ownership of the programme and they expect it to remain
successful.
B The management team understands the plan and they can explain how
it works. The workers know what they must do to earn the incentives
through their suggestions and group-based decision-making.
C The plan pays out incentives when it should. The quarterly bonus
mechanism allows employees to see the connection between their sug-
gestions, team decision-making and company profitability.
D The company is performing better as a result of the plan. Increases in
group decision-making budgets and the company’s return to profitabil-
ity are clear indicators of programme success.
3 The gainsharing bonuses increase employee motivation and performance

because they are first contingent on performance enhancement and then
delivered when the performance gain is documented. Expectancies and
instrumentalities are strengthened and maintained because the programme
develops and implements employee suggestions through group-based deci-
sion processes. The emphasis on group decision-making adds the addi-
tional force of peer group pressure to the suggestion generation process.
Creative team members will surely begin to help less inspired co-workers
produce solid contributions to unit performance so that quarterly bonuses
are not jeopardised. Employee participation plays a fundamental role in
employee motivation and performance by producing solutions to produc-
tion problems. Further benefits are derived from information-sharing and
de-emphasis on the chain of command as a source of approval for action
steps. In the Winshare programme, management oversight and control is
subordinated to effective employee suggestion production, analysis and
solution implementation.
4 Suggestions for constructive change include:

A Anchor gainsharing bonuses to tangible improvements in productivity
and product and service quality.
B Firmly connect the reward system to quantified unit performance data.
C Make the system highly participative in design, implementation and
improvement.
D Ensure that the programme’s design is promoted and explained to
employees by top managers who are sincerely committed to long-term
programme success.

E Make the programme team-based.

F Ensure that the interval between bonuses is short so that teams of
employees can realise the benefits of their hard work.
Module 5 Case 5.1
1 Herzberg’s job design principles provide an answer to this question. The

original repairman’s job configuration offers little opportunity to satisfy
higher-order needs. The only time repairmen are able to do this is when they
attend the annual training seminar which focused on new repair methods.
Their experienced levels of job motivation, satisfaction and involvement
went up during training. Their job frustrations can be removed by: (a)
giving them more control over work resources; (b) making them accountable
for customer relations; (c) providing them with better performance feedback;
(d) allowing them to control the scheduling of their work; and (e) providing
them with real opportunities for achievement and professional development
(teaching in the training seminar and helping select new employees).
2 It certainly does. From the standpoint of job depth, the repairmen’s job has
been stripped of job content. All of the necessary hygienes are in place and
repairmen seem to possess a high growth need strength. Thus, the ideal
conditions are created for improving job content factors (job depth) which
should lead to improved repairmen work attitudes and quantity and quality
of service. The ‘experiment’ performed on the London repairmen bears out
this hypothesis. All of the suggested job changes add to experienced job
depth for the London territory repairmen.
3 The sequence of steps followed by the job design expert indicates that
participation was an important component of the programme. The expert
interviewed employees at three levels in Alton’s hierarchy: (a) the director
of field services; (b) the supervisors of repairmen; and (c) the repairmen.
His use of ‘job expert’ groups also deepened employee participation in the
process (employees suggested all of the changes adopted in the job design
experiment). Finally, he conducted a pilot study which created further
opportunities for the London repairmen to be involved in the project. These
forms of participation had a positive impact on company work culture and
they provided opportunities for employees to be involved in several deci-
sions of broader organisational scope. Therefore, the programme itself was
an example of increased job depth for all those employees who participated
in the job design process.
Module 5 Case 5.2
1 Probably the first order of business for the experts is to recognise that
task issues must be subordinate to learning those aspects of Derdian culture
which affect gender, social and group relations. It is clear from the comments

of Derdians that they found the experts to be patronising and ignorant of

their culture and customs. The experts, in their cultural ignorance, erected
communication barriers which prevented them from building any sense of
teamwork among the Derdians. The experts failed miserably to link the three
fundamental aspects to the problem in the exercise: (a) foreign expertise in
tower construction, (b) local or domestic appreciation for towers and (c)
domestic customs which precluded easy communication and co-operation.
Once the ‘experts’ recognised that there were more aspects to the problem
than simply constructing a tower, they should have asked the Derdians to
give them a brief explanation of their local customs in relation to Derdian
working relationships and organisational task groups. This brief explanation
would have illuminated various Derdian taboos and customs. From there,
the experts could have created Derdian work groups which would have
made it possible to create towers without trampling on local customs and
taboos.
2 The most common approach used by contracting companies is to use

teams of company employees to perform the in-country work. This usually
involves all construction, installation and testing. Once operational integrity
is achieved, the contracting company might train local personnel to operate
and maintain the installation or facility. In some cases, the contracting com-
pany is required to support a technical group that performs the operational
and maintenance functions for the client organisation or government.
Such arrangements seldom produce an outcome that merges the economic
or technological improvement with local customs and cultural expectations.
People in the country with the improvement may appreciate its benefits,
but there is often a widespread feeling that ‘foreigners designed, built and
managed the facility’. In some quarters there may be resentment toward
foreign contracting companies which are perceived by locals as greedy
and insensitive to local customs and practices. If political circumstances in
the country in question change, and the improvement is a joint venture
or strategic alliance, then the foreign-owned portion of the asset may be
nationalised or expropriated by the government in power. Currently, the
feelings and sentiments described above are widespread in Russia and
some of the new countries making up the former Soviet Union.
Module 6 Case 6.1
1 The group possesses considerable diversity and high interpersonal attrac-

tion. The members of ‘Ean’s patrol’ are drawn strongly to the group’s task
and its goals. Thus, the norms of the group favour high individual effort
and acceptance of the group’s work methods and activities. The group also
has a norm about creativity which encourages risk-taking while allowing
great variability in members’ work styles. This is obvious from the amount
of latitude that members have for setting their work schedules. While Ean
has high positional and personal status, the rest of the members are not

particularly motivated by positional status. Personal status associated with

individual expertise appears to be much more important to the group’s
members.
The group has high cohesiveness and it appears to be able to minimise its
process losses. It is a small group that has developed a number of techniques
for efficiently discussing creative problems. Ean is more of a mentor than
formal leader. When particularly troublesome creative problems emerge,
the group selects a temporary leader who has expertise that matches the
problem at hand. Each member has developed role skills that are matched
to the everyday demands of completing projects on time.
2 The group was formed, and remains together, because of interpersonal

attraction. The components of interpersonal attraction which initially drew
the individuals to the group were the nature of the group’s tasks and
goals. All members are still motivated strongly by their opportunities to
be creative in these two areas. Indeed, each member has personal values
which emphasise strongly the values of innovation and creativity. Since the
rest of the organisation (including Ean) expect the group to be creative, it
does infuse its work with considerable creative energy.
While the group’s goals and activities may have attracted the employees
to the group initially, attitude similarity has also developed to make the
group highly cohesive. Assuming there is no turnover in membership and
the group’s tasks do not change; it should remain a highly cohesive stage 4
group.
Ean showed considerable understanding of the basics of group structure
and decision-making in his selection of employees for the group. He has
insulated the group from much of the day-to-day routine in the business and
he has controlled the group’s normative structure to encourage tolerance for
individuality. He also maintained some project group characteristics in the
group by: (a) keeping its systems support simple; (b) connecting the group
directly to top management; and (c) protecting the group from the rest of
the organisation.
3 First, he kept the group small so that average productivity per member
would not fall off due to social loafing. Second, he controlled the normative
structure of the group (by being a good role model) and moved it to maturity
quickly. This minimised process losses, which is a necessity in a creative
group. Third, he selected members with high creative energies and strong
values for risk-taking and innovation. Fourth, he shielded the group from
routine matters in the business. Fifth, he allowed the group considerable
freedom and he encouraged the development of personal work styles. Sixth,
he taught the group how to brainstorm. This is a critical process which helps
a group defer judgement in the process of creating ideas, solutions, effects,
outcomes, etc.

Module 6 Case 6.2
1 Clearly, the ‘hands-off’ practices followed by Allister had returned a measure

of control and autonomy to the supervisors and their production teams.
The fact that Rudy was absent during this period may have presented
the supervisors and employees with an opportunity to demonstrate that
they were perfectly capable of outstanding work without Rudy’s restrictive
policies and practices.
Knowing that Allister had a personal interest and belief in autonomy and
team-based control, the supervisors and work teams probably concluded
that they could persuade Allister to undo some of Rudy’s policies during
his absence. Apparently they were right because Allister agreed to suspend
the policies of detection and locker checks in exchange for close monitoring
of the use of company tools and equipment. Finally, Allister had suspended
the burdensome mandatory overtime policy.
He had done this as a response to the work-force’s outstanding efforts to
eliminate company back-orders while improving product quality. In effect,
supervisors and workers knew that Allister would be a fair-minded listener
and that he would implement facility improvements if they met production
requirements.
2 Without question, Allister should show Rudy the production results achieved
during his absence. He should also review with Rudy the decisions on
supervisor control, overtime, suspension of locker searches and use of metal
detectors. Since Rudy had just attended a company-sponsored, month-long
leadership seminar, Allister might consider having Rudy develop a plan for
making future production management changes based on the results of his
training, company goals for the production facility and input from the three
shift supervisors.
These three requirements would present Rudy with a problem not unlike
those specified by the Vroom–Yetton–Jago Normative Decision Model.
According to this model, the problem presented by Allister would cause
Rudy to select combinations of consultative and group-based decision-
making to complete his plan. He would be compelled to seek input and
advice from the shift supervisors and from employee work groups and
their informal leaders. This activity would redirect Rudy’s management
style in such a way that he could be more effective in group-based decision-
making. Also, when understanding of Rudy’s activities reached the super-
visors and work groups, they would perceive his work as being consistent
with a group-centred system of managing the production facility. Finally,
this assignment would better align Rudy’s management style with Allister’s.
In summary, Allister should not make a case to eliminate Rudy’s job. That
action would be inconsistent with his practice of listening to people and
developing their ideas and potential on the job. In some respects, this
decision is an act of ‘faith in people’. To make it, Allister would be banking
on changing Rudy’s management style in such a way that even higher
productivity and product quality would result.

Module 7 Case 7.1
1 From the standpoint of Fiedler’s contingency theory of leadership it is

apparent that the favourableness of the leadership situation has deteriorated
badly. Wexley’s leadership orientation is not well matched to the demands
of the work situation in the production division. He has been trying to
use a task oriented style in a moderately unfavourable situation. Fiedler’s
model would predict that a relations oriented style would be most effective.
Wexley also relies too heavily on legitimate and coercive power which act to
reinforce his task oriented style of leadership. Employees did not trust him
very much nor did they have great confidence in his management expertise.
He would have been much more effective had he used a more relations
oriented style.
The path-goal theory of leadership would predict Wexley’s failure to be
an effective leader. According to the model, he is underestimating the
abilities of his subordinates and he assumes that they have no achievement
motivation (he may be right). Second, the work in production has high
clarity and routineness and low challenge. These subordinate and task
characteristics predict that a leadership style emphasising supportive and
achievement oriented behaviour would be most effective. He errs by relying
solely on directive behaviour.
The situation can be improved by allowing foremen to work out new
work procedures with their employees. Second, Wexley must stop his task
oriented or directive behaviour and focus more on encouraging employees
to accept goals which they learn about from Mr Lenton. To this point, upper
management has not been involved in the problem. This is an abdication
of the leader, monitor and disseminator roles. Mr Lenton must lend his
commitment and involvement to prevent the situation from deteriorating
further.
2 Mr Lenton should recognise that he must be able to shift roles to be

effective as a top manager. He must take the lead in informing employees
about the competitive capacity of the company which is impaired by low
productivity in production. Mr Lenton is also quite uninformed about the
current problems in production. No one is listening to employees and no
manager with legitimate authority is functioning in the disturbance-handler
role. Mr Lenton must become the disturbance handler and negotiator. Only
his involvement can correct the existing problems in production.
It is also apparent that no managers with expertise and referent power
are actively involved in seeking a solution acceptable to employees and
management. Thus, the liaison role which should link operational employ-
ees and top management is not being performed. Until managers step in
and function effectively in the roles mentioned, the problems will only get
worse.

Module 7 Case 7.2
1 Clearly Mrs Fields has a high need for achievement. Evidence in the case
supports this because she: (a) visited stores unannounced; (b) oversaw all
aspects of operations; (c) took over problems in stores by herself; (d) made
all management decisions concerning expansion through debt financing; and
(e) refused to build a company with a coherent management structure filled
with professional managers. While the company was small, with perhaps
fewer than 50–75 outlets, she could single-handedly manage operations
and the regional growth of the company. This meant that she personally
oversaw all store manager hiring decisions and all decisions to select new
store locations. During the company’s early survival her enthusiasm and
strong control were instrumental to the success of the company.
Once the company was larger and multi country in scope, her hands-on
management style became an obstacle to further growth and profitability.
Clearly, without sound management advice, she made ill-considered and
costly decisions to expand into markets and countries which she did not
fully understand. The absence of sound management advice and informa-
tion was reflected by her unwillingness to build the kind of organisation
that was staffed by seasoned professionals. Staying too long with a highly
boss-centred leadership style proved to be the primary factor that forced
her out as CEO and president of the company that she founded.
2 Mrs Fields seemed to rely on several sources of interpersonal power. Her

very strong orientation to achievement caused her to rely heavily on expert-
ise power. She was able to design the organisational systems to build rapidly
a successful company with 543 outlets in six countries. When she detected
operational problems in retail stores, she quickly took over operations and
corrected the problems. These behaviours represent reliance on legitimate
power. Finally, she used referent power to convince lenders, employees, stu-
dents and admirers that she had developed a highly successful formula for
‘growing’ a business from scratch. Her popular book did much to advance
her image as a charismatic entrepreneur who relied heavily on the three
forms of interpersonal power noted above.
Mrs Fields used several strategies to gain power as she expanded her
company. Clearly, she cultivated an image of success through her speaking
engagements and successful autobiography.
She was an entrepreneur who thought carefully about ways to expand
a business while minimising risk. She was less successful at controlling
budgets and managing the use of supplies throughout her far-flung cookie
empire. Likewise, she performed poorly at controlling the financial resources
of the firm. Her over-reliance on debt to fuel growth was clearly a weakness
in her financial management strategy.
Leadership principles also surface in Mrs Fields’ management practices. For
instance, she is strongly initiation-structure oriented. She place the highest
priority on continued growth through market expansion and increasing the

number of retail outlets. This strategy dominated her approach until the
company’s debt load threatened her control. Once she perceived the threat
created by too much debt, it was too late to build a professional organisation
to control growth and guard company assets. The licensing agreements were
merely speed bumps on the road to her loss of control of the company.
Mrs Fields exhibits several strong entrepreneurship qualities. In building
her company, she was tenacious and willing to make personal sacrifices. It
appears from the case that she was a tireless promoter of the organisation
and its premium products. She was highly directive problem-solver because
she would step in and stabilise faltering retail outlets and she shouldered
personal responsibility for the continued growth and success of the business.
She possessed an internal locus of control and she never seemed to waiver
in her belief that the company would prosper. Perhaps she took too many
risks without having the ability simultaneously to minimise the chance that
she would lose control of the business to its creditors. Giving control of the
business to its creditors may have been an important lesson for Mrs Fields.
Most observers of successful start-up firms would agree that building a
capable organisation with a focused niche business strategy might have
kept Mrs Fields at the helm.
Module 8 Case 8.1
1 Before the change at the Manchester plant, Tobric was a functional organ-
isation which was highly centralised. It had very mechanistic design with
high formalisation and standardisation. The full burden of co-ordination fell
on the vertical hierarchy and little horizontal co-ordination took place.
In the pilot programme the design was shifted to a more decentralised
form. The creation of the general manager position at the Manchester
plant (Lucien’s position) signals an attempt by top management to delegate
authority. If the new design takes hold, the senior vice-president and the
other vice-presidents should be more successful at planning the direction
of the company. Further, Tobric’s other plants would eventually have their
own general managers to accelerate the decentralisation process in the firm.
For the design change to be successful, the vice-presidents in London must
gradually remove themselves from involvement in day-to-day decision-
making in the management of the Manchester plant. It is uncertain whether
or not the design plan will be effective, since top management has not
spelled out the new role for the Manchester plant manager. The president
and his senior vice-president must do this immediately. Also, they must
clarify their expectations for the vice-presidents’ responsibilities in the pilot
design. Failure to do this quickly will allow the vice-presidents to adopt
a variety of management practices in their dealings with their functional
subordinates at Manchester and at other company manufacturing locations.
This condition would lead to overloading of the management hierarchy and
the president would probably abandon the pilot programme and return to
the former, and less effective, design.

2 Lucien is new to the general manager’s job. His position is a departure from
established authority relationships and communication channels. Lucien has
formal authority on paper (the new organisation chart) but he will have to
earn the respect of his subordinate managers and the vice-presidents in
London. To consolidate his position, he might consider several horizontal
co-ordination mechanisms that might slowly lessen the plant department
managers’ dependence on the vice-presidents in London. He could also
suggest that several vertical co-ordination mechanisms be used to help the
vice-presidents learn their new roles in the more decentralised design.
To improve horizontal co-ordination among his department managers, Lucien
could create temporary liaison roles which would help integrate workflow
between plant departments. This would lessen the departmental managers’
dependence on the vice-presidents in London. Also, a horizontal task-force
composed of department managers and Lucien would help iron out inte-
gration issues formerly handled by vice-presidents.
Vertical co-ordination could be increased by the formation of a collateral
organisation. It would be managed by a steering committee of selected
vice-presidents, Lucien, and perhaps several managers from the Manchester
facility. This group could deal with co-ordination and workflow problems
stemming from the new organisational design. It could also focus on the
orderly diffusion of the new design to include the company’s other produc-
tion facilities.
Module 8 Case 8.2
1 Even though Messrs Hewlett and Packard had removed themselves from
day-to-day management decisions in the company, they saw that the com-
pany they had founded had grown too centralised and complacent. As major
rivals began to stumble due to their top-heavy and centralised designs,
Messrs Hewlett and Packard took decisive steps to greatly reduce bureau-
cratic rigidities that had crept into the company under the leadership of
Mr Young. By talking to employees from all divisions, Messrs Hewlett and
Packard soon realised that HP had lost its ability to meet changing customer
needs in the market-place quickly. It could no longer develop products or
policies without the meddling of countless committees.
The two founders did not deliberately create a boundaryless organisation,
but they certainly applied organisational principles which encourage that
form of organisation. For instance, by transferring corporate-level employ-
ees to field operations, they attacked directly the task boundary which
had previously prevented swift product development and pricing changes
because corporate employees and field operations personnel could not co-
ordinate effectively. By strengthening the divisions and eliminating layers of
middle management, the founders attacked directly the political boundary
which had significantly slowed product development and market oriented
pricing decisions. Wider management spans and employee empowerment
greatly sped up product development and market-based decision-making.

Finally, by attacking the identity boundary, Messrs Hewlett and Packard

eliminated some barriers which had caused employees to overemphasise
their loyalty and commitment to their departments at the expense of their
commitment to effective product development processes and market-based
decision-making.
Messrs Hewlett and Packard were able to create a key aspect of a boundary-
less organisation in HP: they planted the seeds for organising around core
processes instead of functions. By shifting personnel to field operations,
eliminating layers of management and changing leaders, they restructured
HP around the core processes of product development, sales and fulfilment,
customer support and field operations. The founders recognised that simply
downsizing the company would not accomplish the transformation of HP
to a highly responsive organisation.
2 HP has created a distinctive competitive advantage which will serve it well

in the years to come. A competitive advantage is a strength in a company
which cannot be easily duplicated by its competitors. HP now has several
strengths which cannot be easily copied by rivals. For instance, it dominates
the laser printer market because it maintains a pipeline of product inno-
vations which cannot be matched by rivals. Thus, it has greatly improved
its product development strength. By applying its product development
strengths to PCs while embracing and improving direct marketing concepts
practised by its rivals, it has displaced Apple as the number three producer
of PCs in the US.
The company’s successful downsizing of middle management coupled with
its focus on core processes greatly sped up product development and low-
ered unit costs by spreading less overhead over more products. HP has
not let decentralisation go too far. If product development rates fall off and
overhead per unit produced rises, then HP will most likely experience a
round of downsizing aimed primarily at divisions which have grown too
large and bureaucratic. It is much less likely that corporate headquarters
will be allowed to grow unchecked through a process of recentralisation.
Future enhancements of competitive advantage will most likely occur within
HP’s strategic business units.
Module 8 Case 8.3
1 Figure 8.7 of the OB text can be used to show how these companies
could return to competitiveness by strengthening their abilities to customise
service. The diagram shows some of the steps that a firm can follow
to merge re-engineering, delayering, new work force management practices
and service improvement to strengthen competitive advantage. The diagram
illustrates the process as a fairly rapid, if not always smooth, transition to a
delayered, responsive organisation having a competitive strategy based on
an improved service emphasis. That rosy theme probably will not be borne
out in practice. Such a dramatic shift in a company’s methods of operations

may require key executives and board members to overrule some entrenched
management and board member factions who still believe that a stronger
emphasis on cost control (the manufacturing efficiency paradigm) is the
right pathway to higher net income.
To generate the cash necessary to support the overhaul of work force
management practices such as wall-to-wall training it may be necessary to
sell less profitable company assets. Finally, those employees and managers
who fail to embrace the new approach to service probably should get the
sack. Shareholders cheer on managers who raise profits and share price. The
diagram’s service improvement actions will strengthen a firm’s competitive
advantage, especially in industries that are mature and producing products
which are standardised. The diagram’s steps may be absolutely necessary
in industries with razor-thin profit margins and intense competitive rivalry.
Create strategic focus Assess all company

processes and control Eliminate control systems and
on service quality as hierarchical levels that add no
a central feature of systems in terms of value
added to service quality value to service (re-engineer
competitive advantage and delayer)
(re-engineering)
Modify human resources

Organise control systems practices to develop a work Create service quality tracking
to track and emphasise force that is trained, systems that show employees
results in service motivated and rewarded to how well their service unit is
improvement deliver excellent, customised performing (line of sight)
service
Create service improvement Delegate authority to

goals and use incentives employees to customise Revise support systems and
to reward managers and service and to suggest im- human resources practices as
service delivery personnel provements to service and to needed to sustain competitive
for gains support systems (empowerment) advantage
The diagram suggests that firms should strongly consider ignoring down-
sizing’s lure as a ‘quick-fix-to-profit woes’. In downsizing’s most dangerous
form, the across-the-board version, customer and vendor relations are often
badly damaged and more price and service-driven rivals quickly scoop up
disgruntled customers (and employees). As the vignettes suggest, down-
sizing often fails to improve service or integration among units that are
merged to save money. After downsizing, the employees who remain in the
new unit are those who, for whatever reason, failed to take, or were not
eligible for a fat severance package or buyout offer. Often those who grab
such offers are employees who understand how service quality improves

competitive advantage. Their new, less expensive replacements may require

extensive training and experience before they have the knowledge that left
with their more highly paid, but mobile predecessors. Do not expect the
outsourcing of portions of the sales or service functions to always be cost
effective. The Northern Natural Gas example underscores this conclusion in
sharp relief.
Module 9 Case 9.1
1 Company managers have not focused on developing a good fit between

mission, strategy and goals and the culture of the organisation. The absence
of adaptability and fit surfaces in the symptoms of sales manager turnover,
rising customer complaints, stagnant market share and frustration among
employees in the sales division. A similar pattern exists in the produc-
tion division. A strong culture emphasising product quality and excellent
employee–management relations has not been developed. Tentex has been
negligent about developing an overall, company-wide value of consistent
excellence. The firm’s policy of no commissions for sales managers has had
the effect of removing the motivation for managers to monitor sales work
closely. Likewise, managers in production have not put pressure on suppli-
ers to deliver high quality materials on time. Since raw materials variability
contributes to constant production and assembly problems for employees,
they are bound to become frustrated with their work and develop a ‘who
cares’ attitude. Finally, the absence of consistent communication between
the top and the bottom of the organisation contributes to rumour prolifer-
ation. Since most of the rumours are negative, they too have a depressing
effect on the motivation of production employees.
2 The diagnosis was thorough in that it identified several symptoms and

causes of problems in sales and production. The diagnosis relied solely
on interview information collected from employees by Adrian and mem-
bers of his task-force. Interview information is highly informative, but his
committee missed a chance to lessen resistance to change (and increase the
chances of institutionalisation and diffusion) by utilising a survey feedback
methodology. The inclusion of survey feedback would have created wider
employee participation by the gathering of survey data. In turn, this would
have broadened the basis for programme institutionalisation and diffusion.
The creation of the focused task-forces along with the use of team-building
during the managerial retreat helped build top management commitment
and involvement in the change process.
Adrian’s programme is also noteworthy because he provided for the careful
assessment of programme changes. This ensures that the programme will
be thoroughly evaluated relative to: (a) employee reactions; (b) employee
knowledge of the programme; (c) actual changes in employee behaviour;
and (d) changes in organisational performance measures.
The programme targeted very specific problems identified during the
unfreezing phase. Adrian’s group should be commended for its wise deci-

sion to involve valued customers in the change process in the sales division.
Also, the production task-force was right on target with its programme to
improve the quality of supplies and the timeliness of their delivery. These
changes are quite likely to be institutionalised and diffused in the pro-
duction division because employees will experience much less frustration
in their production and assembly work. The timely introduction of the
TQM and bonus programmes will change the culture in production and
ensure institutionalisation (as long as top management remains visible and
committed to the changes).
Module 9 Case 9.2
1 Under Dr Wang’s management, Wang Laboratories’ culture became a reflec-

tion of his personal beliefs. The company’s culture was extremely strong
and it reflected Dr Wang’s beliefs about the central roles of Chinese family
traditions, business excellence and product quality.
During the first 30 years of the company’s existence, its culture clearly
reflected the strength perspective because employees and Wang family
executives could show a strong correlation between long-term financial
performance and the culture of the company. During this extended period,
employees demonstrated high motivation and strong commitment to the
goals of the company and the company had controls and structure which
were adequate to ensure profitability and success in the market.
The fit perspective also applies to the first 30 years of Wang Laboratories’
operations. Dr Wang had an unusual ability to perceive changes in markets
and how customers used computers and software prior to the development
of memory chip-based personal computers. His entrepreneurial insights
kept new products and services flowing to the market at a rapid clip
and his company had spectacular growth. His unbroken string of new
product successes blinded him to growing weaknesses in the company.
And this threatened his control of the company at a time when he wished
to follow Chinese traditions and turn the now publicly owned company
over to his oldest son. He allowed his family values to subvert his business
judgement and the company’s strong culture became a heavy drag on
product innovation and structural realignment in the company.
The adaptation perspective in organisational culture was not evident under
Dr Wang’s last few years of managing the company. And it certainly was
not present under his son’s leadership of the company. Once investors and
creditors wrenched control of the company from the Wang family, it was too
late to adapt it to changing business conditions and to stave off bankruptcy.
While the company did become more adaptable under successive leaders,
it still remains to be seen if Wang Laboratories can chart a new mission for
itself.
2 Wang Laboratories exhibited many symptoms of organisational decline.

Given the information in the case, it is clear that the company began its

downward trend after about 30 years of financial and strategic success. At

its high point, it employed 25 000 people and had world-wide sales of nearly
$3bn. It had done this well before companies like Microsoft and Intel had
risen to prominence. As noted earlier, Dr Wang’s centralised management
style and belief that Chinese family traditions should infuse the company’s
culture sowed the seeds for failure. However, well before the downfall of
the company, there were early warning signs of future business difficulties.
A Fear of embarrassment and conflict probably kept key executives and
managers from challenging Dr Wang’s views on products and manage-
ment succession.
B Linked to this would be the loss of effective communication. Dr Wang’s
subordinates probably told him what he wanted to hear, especially
during the period of the company’s unprecedented growth. Thus, Dr
Wang was probably complacent about the company’s future at a time
when he should have been re-evaluating its fundamental mission.
C An outdated organisational structure reflected Dr Wang’s product inspi-
ration driven management style. Like many entrepreneurs who are also
talented product innovators, Dr Wang created products or stuck with
existing products before thorough market research was performed. He
followed this logic: ‘We can make and sell this product, so let’s create
a division to make and market it.’ This approach leads to inefficient
organisational designs which duplicate resources and drive up general
sales and administrative expenses.
D Resistance to change was also a symptom of Wang Laboratories under
Dr Wang’s leadership. He listened less to his customers than he should
have. He ignored market trends which favoured highly flexible personal
computers which could run any type of software. Finally, over the
objections of his board, he installed his son as president of the company.
E Special interest groups became more vocal and demanded changes in
Wang Laboratories. Creditors refused to extend lines of credit and once-
loyal customers refused to buy Wang systems which would only run
Wang software.
F Decreased innovation also occurred in the company as it sped towards
bankruptcy under the management of Fred Wang.
3 Prior to decline and bankruptcy, Wang Laboratories seems to represent

mostly the inception stage of the life-cycle theory. The company never
achieved any of the characteristics of the maturity stage. It did not become
decentralised, it failed to create a professional managerial level, and it
did not seem to use advanced planning methods with intermediate time
horizons (three to five years). Wang Laboratories remained in the inception
phase even though it became a $3bn company with 25 000 employees.
Through Dr Wang’s personal beliefs and management style, the company
was plunged into bankruptcy because it could not survive the management
transition forced on it by Dr Wang.

From the information in the case, it is clear that the company never devel-
oped a cadre of professional managers who could better ensure the com-
pany’s orderly adaptation to new markets and customer product expecta-
tions. Dr Wang precipitated a crisis by installing his son as the company
president at a time when the computer industry was undergoing a fun-
damental shift to personal computers. In graphic fashion, the case points
out how the once-brilliant company founder can be fatally out of step with
market requirements and orderly succession planning. In the case of Wang
Laboratories, Dr Wang made the decisions which drove his company into
bankruptcy.

Appendix 2
Practice Final Examinations and

Worked Solutions
Contents
Practice Final Examination 1 A2/2
Worked Solutions A2/11
Practice Final Examination 2 A2/17
Worked Solutions A2/30
This appendix contains two practice examinations which are indicative of the
type and level of material which appears in the Heriot-Watt University final
MBA degree examination. Students will note that there are minor differences
between the two examinations provided. In each case, however, the level of
difficulty, the total of marks awarded and the passing standard are the same.
The duration of the examination is 3 hours. The points value of each section is
shown. Within the total time of 3 hours students may allocate their time among
sections as they see fit. The pass mark is 50 per cent.
There is no choice in the selection of questions to be answered. In the objective
questions, no points are deducted for wrong answers.
For each question, a solution is provided which will allow students to assess
their performance. The examination serves two purposes: to test understanding
of the course and to provide information on standards required to pass the
university final degree examination.
The rationale for providing two examinations is that students who have
worked through the course, have taken the first practice examination and, on
the basis of their performance in that examination, are not satisfied that they
have attained mastery of the material, will be able to study the course again
and have a second opportunity to test themselves. Where the first examination
is satisfactory, the second may be used for additional practice.

Appendix 2 / Practice Final Examinations and Worked Solutions
Practice Final Examination 1

Scoring Your Exam
The Organisational Behaviour examination is in TWO sections:
A: Objective Questions
Questions each worth two points.
Total points available: 30 × 2 = 60.
B: Essay/Problem Questions
Questions each worth 60 points.
Total points available for examination: 240.
Pass mark = 50% × 240 = 120.
Section A: Objective Questions
Each question is worth two points.
1 Which of the following components of a manager’s job are most often

rewarded by the organisation?
A human and conceptual.
B technical and human.
C technical and conceptual.
D organisational and conceptual.
2 Why does organisational behaviour focus so strongly on the issues of

employee attitudes and employee behaviour on the job?
A human nature plays a permanent and significant role in organisational
productivity and goal accomplishment.
B the long history of unionisation in organisations has created this per-
spective in organisational behaviour.
C researchers who study work dynamics focus on how employee attitudes
and behaviour influence productivity.
D customers expect high quality service that is customised to their needs.

3 Which of the following most improves job satisfaction once lower-order

needs for employees are satisfied?
A challenging, demanding jobs.
B increased clarity in job descriptions.
C lengthening time delays between performance and feedback about per-
formance.
D improved employment benefits.
4 Which of the following is correct? Managers can develop organisational

commitment by all of the following EXCEPT:
A supervising closely and requiring the employee to focus on the task at
hand.
B creating work designs which emphasise team-work.
C acknowledging performance with meaningful rewards and prompt per-
formance feedback.
D participatively creating goals which achieve important organisational
outcomes and simultaneously develop the employees’ skills.
5 In the short run, which factor is LEAST related to the need for achievement?
A taking moderate risks in completing the job.
B requesting immediate feedback about performance.
C needing a promotion or a pay rise.
D pursuing meaningful goals at work.
6 Which of the following is correct? Expectancy is:

A a subjective belief that some level of effort on the job will lead to a
given level of performance.
B a subjective belief that a given level of effort will lead to a desirable
reward.
C a subjective belief that a given level of performance will lead to a
particular set of rewards.
D the degree to which an employee believes that his superior will provide
clear task instructions.
7 A soccer player, threatened with suspension from the game, stops using
foul language with the game’s umpires. He therefore avoids any unpleasant
consequence. What is this an example of?
A positive extinction.
B negative reinforcement.
C punishment.
D shaping behaviour.

8 Which of the following statements does not support behaviour modification

theory?
A the theory focuses on changes in psychological states.
B the theory emphasises the importance of providing timely feedback to
employees about their performance.
C the theory stresses the measurement and analysis of observable
employee behaviour.
D the theory relates to employees’ beliefs about connection between per-
formance and rewards.
9 Which of the following is correct? Skill-based compensation:

A discourages employees from seeking training.
B makes part of the employee’s compensation contingent on his acquisi-
tion of new job-related skills.
C rank orders positions in the firm relative to their difficulty and educa-
tional requirements.
D ties the acquisition of new job-related skills to increases in the cost of
living.
10 Why was scientific management so widely adopted by managers and their

organisations?
A it provided a way for companies to make work more interesting and
appealing without dramatically raising labour costs.
B it showed that financial incentives could be used to boost production
in jobs that were designed to be performed in the most efficient way.
C it was an accepted way to improve the communication of company
goals to rank and file employees.
D it proved to be a method of job design that could be used to greatly
reinforce competitive advantage based on superior service delivery.
11 Which of the following is correct? Gainsharing programmes:

A attempt to control labour costs through a formal system which helps
employees install labour-saving innovations.
B tend to work only when an enterprise is benefiting from expanding
sales.
C do not require employees to achieve better understanding of how their
work units contribute to the cost of goods sold.
D do not require a history of good labour–management relations in com-
panies to be successful.

12 An employee has just designed a new piece of software and completed the
debugging process on it. Which job content factor is MOST related to the
above statement?
A task identity.
B feedback.
C skill variety.
D task significance.
13 If employees get feedback about their performance by completing various

steps in their work, which of the following should they experience?
A responsibility for task completion.
B meaningfulness of work outcomes.
C knowledge of results.
D job satisfaction.
14 Characteristics of a self-directed team are:

I it can make decisions about changes in work methods.
II it creates its production schedules within unit goals.
III it is responsible for cross-training its members.
Which of the following is correct?
A I only.
B II only.
C I, II and III.
D Not I, II or III.
15 A team leader starts a meeting with the production team. In his introduction,
he notes the importance of high trust levels among team members and
why team members should be comfortable with providing and accepting
performance feedback among themselves. What stage of group development
is characterised by the leader’s comments?
A storming.
B norming.
C performing.
D forming.

16 Which of the following is correct? All of the following are properties of

group norms EXCEPT:
A a member may privately disagree with some aspect of work methods
in the group.
B the leader spends more time supervising the group if it has strong,
focused norms.
C norms develop for central and important beliefs of the group’s mem-
bers.
D some members of a group have more rights to deviate from established
group norms than other members do.
17 A workteam meets in its own time after its work shift. In the meeting the
team devises a plan to have members of the group explain their contribu-
tions to production method’s improvements at the team’s weekly meetings
with the plant supervisor. What aspect of individual team member behav-
iour would be less likely once this plan was implemented?
A social loafing or failure of team members to contribute resources to the
group.
B maintenance activities designed to make new members feel comfortable
in the team.
C task-structuring activities designed to increase team output.
D individual creativity in areas other than production methods.
18 Which of the following is correct? When members of a group assume that

all other members are in favour of the group’s course of action, we say that
the group is suffering from:
A mindguarding.
B self-censorship.
C illusion of unanimity.
D illusion of invulnerability.
19 How are the symptoms of groupthink in a project team different from the
defects in the decisions it makes?
A the symptoms of groupthink apply to group decision-making processes
and the defects in its decisions are tied to social loafing.
B the symptoms of groupthink apply to the composition or make-up of
the team while the defects in its decisions are tied to generating too
few solutions to a problem.
C the symptoms of groupthink apply to faulty decision-making processes
while the defects in its decisions may or may not result in a bad
decision.

D the symptoms of groupthink are unrelated to characteristics of the

team leader while defects in its decisions are directly related to team
characteristics.
20 Nominal groups:
I are highly structured.
II focus on personalities of group members.
III pressure members to reach consensus in decision-making.
A I only.
B I and II only.
C I, II and III.
D I and III only.
21 Which of the following activities resolves interpersonal conflict among group

members?
A process.
B task.
C job.
D maintenance.
22 Which of the following is correct? Leadership consideration behaviour is

most closely related to:
A initiating structure behaviour.
B building strong relationships with subordinates.
C having employees participate in decision-making.
D entrepreneurial behaviour.
23 According to the path-goal theory of leadership behaviour, a leader’s job is

to:
I clarify the path to work goals.
II reduce or remove obstacles in the path of employees who are trying to
perform well enough to obtain valued rewards.
III where appropriate, involve employees in decisions.
A I only.
B III only.
C I and II only.
D I, II and III.

24 Neutralisers of the effectiveness of the leader’s initiating structure behaviour

are:
I subordinates’ expertise and job knowledge.
II task confusion and conflicting work expectations.
III flexible rules and non-routine work demands.
A I only.
B I and II only.
C II and III only.
D Not I, II or III.
25 Which of the following forms of departmentalisation helps develop special-

ists or experts?
A product.
B matrix.
C functional.
D territory.
26 Which of the following is correct? The matrix design would be least effective
when:
A special projects need to be done.
B the organisation needs to energised.
C the company’s market is stable and unchanging over time.
D co-ordination needs are complex in the company.
27 Diagnosis in organisational development is:

I expensive.
II time consuming.
III vulnerable to management’s desire for quick action.
A I only.
B I and III only.
C II and III only.
D I, II and III.

28 The Xlogic Company decided to start a process to reduce the time necessary
to assemble component parts. A task-force of employees managed by an
individual performed the following problem-solving activities: (a) recog-
nise and define the problem; (b) develop problem-solving processes; (c)
implement the proposed change; and (d) measure and evaluate the results
of the change programme. In OD terminology, what would the managing
individual be called?
A a task-force manager.
B a consultant.
C a senior programme manager.
D a change agent.
29 A company has changed its assembly-line-based production system to a

computer-based system that uses self-managed teams to do all production
tasks and set production schedules and deal directly with customers. As
the programme implementation went on, managers organised a group to
get clarification about their changing responsibilities, job training and job
security from the plant’s top managers. As a change agent responsible for
the programme, what type of problem might you suspect will come from
the group of supervisors and department heads?
A weak or ineffective diagnosis.
B poor problem recognition or definition.
C resistance to change.
D failure to institutionalise change.
E groupthink.
30 An externalising employee who is experiencing job burnout would increase

his job performance the most if:
A his supervisor gave him more job-based authority to make decisions.
B his co-workers evaluated his performance.
C he was extensively cross-trained.
D his supervisor created highly structured work assignments with regular
performance feedback meetings.
E his supervisor introduced flextime in the employee’s department.
Section B: Essay/Problem Questions
Each question is worth 60 points.
1 ‘Organisations have to meet the challenge of change by adopting sev-

eral strategies.’ Describe these strategies. Consider what qualities a good,
planned change programme has and outline the steps in the planned change
process.

2 Identify the important features of employee involvement in decision-making

and discuss the issues which managers must take into account if they wish
to use more effectively employee involvement in decision-making.
3 Ulie Nemer is a 56 year-old financial planner in a investment services

business in London. Her company has long supported its numerous veteran
planners who wanted to lessen their efforts at attracting new clients in
favour of using their skills to retain the firm’s existing customers as they
approached the end of their careers. Recently the board hired a new CEO,
in his late 40s, and he promptly changed this policy. In a staff meeting
he said: ‘It is growth or else, and there is no room for long-term, senior
planners to ease up as they approach the end of their careers.’
What would likely organisational and employee effects of this new policy?

Worked Solutions
Section A: Answers to Objective Questions
1 C. Organisations place the greatest value on the manager’s technical and

conceptual skills. These skills determine who gets hired and who gets
promoted. The skill area often overlooked in hiring and promotion decisions
is human resource management.
2 A. Organisational behaviour tries to explain the effects of human behaviour,

motives and attitudes on the performance and effectiveness of organisations.
3 A. Since the employees’ maintenance needs are satisfied, choices B and

D can be ruled out because they refer directly to lower-order need sat-
isfaction. Choice C is illogical. Choice A is preferred since it emphasises
the importance of job challenge which is a higher-order need related to
self-actualisation.
4 A. The definition of organisational commitment stresses: (a) willingness to

expend personal effort on behalf of the organisation; (b) a personal belief in
the values of the organisation; (c) the desire to preserve membership in the
organisation. These three qualities would be heavily supported by choices
B, C and D.
5 C. Choices A, B and D are all behavioural characteristics of an employee

with a high need for achievement. While pay rises and promotions would
be very important to him in the long run, he would be much more involved
with intellectual challenge, meaningfulness and risk-taking in the short run.
6 A. Expectancy is the subjective belief that a given level of effort (motiva-

tional force to perform) produces a given level of performance. Choice B is
meaningless because it does not specify the nature of the first-level outcome.
Choice C refers to instrumentality while choice D is unrelated to the concept
in the question.
7 B. Since the avoidance behaviour is strengthened, negative reinforcement

has occurred. The player has learned how to avoid the unpleasant conse-
quence of suspension from the game.
8 A. Behaviour modification predicts and controls behaviour without reference

to inner states of mind. The person’s environment gets credit for strength-
ening or weakening behaviour by virtue of the consequences it provides
for behaviours. The other three choices are highly applicable to behaviour
modification.

9 B. Skill-based compensation provides an economic incentive for acquiring

more job-based skills. The organisation gives a pay rise or a bonus when
an employee completes a training programme which makes him a more
versatile employee. Choice A is irrelevant while choice C refers to an
element of job analysis. Choice D is also meaningless.
10 B. It appeals to managers who believe that organisations can be machine-

like and manufacturing efficiency can be raised by using piece-rate pay
systems. It implies that the control (and motivation) of the work-force is a
matter of effectively using financial incentives.
11 A. Gainsharing programmes use teamwork and innovation to lower labour

costs by finding more efficient and effective production methods. Employees
earn team-based bonuses when their work units produce a given level of
output at a given level of quality with fewer man-hours. The typical bonus
cycle is one month.
12 A. Doing a job from beginning to end represents the reverse of job speciali-
sation according to the Job Characteristic Model. Task identity is the relevant
job content factor. The other three choices represent other job content factors
in the model.
13 C. This question ties job content factors to critical psychological states in the
Job Characteristic Model. The psychological state which goes with feedback
is knowledge of results.
14 C. Autonomous work groups (self-directed teams) have all three character-

istics. These three are not exhaustive. Module 5 describes many other forms
of autonomy which may be assigned to them.
15 B. These comments show the emergence of norms governing behaviour

in a group. Personal issues are still relevant (being open to performance
feedback). The leader emphasises trust, which is the building block for all
norms about collaboration.
16 B. A key function of norms in groups is to summarise and streamline

the influence process. If a group has a rigorous structure of norms then
the leader would have to spend less time closely supervising members’
behaviour. Choices A, C and D are all properties of group norms.
17 A. Team members want the full effort of all members so a special norm is
created for members’ contributions in the weekly meeting with the plant
superintendent.
18 C. When a group loses its ability to evaluate alternatives it is too cohesive.

Conformity is stressed too heavily by the group. This condition leads to
groupthink. The assumption of consensus by individual members under
conditions of groupthink represents the illusion of unanimity.

19 C. Any project team may be deeply mired in groupthink. However, the

problem-solving potential of the team may be so high that actual decisions
are excellent in spite of the groupthink
20 A. Nominal groups are formed to follow a very structured procedure to

identify the fundamental features of a problem. It: (a) is highly structured;
(b) ensures participation; (c) prevents dominance by key group figures; and
(d) prevents conformity.
21 D. Maintenance activities in groups prevent process losses triggered by inter-

personal conflict and disagreements. Formalising the role of the interper-
sonal conflict resolver allows the group to get back to performance-related
matters.
22 B. Leadership consideration behaviour is leader behaviour which focuses

on the personal needs and welfare of subordinates. It includes open-door
policies, encouraging esprit de corps in groups and helping subordinates
with personal problems. Such behaviours would certainly create strong
relationships with subordinates. The other three choices are legitimate leader
behaviours, but they do not directly relate to leadership consideration.
23 D. All of these leader behaviours are components of the path-goal theory

of leadership. These outcomes may occur when a leader selects the four
behaviours shown in the theory.
24 A. Subordinates’ expertise and their job knowledge neutralise the leader’s

initiating structure behaviour. Choice A is another way of saying that
employees can create their own successful work methods.
25 C. Functional designs group jobs together by common work activities. Once

an employee is assigned to a particular function, he will have ample oppor-
tunity to learn all the nuances of work in that function. This design provides
the greatest opportunity for an employee to specialise in a particular aspect
of work in the organisation.
26 C. Matrix designs purposely create heterogeneous project or product teams

to handle the turbulence in dynamic, unstable and uncertain business envi-
ronments. They are highly effective when special projects need to be done
or the organisation needs to be energised because it is not effectively com-
peting.
27 D. Diagnosis in OD helps separate the causes of organisational problems

from their symptoms. If the diagnosis is thorough, it will be costly, time
consuming and vulnerable to management’s need for quick results. This
can lead to treating the symptoms of problems instead of their true causes.
28 D. This person is a change agent because the task-force’s steps are elements
of the process of planned change.

29 C. A change agent would have to be prepared to address the supervisors’

concerns about their job security, economic security and positional authority.
These managers have good reason to be worried.
30 D. The externalising employee is experiencing so much job stress that

his performance is rapidly deteriorating due to the combined effects of
psychological withdrawal from work and his declining coping capacity.
More structured work with specific instructions from the supervisor could
significantly reduce the level of stress he experiences and his performance
would return to an acceptable level. At the same time, his symptoms of job
burnout would probably vanish.
Section B: Answers to Essay/Problem Questions
1 In order to survive, organisations must adapt and change. These changes

may be good or bad but the way they are introduced is crucial, especially for
the profitability of the company and the morale of the work-force. Organi-
sational change may occur in response to either external or internal stimuli
or both. To meet the challenge of externally induced change, organisations
may follow several courses of action. First, they may change their goals
and strategies. This could comprise offering a new product or service or
targeting new markets. Second, they may introduce new technology along
with downsizing to reduce costs and work redundancy. Finally, the organ-
isation may redesign itself from a functional to a product-design structure.
This change strategy may also involve decentralising into smaller operating
units.
When the stimulus for change is triggered by internal forces such as low pro-
ductivity, high absenteeism, high labour turnover and increased grievance
and discipline problems, organisations use other means. These may include
redesigning jobs to include more variety, autonomy, feedback, significance
and social interaction. The organisation may alter its recruitment policies
to bring new blood into the company or try a retraining programme to
change the skill mix of its work-force. Finally, the organisation might alter
its appraisal and reward systems to encourage new employee behaviours.
Companies which can change their cultures quickly enough to meet new
business requirements are likely to survive and prosper. However, there are
three conditions which must be fulfilled in order for a successful corporate
transition to be implemented. First, employees must be dissatisfied with
the status quo. Second, the organisation must have a vision for the future
which will guide the redesign process and give the work-force a sense of
purpose and direction. Third, the process of change has to be well managed
in order to exploit the potential of the other two conditions.
Successful planned change has several characteristics. For example, it is
focused on a whole organisational unit. The ‘knock-on’ effect of changes to
a subunit can be counter-productive if other parts of the unit are affected in

ways which were not foreseen. It is also based on behavioural science know-
ledge. Change managers have to be aware of how the content, pace and
extent of changes will affect and be affected by the behaviour of employ-
ees. Finally, the change requires its primary goal to be the improvement of
organisational effectiveness.
Lewin has suggested that the planned change process should follow a
sequence of organisational events. These events are unfreezing, changing
and refreezing. Unfreezing occurs when people in the organisation realise
that the current systems do not achieve strategic goals. Often the CEO
decides the time is right for a change. This is a top-down approach and
its focus is on putting procedures in place to involve the work-force in the
change. However, sometimes the push for change comes from employees
and it may have been uncovered during a regular employee attitude survey.
Once unfreezing occurs, action plans are developed to move the organisation
and its work-force towards a new model. Refreezing occurs when the change
is fully functional and it is at this point that the company needs to review
the whole process.
2 Employee involvement in decision-making is rapidly widening to almost all

issues of productivity, performance, product quality and customer service.
Any of these decision areas requires that employees demonstrate the three
aspects of effective participation in decision-making. The first is that the
employees are mentally active in the decision-making process so that they
can think creatively and experience job involvement for meeting job chal-
lenges in the areas noted above. When these higher-order needs are being
satisfied they are unlikely to indulge in avoidance behaviour or social loaf-
ing. The purposeful element in participation is in itself a motivating device
and is a second dimension of participation (intrinsic motivation). It can
encourage employees to make personal contributions to their organisation.
When the organisation’s social system meets the employee’s belonging needs
and the technical work system presents him or her with challenging and
meaningful work, the conditions are right for creating the motivation to
contribute. This employee motive can be improved through delegation of
authority to employees or their self-directed teams. The third dimension
involves shifting managerial authority to influence. Employee involvement
works best in delayered, System 4 organisations. In them, employees must
have a larger zone of indifference to managerial initiatives. Their zones
of indifference expand when managers use influence rather than author-
ity. When employees experience the greater control which accompanies
empowerment they (or their self-directed teams) are more willing to accept
delegated authority.
Leaders of self-directed teams should use the diagnostic questions from
the Vroom–Yetton–Jago Normative Model. These question areas include: (a)
the importance of quality in the decision; (b) the amount of information
possessed by the leader; (c) the importance of time pressure impinging
on the decision; and (d) the extent to which subordinates’ support for the

decision is related to its success. Employee empowerment cannot be suc-

cessfully installed in organisations that have histories of labour unrest or
poor relations with unions. Installing participation and employee empow-
erment is generally easier to do in start-up operations but it can still be
done in established operations if managers and employees are committed
to the principles of System 4 organisations. If the culture of the organisation
values adaptiveness, then empowerment and participation will be embraced
by the work-force. Managements should have a plan in mind that shows
how empowerment and participation will increase competitive advantage
through these more enlightened work-force management practices.
Employees must view empowerment and participation as central to their
work and not as an intrusion. If they work in self-directed teams they must
receive the cross-training to tackle any problems in their team’s work. In the
delayered organisation, team members must also receive training in those
skill areas that improve team problem-solving in areas such as product and
service quality and production process control.
Finally it is important that neither managers nor employees feel that empow-
erment and participation are simply management attempts to cut costs by
making self-directed teams do more work. It is inevitable that various inter-
est groups, for example trade unions, may view employee empowerment
with some fear of its consequences; but once the company has embarked on
empowerment there will not be an opportunity to return to the status quo,
and managers need procedures to anticipate and deal with any problems.
3 There are a number of predictable outcomes that would affect Ulie and her
fellow, senior employees. The most prominent effect would be an immedi-
ate decline in job satisfaction because veteran planners would experience
declining motivation as they realise that there now much less performance
benefit from providing excellent service to the firm’s existing clients. Veter-
ans’ satisfaction with intrinisic and extrinsic rewards would taper off and
serious damage would be done to their previously high levels of organi-
sational commitment. Equity theory predicts that senior planners like Ulie
would be extremely dissatisfied with their treatment under the CEO’s policy.
The veterans would place high value on their skills and wide experience
base compared to the rewards they receive while more aggressive but less
qualified junior employees would receive higher pay and bonuses.
The unbalanced equity situation noted above could trigger an exodus of
senior employees if the firm hit a slow sales period and had to offer an
attractive retirement package to reduce its high fixed costs. The senior
planners are already smarting from the obvious age discrimination that
is evident in the firm. If the firm had to reduce its labour costs, these
employees would jump at the chance to quit if they were offered even a
modest severance package. Once they are gone, the knowledge of the senior
planners would have gone with them. This could seriously undermine the
loyalty of long-term clients to the firm. In a downward spiral, the firm could
watch helplessly as valued clients (and their future investmentsk depart the
firm thereby triggering more downsizing and service cutbacks.

Practice Final Examination 2

This exam is constructed to be of the same standard as the first mock exam.
You will find a short bonus case at the end of the exam. It has 8 multiple choice
questions that are each worth two points.
Scoring Your Exam

A: Objective Questions
B: Essay/Problem Questions
Questions each worth 50 points.
C: Case Study
Total points available for examination: 240.
Pass mark = 50% × 240 = 120.
Section A: Objective Questions
1 Organisational behaviour is considered a:

A discipline.
B field.
C science.
D philosophy.
2 What feature(s) of the field of organisational behavior make(s) it a valuable

contributor to the knowledge bases of managers who must increase the
performance of their organisations?
A it explains the relationship between an organisation’s strategy and its
structure.
B it concentrates on transaction costs that influence the relationship
between companies and their rivals.

C it concentrates on how organisational effectiveness is influenced by the

behaviour of individuals and groups and the structure or design of the
organisation.
D it concentrates on how resources are deployed throughout the organi-
sation to take advantage of market opportunities.
3 The matrix design does not respond to induced uncertainty.

A internal
B external
C technologically
D motivationally
4 Which of the following forms of departmentalisation will help develop

specialists or experts?
A product
B matrix
C functional
D territory
5 Motivation refers to:

A needs experience of people.
B goal-directed, purposeful behaviour that is expressed by the individual.
C the direction of behaviour after a need has surfaced.
D the amount of functional analysis experienced by an individual.
6 The expression B = f (P, E) means:

A behaviour is a function of physical arousal and effort.
B behaviour is a function of physical arousal and environment.
C behaviour is a function of person and environment.
D behaviour is a function of processes and energy.
7 MBO is a(n):
A theoretical interpretation of expectancy theory.
B practical application of expectancy theory.
C practical application of behaviour modification.
D application of job enrichment techniques.

8 Punishment is a questionable scheme for changing work behaviour because

it is:
A painful.
B necessary to follow it with a desired reinforcement to be effective.
C necessary that valued rewards be taken away from people.
D a cause of apprehension and leads to a tension-filled work atmosphere.
9 A mid-range approach to job design that would fit the differences that exist
among employees is to:
A consider the importance of higher-order and lower-order needs.
B develop job descriptions and encourage employees to move to more

satisfying jobs within the organisation.
C partition jobs into discretionary and non-discretionary tasks.
D match the employee’s job interests with a job’s requirements.
10 A company will normally resist the idea of a job enrichment programme

because:
A many employees prefer jobs which are routine and specialised.
B job enrichment is a short-term strategy.
C few studies support job enrichment’s claim of higher employee satis-

faction and motivation.
D implementation tends to be weak and individual differences are ignored

in job enrichment schemes.
11 In the Exeter company the following conditions have surfaced:
(a) morale is low; (b) the grievance or complaint rate by employees is

rising; (c) production delays are mounting; (d) rumours of a downsizing are
circulating; and (e) absenteeism is increasing.
To improve the situation management should:
A establish open communication with top management so that employees

can have their questions answered honestly.
B replace employees who are regularly absent.
C spend more time visiting employees at their job sites.
D start a programme of employee involvement to improve employees’

opportunities to satisfy higher-order needs.

12 A new product development team exhibits the following characteristics:

(a) members do not voice their concerns about product safety features
to other group members; (b) the members believe that the company’s
competitors are less innovative and slower to develop new products; and
(c) members believe that their company’s dominant market share in the
product’s category is not vulnerable to rival firms. What is the problem that
this team suffers from?
A failure to achieve the motivation and commitment stage of group devel-

opment.
B the members of rival organisations are social loafers.
C the product development team wishes to avoid risk.
D the product development team exhibits groupthink.
13 High Machiavellian managers tend to:
A believe that some people are inherently better than others.
B emphasise the effects of rules and regulations on others.
C have well-developed higher-order needs.
D take advantage of others if it suits their needs.
14 Which of the following is true about expectancy theory?
A ability has a variable effect on performance.
B people are motivated by the probability that feedback will occur.
C people are motivated to choose behaviours which will help them satisfy
their needs.
D people are motivated to satisfy their expectations.
15 John has been ill for six weeks. He is back at work, but is still feeling the
effects of illness. His annual review is scheduled for next week. The review
should:
A be postponed until he has caught up with his office work.
B be held as scheduled, but his superior should acknowledge that his

illness has affected his performance.
C disregard his recent illness, because it could jeopardise his future pro-
motion.
D disregard his illness, since performance reviews concentrate on produc-

tivity and performance.

16 A company starts to cross-train employees to make them more effective as

members of self-managed teams. Along with this training, the company
also improves the safety of working conditions and makes them less hot
and humid. Finally, the company instals a review and appeal system to
consider any employee’s performance review if the employee thinks it is
unfair. What is the organisational development classification that ties the
three programmes together?
A process organisational change.
B task-technological change.
C group and individual change.
D horizontal job loading and quality of work life programmes.
17 Behaviourally anchored rating scales emphasise:

A individual performance skills which influence performance.
B actual job behaviours which represent aspects of effective and ineffective
job performance.
C the transferability of job skills from one job to another.
D the importance of evaluating employees for needed training.
18 One of the disadvantages of open-salary information is that it:

A increases employee job satisfaction.
B exaggerates pay perceptions.
C overcomes the pressure to pay all employees the same.
D is time consuming to implement and maintain.
19 Which types of power are non-transferable?

A expert and referent power.
B reward and referent power.
C coercive and legitimate power.
D expert and legitimate power.
20 A group of executives is discussing the general characteristics of the self-

managed teams in the company’s subsidiaries. One executive described
a team in these terms: (a) the members have a clear understanding of the
team’s mission and purpose; (b) members evaluate each other’s performance
and they take corrective actions based on these evaluations; and (c) the team
members have agreed to rotate the responsibilities of team leadership. What
type of group is being described by this executive?
A a formal group.
B a mature group.
C project team.
D a total quality management team.

21 Designing and implementing a BARS performance appraisal system would

be an example of a(n) organisational development intervention.
A individual level
B system-wide process
C unit-level process
D group-based
22 The manager of an information systems unit found that his self-managed

teams were having trouble in several work areas. For instance, he often
found himself being asked to attend meetings to help several teams set
goals and manage priorities. For two teams he had to intercede to resolve
personal conflicts among their members. If you were a change agent, what
organisational development method would you recommend to him to attack
these types of problems?
A team-building.
B quality of work life programme.
C incentive system management.
D T-group approach.
23 Which of the following is not true about team-building?

A it often takes a long time to be successful.
B it shares methods with the training group approach.
C it requires a facilitator.
D it focuses on actual problems which confront the task group.
24 The task-force in charge of an OD programme designed to improve customer

service and satisfaction used employee focus groups to identify those areas
of customer service that could be simplified to reduce the time necessary to
handle customer inquiries. As the programme moved into its training phase,
senior managers in technical field services trained employees in customer
service to diagnose customer problems over the phone. As this phase of
the programme was implemented, the task-force sought feedback from
customer service reps who had been trained by the technical field personnel.
What was the task-force trying to accomplish by involving employees from
customer service in these ways?
A the task-force was trying to take a holistic view of organisational change.
B the task-force was trying to reward the customer service representatives
who had been trained.
C the task-force used participation to minimise problems of control, resist-
ance and job redesign.
D the task-force was trying to impress top management.

25 Which of the following groups helps members understand how they are
perceived by other members of the group?
A T-groups.
B self-directed teams.
C project groups.
D team-building groups.
26 Which leadership style focuses on employee needs for having satisfying

co-worker relationships?
A team management.
B country club management.
C organisation management.
D authority-obedience management.
27 Internally oriented individuals, that is, individuals with a high internal

locus of control, are characterised by:
A high susceptibility to group pressures.
B membership of the better educated and higher income level groups.
C preferring rewards such as pay and job security.
D remaining static on the career ladder.
28 A company has been acquired in a friendly merger by a well-funded,

larger competitor. The employees in the acquired company are told that its
mission statement and goals will be altered to match those of the larger
firm. They also learn that all of their usual work procedures will be altered
to match those of the larger company. These changes in the firm that has
been acquired may trigger problems in:
A widespread groupthink in the company that was acquired.
B merging the cultures of the two organisations.
C risk-shift for employees in the company that was acquired.
D inability to delegate responsibilities to employees in the company that
was acquired.
29 For an organisation that needs to be flexible due to rapidly changing market

conditions, which organisational structure is the most appropriate?
A product.
B functional.
C matrix.
D Systems 2.

30 The following activities were currently under way in a company improve-

ment programme:
I A task-force of employees was providing production employees with

feedback from a questionnaire that they had completed two weeks ago.
II Change agents were showing top managers how company performance

was influenced by high turnover rates in two production facilities.
III Department managers were in a meeting with change agents who were
showing them how product defect rates were increasing along with
materials costs.
What aspect of organisational change do these activities represent?
A forces for change.
B transition management.
C unfreezing.
D systems process change.
31 Top managers explained to a change agent that they felt the company’s
high grievance rate in the production division explained declining product
quality and higher levels of waste in fabrication. They also said that they
wanted a solution to this problem which minimised the involvement of
production employees. The change agent responded by saying: ‘That should
not be a problem. I can develop for you a complete programme that
will accomplish your goals.’ How would you describe the change agent’s
behaviour here?
A the change agent is violating basic ethical considerations in organisation.
B the change agent is trying to avoid doing a problem diagnosis.
C the change agent is neglecting external explanations for the problems.
D the change agent is acting too much like an expert.
32 The manager who is attempting to reduce role ambiguity experienced by

his subordinates would:
A allow them more control of work schedules by starting flextime.
B develop a weighting scheme to distribute high-urgency tasks or projects.
C ask them about their preferences for certain rewards when they perform
well.
D clarify their task understanding by giving examples to them of excellent

performance on the job.

33 Which answer most accurately sums up the Type A personality pattern?

A the Type A person struggles with an underlying urge to be hostile and
angry.
B the Type A person need not experience heart disease or high job stress
because of his impatience and high degree of competitiveness.
C Type A persons can easily become Type Bs through relaxation exercises.
D organisations should screen out Type A employees because they are
more likely to burn out on the job.
E due to their impatience and competitiveness, Type A employees always
have a negative effect on the performance of their peers.
34 Which ONE of the following statements is true?

A Kirkpatrick has suggested three sets of criteria can be used to evaluate
training programmes.
B There is no single best set of evaluation criteria for all training situations.
C It is much more important to evaluate management training systemati-
cally than training for other groups of workers.
D T-group training focuses on technical skills, rather than interpersonal
skills.
35 Which ONE of the following statements is true?

A The work participation method of job analysis consists of the analyst
watching job-holders perform key tasks.
B Blum’s formula can be used to decide which is the best method of job
analysis for any given situation.
C The group interview method of job analysis is less time consuming
than the one-to-one method.
D Job analysis should not be used to identify training needs.
36 Which of the following choices should be strongly linked to executive

compensation?
A The firm’s profitability and market value.
B The cost of living increases experienced by executives.
C Salary surveys of executive compensation authorised by boards of direc-
tors.
D Factors other than the profitability and market value of the firm.

37 The following company features exist: 1) only upper management partici-

pates in an ISO plan; 2) upper management decided to lower the exercise
price of the options as the company’s stock declined; 3) the firm uses self-
directed teams covered by a Rucker Plan; and 4) along with the changes to
option values upper management announced the use of higher payroll costs
due to the increased use of temporary workers. The effects of these actions
on line-of-sight for employees on the self-directed teams would most likely
be which of the following choices?
A Improved line-of-sight because the company does not have to pay
employment benefits to the temporary workers.
B Improved line-of-sight because it would now be easier to earn the
gainsharing bonus.
C Reduced line-of-sight because the self-directed teams would experience
the use of temporary workers as making it more difficult for them to
influence the value-added to production.
D All of the above.
Section B: Essay/Problem Questions
Each question is worth 50 points.
1 Job satisfaction is a complex concept which managers should monitor con-

stantly. Discuss.
2 Consider why individuals join groups. Identify the characteristics of cohe-

sive self-directed teams and discuss what managers can do to make team
cohesiveness a contributor to improved competitive advantage.
3 Discuss the economic pressures that may force the Japanese keiretsu to
modify their traditional business practices.
Section C: Case Study
Instructions: Read the following case and answer the questions that follow it.
Employee Empowerment at Fiberex
The Fiberex Corporation makes electronic signal switching equipment for large
communications firms. The firm sets up its production activities into long assem-
bly lines at its five domestic plants in the United States. The company is two
months away from completing a sixth manufacturing facility near Chicago and
company managers want to experiment with new work methods and employee
empowerment at the facility. Because the company’s work-force is unionised,

labour representatives are a part of a team that is designing the work system and
employment rules for the new plant. Besides the two union representatives, the
17-person team has two production managers, two product development engi-
neers, a customer service manager, four production supervisors, three production
workers, two total quality management specialists and the plant manager. The
decisions made by the team are subject to corporate approval, but the team
believes it has sweeping authority to make wide-ranging suggestions for work-
system design at the new facility. Since the company is experiencing increased
competition from global firms that have entered Fiberex’s national market, man-
agement is anxious to develop a more productive work system that has lower
labour costs.
The team has made its recommendations for the work system at the facility to
management. If its recommendations are approved, the plant manager and his
staff will carry them out immediately so that the work-force would be in place
when the plant is opened. A summary of the team’s recommendations is shown
below.
1 Employees are guaranteed 32 hours of work per week, but they must work
overtime during periods of peak demand, and during slow periods they
may have to perform other jobs specified by plant management.
2 Training and development teams made up of plant supervisors and produc-
tion employees develop and deliver all technical and organisational training
programmes.
3 All employees in the facility receive 100 hours of training during the first
six months of plant operations. Half the training is in company time and
the other half is in the employees’ time.
4 Any labour grievances are handled by a committee of plant supervisors and
workers who are elected to two-year positions by the plant’s employees.
5 Production work is delegated to self-managed teams with responsibility for
production levels, model changes, quality and efficiency improvements and
cost control.
6 Self-managed teams evaluate their performance and the contributions of
team members. Member evaluation criteria include members’ skill levels in
core team activities, contributions to quality improvement and cost control
and support of team production goals.
7 Bonuses are paid to teams who meet production goals and member pay
rises are based on: (a) team production standards approved by management;
(b) level of skill acquisition; (c) peer reviews; and (d) quality improvement
suggestions.
8 After two years of production experience, employees can bid for jobs
throughout the plant.

Case Study Multiple Choice Questions
1 Which philosophy or approach to job design is contributing the least to the

work system design in the new plant?
A job enrichment, as developed in the two-factor theory.
B horizontal job loading as suggested by job enlargement, job rotation
and cross-training.
C scientific management.
D self-directed work-teams.
2 Which set of outcomes would be the first to be influenced by the work-

system design practices in the new plant?
A job security, job satisfaction and work-team goal-setting.
B job absenteeism and lateness for work.
C company loyalty, satisfaction with pay and job involvement.
D grievances, safety violations and customer complaints.
3 What job design principle is most closely related to plant work-design

activities number 5 and 6?
A give employees a whole job to do from beginning to end.
B vertically load the job so that employees have control over the planning
and doing portions of work.
C rotate employees among various jobs to lessen job monotony and bore-
dom.
D give employees control of the performance feedback process so that
they can make improvements in product and service quality.
4 Which level of Maslow’s hierarchy would be most influenced by plant

job-design activity number 1?
A self-actualisation.
B self-esteem.
C belongingness.
D safety and security.
5 What team description best fits the description of the 17-person work-design
team at the plant?
A a cross-functional task-force.
B a self-managed production team.
C a permanent command group.
D a project team.

6 What is the employees’ perception that would be most strongly influenced

by work-system design activity number 4?
A distributive and procedural fairness.
B effort-to-performance.
C performance-to-reward.
D fairness of supervision.
7 What is the least accurate way to describe the intent of the job-design
activities undertaken in the new plant?
A the job design activities use horizontal and vertical job loading.
B the job design activities are attempting to develop strong and ambitious
norms about levels of team effort and member performance.
C the job design activities are seeking the most economically efficient work
system configuration based on work simplification and specialisation.
D employees working in this plant could expect to find considerable job
range in their work.
8 Which statement is most true about the company’s experiment with new
work methods and employee empowerment at the new facility?
A top managers are primarily interested in creating a new organisational
design.
B company executives and plant managers recognise that it is easier to
create new work systems in start-up operations which require a newly
recruited work-force.
C the work-design activities are most closely aligned with a behaviour
modification perspective.
D the company is trying to design a production facility that avoids the
problems associated with work-force diversity.

Worked Solutions
Section A: Answers to Objective Questions
1 B. Organisational behaviour is the study of human behaviour, attitudes

and performance within organisations and it is an interdisciplinary field,
drawing on concepts from psychology, sociology, cultural anthropology etc.
2 C. The three major aspects of organisational behaviour are individual behav-

iour and attitudes, group dynamics and organisational structure and design.
3 D. The matrix design allows a company in an uncertain environment, with

rapid internal, external or technological change, to respond quickly to these
uncertainties.
4 C. The functional design has work units where employees perform aspects
of the same function. Thus, it uses specialisation, and creates experts or
specialists.
5 B. In everyday language, motivation refers to goals that involve desired

outcomes, social processes that involve influence and mental processes that
involve decisions and which cause a behaviour to be expressed.
6 C. Kurt Lewin proposed that the behaviour of an individual is caused

partly by the make-up of the individual and partly by his environment.
This relationship can be expressed by the formula B = f (P, E), where B =
behaviour, P = person and E = environment.
7 B. Management by objectives (MBO) connects managers and their subor-

dinates in setting goals for work performance and personal development
within a specified time period, at the end of which they meet to assess the
subordinates’ success in attaining the goals. It is a practical application of
expectancy theory, which suggests that people expend job effort when they
believe that they can achieve the things they want from their jobs.
8 D. Punishment is the application of an undesirable event that follows a

behaviour which it is intended to eliminate. However, it often produces
a conditioned fear in employees of the manager who is administering
the punishment. This can result in undesirable, emotional reactions in the
employees.
9 A. Individuals react differently to attempts to improve the design of their

jobs because of variations in their knowledge and skills, growth need
strength, satisfaction with their work environment etc. It is not often possi-
ble to design jobs in such detail as to fit each individual employee’s needs.
A compromise for managers is to attempt to meet the individual employee’s
higher-order and lower-order needs, which can be done other than through
the job itself.

10 D. Job enrichment is concerned with efforts to make a job more interest-

ing by providing the job-holder with more autonomy and decision-making
responsibility, i.e. by increasing the depth of a job through vertical load-
ing. One of the major reasons for many companies’ negative views of job
enrichment is that such schemes have previously failed. This has often been
a result of neglecting to ask employees to participate in the job enrichment
scheme, and because of lack of managerial and trade union support.
11 C. Where an organisation is subject to these conditions, it is clear that man-

agement must take action. Solution A is impractical. Solutions B and D will
not meet employee concerns about downsizing, nor will they determine the
reasons for the increasing production delays. By walking about and meeting
employees, management can attempt to determine why the problems stated
are occurring and, where possible, make appropriate changes to improve
the situation.
12 D. The three characteristics of the project team are symptoms of groupthink.

The presence of these symptoms does not mean the team will take a poor
decision. They suggest only that the potential for a poor decision exists.
13 D. Machiavellian managers are socially domineering and manipulative and

engage in more political behaviour than their colleagues. Solutions A, B and
C can apply to any type of manager, but continually taking advantage of
others where it suits their needs is especially applicable to managers who
are highly Machiavellian.
14 C. The most widely cited version of expectancy theory is that of Victor

Vroom. His model of expectancy theory suggests that the psychological
force on employees to exert effort (i.e., motivation) is a function of their
expectancies about the future and the valence or value to them of the
specific future outcomes. People choose behaviours which help them satisfy
their needs.
15 B. Solution A may result in recency error. Solution C is not appropriate to

an appraisal interview. Solution D does not take into account the effects
that illness may have had on John’s performance. The appraisal interview
should be held as scheduled, with the appraiser taking into account the
possible negative effects upon John’s performance of his recent illness.
16 D. As Herzberg would say, these are all useful improvements in work

context or job hygiene. As such, they do not challenge employees or involve
them more in their jobs.
17 B. Behaviourally anchored rating scales (BARS) use examples of employee

behaviour as anchors for performance dimensions. They are developed by
rating specific behavioural incidents and rating employee performance as
high, moderate or low on specific scales.

18 D. Solutions A and C are advantages of open-salary information. Solution

B is the reverse of what is found. An organisational problem related to
open-salary information is that it takes resources both to implement such a
policy and to ensure its maintenance.
19 A. Power is the capacity to influence the behaviour of others. The forms

of power described in solutions B, C and D can be transferred in part or
in whole by the organisation to an individual employee. However, expert
power is the ability to influence others’ behaviour because of the skills,
talents and knowledge one possesses, and referent power is an individual’s
ability to influence others’ behaviour as a result of being liked or admired
by others. Such a combination of power cannot be given to an individual
by an organisation.
20 B. All of the descriptions suggest a team that has full control of its decision-
making processes, is cohesive and productive and focuses its energies on
goals and task activities.
21 C. Organisational development attempts to change an organisation as a

whole by changing its structure, technology, people and/or tasks. If part
of such an intervention was the introduction of a performance appraisal
system based upon BARS, it would only be worth while developing and
introducing such a system at the unit level.
22 A. Team-building is the best choice because it concentrates on improving

problem-solving processes in work groups. A T-group approach is too
personal and the other two are wide of the mark.
23 B. The purpose of team-building is to help existing or new work groups to

improve their performance by tackling real organisational problems and
obstacles. In team-building, it takes time for group members to work
together as a team, and change agents are required. The training group
(or T-group or sensitivity training) approach seeks to enhance employees’
understanding of their own behaviour and its impact on others.
24 C. By demonstrating its interests in employee expertise to solve problems

in customer service delivery, management has created a powerful source
of dissatisfaction with the status quo. Management’s use of participation
shows employees that they have less to fear in the process of organisational
change.
25 A. Quality circles meet to discuss product quality. Project groups are set up
to do certain project work. Team-building groups diagnose how they work
together and plan changes to improve their effectiveness. The purpose of
bringing people together in a T-group is to increase their self-awareness and
sensitivity to others.

26 B. The four solutions all relate to the Managerial Grid concept of leadership.
Team management relies on interdependence through a ‘common stake’ in
the organisation; organisation management aims at balancing the need to
get the work done with maintaining morale at an adequate level; authority-
based management creates work conditions that minimise participation.
Country club management involves thoughtful attention to the needs of
people, because such satisfying relationships are expected to lead to a
comfortable, friendly, organisational atmosphere.
27 B. Locus of control refers to the belief that personal actions will or will not
result in certain outcomes. Research has shown that, partly because they are
greater risk-takers and show greater entrepreneurial behaviour, individuals
with an internal locus of control have higher incomes, hold jobs of higher
status and advance more rapidly in their careers. It has also been found that
upper-class individuals indicate a more internally oriented locus of control.
28 B. The announcements made by managers of the acquiring firm are a

repudiation of the methods, values and beliefs of employees in the firm
acquired. This brew signals culture crash/clash ahead.
29 C. In the matrix form of organisational design, a project/product form is

superimposed on a functional form, thus blending an emphasis on market
changes with management and technical expertise in given product or
project areas. Such a design can be highly flexible and respond quickly to
customer and production-related pressures for change.
30 C. These activities are designed to create dissatisfaction with the status quo,
or what is called unfreezing.
31 A. As a matter of ethics, change agents are obligated to lay out the process
of planned change to client organisations. If their managers wish to ignore
the planned change paradigm, then they should hire a consultant.
32 E. Role ambiguity is defined as uncertainty about the requirements of a

job or task. These requirements could refer to methods or outcomes. Only
choice D offers a contribution in these two areas because it suggests that the
manager make clear what behaviours are related to success (and failure) on
the job. Choice A, while somewhat helpful because it gives the employee
some control over matters of when he will work, does not clarify behaviours
related to successful methods and outcomes.
33 B. The latest research on Type A (B) behaviour suggests that those under-
lying personality traits that are related to heart disease and other ‘ailments
of adaptation to stress’ are hostility directed towards others (and self) and
the inability to maintain confidence in one’s abilities. Anger and self-doubt
mixed with the classic Type A characteristics seem to be a toxic stress brew.

34 B. Kirkpatrick lists four sets of criteria. It is important that all training is

systematically evaluated. The main focus of T-group training is interpersonal
behaviour. The optimal criteria for evaluating training will vary from one
situation to another.
35 C. The major reason for using group, rather than individual, interviews is
the time saved by talking to several job-holders at the same time, rather
than on a one-to-one basis. The work participation method requires the
analyst to carry out part of the job, not just observe it. There is no formula
which identifies the best method of job analysis for any given situation. The
analyst must be guided by common sense and experience. Job analysis can,
and should, be used to identify training needs.
36 A. Shareholder and executives’ interests are most closely aligned when exec-
utive compensation is based on improvements in the firm’s net income and
total market valuation. If a firm’s profitability and market value rises faster
than those of its industry rivals, then shareholders will look favourably
on executive compensation schemes which reward executives more as net
income and share price targets are met or exceeded.
37 C. Since temporary workers do not have any reason to be loyal or committed

to their short-term jobs in a company, they would be less likely to suggest
creative improvements. Furthermore, they do not have the depth of job
experience necessary to detect deficiencies in organisational processes and
suggest improvements. It simply takes time for employees to see the defects
in the organisational systems under which they work.
Section B: Answers to Essay/Problem Questions
1 Job satisfaction is a function of employees’ equity perceptions of outcomes

they experience at work. The satisfaction facets experienced by employees
are: pay, working conditions, colleagues and supervisors, career prospects
and the intrinsic parts of the job itself. Levels of satisfaction are influenced
by characteristics of the employee and characteristics of the organisation.
Individual determinants include years of service and employee expectations.
In relation to years of service, it has now been established that as individuals
grow older their job satisfaction becomes stronger, although this usually dips
as retirement approaches. There is also a dip at the beginning of a career
mainly due to the novice’s unrealistic expectations about the job. With
experience on the job and familiarisation with the organisation’s culture,
the initial drop in job satisfaction usually vanishes. Expectations about
career progression may also affect job satisfaction. If pre-work information
about career prospects obtained from personal and official sources raises
expectations beyond what an employer can deliver, then satisfaction is
likely to be adversely affected. If employees worry about their economic
security their levels of job satisfaction will be lowered.

There are a number of organisational determinants which affect employees’

job satisfaction. For example, if supervisors use employee participation in
decision-making, this may improve the satisfaction of their subordinates; but
there are situations where this style of management may not be appropriate.
By applying the diagnostic questions of the Vroom–Yetton–Jago normative
model, managers can select the appropriate level of employee participation
in decision-making for most situations. Another organisational determinant
is the improvement of individual workers’ jobs to make them more mean-
ingful (QWL programmes). Few would deny that having the opportunity
to do interesting and creative work and being given achievable goals to aim
for are important causes of job satisfaction. However, such programmes
may undermine competitive advantage because they are too expensive to
implement and they often preserve a slow and unwieldy chain of command.
For this reason, organisations may delayer and use self-directed teams. In
these applications, training costs rise and the organisation usually finds that
technology and advanced communications systems can reduce the need
for supervisors and managers without damaging levels of employee job
satisfaction.
Organisational administration of rewards also strongly influences job satis-
faction. Extrinsic rewards such as pay rises, promotion, recognition, status
and job security operate in a different way from intrinsic rewards, such
as feelings of competence and pride in the quality of workmanship. The
organisation’s use of a variety of rewards and how employees react to
them is governed by equity comparisons made by employees. This suggests
that workers are highly sensitive to the procedural and distributive justice
aspects of rewards (and other outcomes they experience) in organisations.
Employees have predictable reactions to the outcomes they experience at
work (benevolents, equity-sensitives and entitleds).
More recently, the job satisfaction experienced by employees has been influ-
enced by widespread downsizing among companies, which can lead to
experienced economic uncertainty, which in turn leads to job dissatisfaction.
Other examples of such threats to job satisfaction are the organisational
actions of delayering, outsourcing and re-engineering. These actions can
reduce employees’ organisational commitment, especially among the more
vulnerable middle managers and supervisors.
However complex job satisfaction is, managers need to monitor it because
it is an indicator of the firm’s resilience and adaptiveness. Job satisfac-
tion measurement methods are indirect in nature because satisfaction can
only be inferred; it is both intangible and personal. The methods include
observation of employee behaviour, a programme of exploratory interviews
with employees and questionnaires. A widely used measuring procedure is
the Job Description Index which measures variables such as the design of
current job, pay, promotion opportunities, interpersonal relationships and
supervisory style.
2 A work group is defined as a collection of two or more employees who

(a) interact with each other, (b) perceive themselves as sharing several

common interests or goals and (c) come together to accomplish a meaningful

organisational activity. There are two types of work groups: formal groups
which are formed to carry out recurring tasks (or, in the case of project
groups, a specific task and then the group is disbanded) and informal
groups having members who come together to satisfy their needs that are
not met by membership in formal groups.
Individuals join groups for the following reasons: (a) as a means of satisfying
social or affiliation needs to belong to something or share in something; (b)
as a means of working with others who have a record of problem-solving
success in group activities; and (c) as a means to satisfy important personal
needs such as anxiety reduction, affirmation of values, beliefs and attitudes
and economic security.
Most people find it easier to define themselves in terms of their relationship

to others as members of a group. Therefore, in self-descriptions they might
refer to a group’s properties such as its socio-economic status, objectives,
gender and racial make-up.
Cohesive, self-directed teams exhibit solidarity, a high degree of interaction

among members, strongly developed norms that support team goals and
decision-making processes, well-liked and admired leaders and conformity.
Cohesive groups have energetic, highly motivated and committed members
who have a lower incidence of absenteeism. Members of cohesive groups
are satisfied and they willingly help each other. Cohesive teams are not
necessarily productive. Their performance may vary to the extent that the
team accepts or rejects the goals of the organisation. If group norms and
organisational goals are compatible, then cohesiveness generally aids organ-
isational performance and competitive advantage. If they are incompatible,
then the opposite occurs. Incohesive groups tend to have negative qualities,
including indifferent members who are unable to achieve goals and lack of
dynamism. Members of these groups also exhibit lateness and absenteeism.
To make team cohesiveness a component of competitive advantage, man-

agements must start with the basics. First, teams should be formed so that
their members have personal characteristics that match the demands of the
task. This means that training should support the formation and use of self-
directed teams by the organisation. Second, managements should consider
the size of self-directed teams and how that factor can create interpersonal
conflict, slow decision-making and make task co-ordination difficult. Some
of these problems can be solved through the use of training and advanced
communications systems that provide timely quality and productivity infor-
mation to teams. Third, managers who set clear goals are going to capitalise
on this important source of team motivation and cohesiveness. Related to
this idea is the creation of an external threat which can be used as moti-
vational tool. The manager should be careful to ensure that symptoms of
groupthink do not occur in the team however. Finally, conducting 360-
degree performance appraisal and using team-based incentives will make
team cohesiveness a pillar to improved competitive advantage.

3 First, these organisational forms have flourished in Japan because of a

supportive government industrial policy that has created a domestic market
with high entry barriers and very high prices for Japanese consumers. This
practice has fueled keiretsu profits which could be ploughed into company
growth and global expansion. All of this progress was made possible by
Japanese consumers who paid very high prices and saved large amounts of
their incomes (and subsidised low corporate interest rates).
Current global economic forces are weakening the competitiveness (and
profitability) of the keiretsu. Unrelenting pressure by the US government
to open Japanese markets to American products has begun to force down
prices and keiretsu profit margins as Japanese consumers awaken to the joys
of price comparison shopping and retailer discounts. An extremely strong
yen has also forced the keiretsu to build production facilities in America and
Europe to avoid the erosion of profits that occur as the yen strengthens in
relation to the currencies of key nations. A side-effect of building production
facilities on foreign soil is that the keiretsu are forced into direct rivalry in
markets where their competitors are strong and cultural barriers must be
overcome.
As keiretsu profit margins have declined, long-standing traditions such as
employment for life and friendly supplier relations have been sorely tested.
Japanese workers and managers are, for the first time, experiencing the
effects of lay-off-induced economic insecurity. They are reacting by becom-
ing more self-sufficient and by starting more of their own businesses. Sup-
pliers to the keiretsu are responding to their squeezed (and dismal) profit
margins by becoming more entrepreneurial (finding new customers, devel-
oping new products, forming strategic alliances with foreign firms and
improving service offerings).
These forces are transforming the Japanese economy and its private sector.
In the short run, there will be more business failures and higher unemploy-
ment. Both of these outcomes will trigger more government spending on
social programmes and economic development. Japanese consumers will
become more price-conscious and they will come to expect discounts and
wider product selection. In the long run, the economy will become more
competitive and Japanese consumers will enjoy a rise in their purchasing
power and a wider selection of domestic and foreign-made goods.
Section C: Case Study
1 C. The programme emphasises principles of System 4 organisation, job

enrichment, self-directed teams and employee empowerment, which are all
unrelated to scientific management.
2 A. The effects would be noticeable first at the job security level for employ-
ees. All of the other choices represent outcomes that take longer to occur
because they are more complex or they involve higher-order needs.

3 B. Activities 5 and 6 are complex tasks that teams perform and were once
done by supervisors and managers. In this respect, they represent vertical
job loading or increases in job depth for self-directed teams.
4 D. Activity 1 is a direct contributor to the removal of economic insecurity

for employees.
5 A. A cross-functional task-force fits best because the process of planned

change is unfolding in this episode. Also, the membership of higher-level
plant personnel separates this group from a project team.
6 A. Activity 4 is a clear representation of the principles of distributive and

procedural fairness. Its presence indicates that plant personnel know that
work-force employment issues are not always handled correctly. So a medi-
ation process will be installed.
7 C. This choice exposes the principles of scientific management present in a

System 1 organisation. Management in this case is trying to start a System
4 organisation from scratch.
8 B. In a start-up operation management is not encumbered by existing meth-

ods, procedures and organisational culture as it would be in a programme
designed to change an existing operation.

Index
absenteeism 1/24 Burns, T. 8/3

absolute standards 4/7 business owners 7/26–27
accommodation appeasement strategy 6/30, 8/32
achievement-oriented behaviour 7/22 cafeteria-style fringe benefits 4/25, 4/27
Adams, Stacy 3/11 carry-over problem 9/19–20
administrators 7/26–27 case studies
all-salaried team pay system 4/26, 4/27 A Swedish–American Joint Venture 4/46–48
ambiguity 2/6, 3/18 A Turnaround at Tentex 9/37–39
appeasement strategy 6/30, 8/32, 8/32 Alton’s Experiment with Changes in Job Range
appraisal 3/18, 4/2–10, 8/21, 9/15 and Depth 5/27–29
case study 4/45–46 Analysing a Change in Design 8/54–56
assessment Assessing Work Group Creativity 6/38–40
case study 6/38–40 Building Cross-Cultural Work Teams 5/29–31
of employees 1/15–16, 4/2–10 General Electric Has a Whistle-blower 1/38–39
of managers 5/11 How Hewlett-Packard Avoided the Decline
attitudes 1/28–31 Suffered by IBM and DEC 8/30, 8/56–60
authority 7/3, 8/3–4, 8/30–31 Lenton Industries 7/36–39
delegating 8/5–6, 8/34 Looking for Mrs Good Cookie 7/40–41
autocratic leadership 7/18 Measuring Job Involvement in the Work Setting
autonomous work groups 5/13–14 1/36–38
Motivating Employees at Cypress Semiconductor
Bamforth, K. 5/13 3/38–40
Beer, M. 9/15 One Man’s Values Force a Company Into
behaviour 1/7, 1/8, 3/2–3 Bankruptcy: The Story of Wang Laboratories
achievement-orientated 7/22 9/39–41
group 6/23–25 Performance Appraisal At Work 4/45–46
and leadership 7/16, 7/17–19, 7/24–26 Promoting Employee Productivity 3/37
new 9/19 Samuel Logston 2/22–24
profiles 2/9 Team Productivity at A. E. Leeson’s Ltd.
and stress 2/4, 2/9, 2/11 6/40–43
work 1/13 The Pain of Downsizing 2/24–32
behaviour anchored rating scale (BARS) 4/9–10 centralisation 8/13–15, 8/18
behaviour modification 3/20–22, 3/25–27, centrality 7/9
3/31–32, 7/24–26 Challenger, John 2/16
criticisms of 3/26–27 change
and employees 3/22 cultural resistance to 9/8
belongingness needs (Maslow) 3/5 in customer expectations 1/6
Bennis, W. 7/17 and managers 1/6
Benson, Herbert 2/12 organisational 9/13–23, 9/37–39
Black, J. 6/24, 6/24 of work-force 1/6
Blake, Robert 9/28 change agent 9/17, 9/23
boundary spanning units 7/9 coercive power 7/4
boundaryless organisations 8/30–34 cohesiveness, group 6/7–9
Bowman-Upton, N. 7/27 collaborative strategy 6/31, 7/18
brainstorming 6/18–20, 6/23 command groups 6/3
Buchanan, Patrick 2/16 company structure 8/3–4
burnout, job 2/10 pay systems 4/25–27, 4/28
Organisational Behaviour Edinburgh Business School I/1

Index
competition direct supervision vertical co-ordination 8/21

domestic 2/16 directive behaviours, House theory of 7/22
within work groups 6/28–31 distress 2/3, 2/8
competitive advantage 1/2, 2/19–20, 5/23, 8/27 disturbance handler 6/7
and rewards 4/31–32 division of labour 8/3, 8/4, 8/46
compromising strategy 6/31 domestic competition 2/16
conflict 3/18, 6/29, 7/11 downsizing 1/7, 1/29, 1/30, 2/16–20, 4/23,
group 6/29–31 7/15
conglomerates 8/15, 8/16–18 case study 2/24–32
consideration behaviours 7/18 Drucker, Peter 4/12
content theories of motivation 3/4–11, 3/19 dumbsizing 8/60
Herzberg’s two-factor theory 3/7–10 Duncan, Robert 8/14–15
contingency of reinforcement 3/20–22
contingency theory of leadership 7/19–21 economic uncertainty 2/4–6
contingent punishment behaviour 7/24, 7/25 employees 1/12–20, 1/28–31, 4/11–13, 5/1,
control systems 6/24, 8/24–26, 9/15 7/29
span of control 8/3–4, 8/12–13, 8/19, 8/46 assessment of 1/15–16, 1/23, 4/2–10
co-ordination mechanisms 8/19 and behaviour modification 3/22
horizontal 8/22–23 and decision-making 5/19–21
vertical 8/20–22 employee–job interactions 5/6–8
corporate health plans 2/14–15 health 2/14–15
corporate transformation, managing 9/14–15 motivation 3/13
cost-saving plans 4/30–31 needs 1/9–10, 8/18
counselling, stress 2/13 and participation 5/22–23
creativity, work group 6/18 and pay 4/18–19
cross-training 5/4, 5/9 and reward systems 4/14
culture 1/11, 3/20, 8/32, 9/2–11 skilled 2/19–20
cultural diversity example 5/29–31 employment security 2/19
and multinationals 9/39–41 empowerment 1/7, 5/17–21, 7/17, 8/29, 8/42,
customer service 8/35–40 9/15
customers 1/6, 8/32, 8/32, 8/34 and MBO 8/26
obtaining power 7/6–8
decentralisation 8/13–15, 8/18 encounter groups 9/24
decision-making entrepreneurs 7/26–32
by employees 5/19–21 environment 2/4–6, 3/16, 9/14–15
Delphi 6/21 equity theory 1/23–24, 3/11–12
and groups 6/15–21 ethics of power 7/5
manager’s role 7/14 eustress 2/3, 2/8
normative model 6/26–28, 9/19 evaluation, of change programmes 9/20
deficiency problems, appraisal 4/3, 4/5 executive compensation 4/19–24
delayering structures 8/27–29, 8/34 executives 3/9, 4/18–19, 4/19, 9/5
Dell, Michael 9/12 exercise 2/11
Delphi groups 6/21 expectancy theory 3/13–16
democratic leadership 7/18 and cultural differences 3/20
departmentalisation 8/3–4, 8/7–9, 8/46 and the individual 3/16–19
design, job 3/19, 5/1–24, 9/15 and the organisation 3/16–19
design, organisational 8/3–13, 8/15–18, 8/33–34, expectation, job 1/22, 3/18
8/54–60 expert power 7/5
diagnosis 9/17–18 externalisers 1/13, 1/13–15, 2/9
diet 2/12 extinction concept 3/21, 3/22
diffusion 9/22–23 extrinsic rewards 1/23, 1/25, 3/10, 4/14–16
direct contact horizontal co-ordination 8/22 guidelines for distribution 4/16–18
I/2 Edinburgh Business School Organisational Behaviour

Index
extroversion 1/12, 1/15–16 health 1/24

diet 2/12
family problems and stress 2/8 exercise 2/11
feedback 1/23, 9/26–28 Herzberg, Frederick 3/7, 5/4
felt negative/positive inequity 3/11–12 Herzberg’s two-factor theory 3/7–10, 3/20,
Fiedler’s contingency theory 7/19–21 5/4–6
financial problems and stress 2/8 hierarchical control 6/24
flexible benefits package 4/25 hierarchies, delayering 8/27–29, 8/34
flextime 5/11 hierarchies, of needs 3/6–7
forcing strategy 6/30 high-performance organisational culture 9/8–11
forming 6/16, 6/22 Hirschorn, L. 8/30–31
founder, role of 9/5 home-based working 5/11
four-day week 5/10 horizontal organisation 8/22–23, 8/33–34
Horrigan, Brian 2/16
gain-sharing plans 4/30–31
House’s path-goal theory 7/22–24
Galbraith, J. 7/29
General Apaptation Syndrome 2/3–4 human behaviour 1/8, 3/2–3
Gilmore, T. 8/30–31 human resource management (HRM) 1/4
global job stress 2/2 and cultural diversity 5/29–31
global organisations 1/11–12 hygienes 3/8–9, 5/5
goal setting 4/10–14
godfathers 7/29 idea champion 7/29, 7/30–31
government policies 2/17 identity boundary 8/32–33
graphic scales rating system 4/8–9 incentives 1/23–24
Great Britain 6/11 individual/s
executive compensation 4/22, 4/22
characteristics/personality 1/12–20
and job stress 2/2
and equity ratios 3/12–13
greenhouses 7/29
and group membership 6/5–6
grid organisation development 9/28–30
responsibility for health 2/11–13
groups 6/2, 9/24–26
and reward systems 4/29–38
autonomous 5/13–14
and stress 2/4, 2/8
case study 6/38–40
values 1/10–12, 2/6
characteristics 6/2–6
influence processes 7/1–32
collateral organisation 8/20
influence, defined 7/3
in competition and conflict 6/28–31
and Machiavellian personality 1/16–17
composition 6/6–12
informal groups 6/3–4
co-ordination mechanisms 8/20–22
information technology 8/29
decision-making 6/26–28
Delphi technique 6/21 informational roles, of managers 7/14
departmentalisation 8/7–8 in-house entrepreneurship 7/27–29
development 6/15–21 inside trading 7/11
encounter groups 9/24 instrumentality 1/10–11, 3/14
group structure 6/12–15 insurgency 7/12
and leadership behaviour 7/18 intergroup management 6/23
management guidelines 6/21–26 internalisers 2/9
and reward systems 4/29–38 internships 1/22
task groups 6/3, 6/21–23, 6/25 interorganisational designs 8/15–18
T-groups 9/24–26, 9/25, 9/29 interpersonal relationships 2/7, 7/4–5, 7/14,
in USA 5/13, 6/11, 6/24 9/24
groupthink 6/11–12, 6/23 intrapreneurs 2/17, 7/27
growth need, employee 5/7, 5/8 intrinsic motivators 3/9, 3/10, 3/15, 5/5
intrinsic rewards 1/23, 1/25, 4/15–16
Hackman, J. R. 5/11, 5/14 introversion 1/15–16

Index
Japan 1/11 legitimate power 7/4, 7/10–13

competition 2/17, 8/24 Lewin, Kurt 1/8, 7/18, 9/15, 9/24
executive pay 3/9 liaison co-ordination mechanism 8/22
karoshi 2/2 life-cycle theory, organisational 9/11–13, 9/39–41
keiretsu (conglomerates) 8/17–18 lifestyle and stress 2/8
management systems 8/5 Likert, R. 5/17, 5/20
motivation theories 3/20 line versus staff conflict 7/11
strategic alliances 8/18 Locke, Edwin 4/10
Japanese Federal Trade Commission 8/17 locus of control 1/12–15, 2/9, 3/17
JDI (Job Descriptive Index) 1/26 and stress 2/9
Jenkins, Holman W., Jr. 2/19 logical thinking traits 7/17
job analysis 4/6–7 Lorsch, P. 8/19
job burnout 2/10 lump-sum pay systems 4/25, 4/27
job challenge 1/23
job characteristics model 5/7, 5/9 McClelland, D. 1/17
job clarity 1/23 Mach-V-Scale 1/16–17
job classification system 4/18 Machiavellian personality 1/16–17
job content factors 5/7, 5/8 macro perspectives 1/3
job creation 2/5 maintenance activities, group 6/21–23
Job Descriptive Index (JDI) 1/26 management
job design 3/19, 9/15 of B Mod programme 3/31–32, 4/13
case study 5/27–29 and cultural diversity 5/29–31
and Herzberg’s two-factor theory 5/4–6 defined 1/3, 7/14
principles 5/9–11 and employee motivation 3/14
problems in 5/12 evolution of 1/5–7
team approach to 5/13–23 executive compensation 4/19–21
understanding 5/2–9 of group conflict 6/29–31
job enlargement 5/4, 5/9 of performance appraisal 4/3–5
job expectations 1/22, 3/18 and punishments 3/27–30, 7/25–26
job experience 2/8 of services 8/37–38
job insecurity 2/16–18, 8/31 of stress 2/13–15
job involvement 1/28, 1/30–31, 1/36–38 upwards 7/12–13
job performance 2/10–11 of work-force 9/10
job previews 1/22, 1/24 management by objectives (MBO) 4/11–13,
job rotation 5/4, 5/9 8/25–26
job satisfaction 1/20–27, 8/18 management control systems 8/24–26
job satisfaction–performance relationship 1/25 management information system (MIS) 8/21
job security 2/19 managers 1/3, 1/6–7
job-sharing 5/11 allocation of time 7/14–15
behaviour theories 1/2–10
labour market 2/17 defined 7/14
laggards, managing 6/25–26 delegation of authority 8/5–6
laissez-faire leadership 7/18 and employees 1/30–31, 3/23
Lawrence, P. 8/19 ’enlightened managers’ 2/13
leadership 7/14–17, 7/24–26, 7/36–41 and expectancy theory 3/16–19
behavioural school of 7/16, 7/17–19 and groups 6/7–8, 6/9–11, 6/15, 6/21–26
defined 7/14 recognising groupthink 6/11–12
and employee burnout 2/7 job 1/5–7
Fiedler’s contingency theory 7/19–21 and job design 5/11–13
House’s path-goal theory 7/22–24 and organisational decline 9/13
research 7/16–17 and political behaviour 7/11–12
lean production systems 5/16–17 and reinforcing behaviour 9/20

Index
and self-directed teams 5/14 norms of work groups 6/9–11, 6/16

managing by objectives (MBO), cautions 4/13 not-so-well employees 2/14–15
market value, maximising 8/33
Maslow, Abraham 3/4 OB Mod (organisational behaviour modification)
Maslow’s hierarchy of needs 3/4–6, 3/10, 3/20 3/20–23, 7/24–26
criticisms of 3/7 Office of Naval Research, USA 9/24
Massachusetts Institute of Technology 5/16 Ohio State University 7/17–18
matrix design 8/10–12, 8/34 open salary pay system 4/26–27, 4/27
MBO (management by objectives) 4/12–14, organic organisation 8/46
8/25–26 organic organisations 8/3
measuring job satisfaction 1/25–27 organisation development 9/23–24, 9/29
mechanistic organisation 8/3, 8/46 interpersonal and group changes 9/24–26
mentors 3/7, 7/12 OD grid 9/28–29
mergers 2/16 system-wide changes 9/26–28
micro perespectives 1/3 organisational behaviour
middle management 7/15, 9/19 defined 1/2–3
Minnesota Satisfaction Questionnaire 1/26 theories 1/2–10
Mintzberg, Professor Henry 1/5, 7/15–16 organisational behaviour modification (OB Mod)
MIS (management information systems) 8/21 3/20–23, 7/24–26
modification programme, behaviour 3/31–32 organisational causes of job stress 2/4, 2/6–8
motivation theories 3/1 organisational change 9/13–23, 9/37–39
case studies 3/37–40 organisational commitment 1/28–31, 2/13–14
content theory 3/4–11 organisational culture 9/2–11
and cultural differences 3/20 organisational decline 9/13, 9/39–41
Herzberg’s two-factor theory 3/7–10 organisational design 8/3–13, 8/15–18, 8/33–34,
and locus of control effects 3/17 8/54–60
motives, defined 3/2 organisational health indicators 9/15
process theories 3/4, 3/11–19 organisational life-cycle theory 2/7, 9/11–13
two-factor theory 3/9–10 organisational politics 7/10–13
Mouton, Jane 9/28 organisational productivity 1/9–10, 1/12
multiple cultures 8/32, 9/3 organisational structure, defined 2/7, 8/13
organisations 5/22–23
Nanus, B. 7/17 boundaryless 8/30–34
National Training Laboratories, Maine 9/24 change in 1/6–7
needs 1/9–10, 6/5, 8/18 and entrepreneurial employees 7/29
for achievement 1/17 and expectancy theory 3/16–19
for affiliation 1/17 global 1/11–12
defined 3/2 human behaviour in 1/8
high-order 5/8, 5/8 and job satisfaction 1/25–27
Maslow’s hierarchy of 3/4–6, 3/10, 3/20 Machiavellian influence on 1/16–17
criticisms of 3/7 reward distribution 4/16–18
for power 1/17, 1/19–20 service-driven 8/44–46
socially acquired 1/17–20, 3/20 subcultures in 9/3
negative/positive reinforcement 3/20–22 Ornish, Dean 2/12
neutralisers of leadership 7/23–24 outcomes in expectancy theory 3/14
NGT (nominal group technique) 6/20, 6/21, outsourcing 8/14
6/23
Nixon, Richard (former President of USA) 1/17 participation 5/19–23, 7/22, 9/19
nominal group technique (NGT) 6/20, 6/21, Pascale, R. 9/6
6/23 path-goal theory, House’s 7/22–24
non-contingent punishment behaviour 7/25 pay structures 1/15, 4/25–29
normative decision model 6/26–28, 9/19 and executives 3/9, 4/18–19

Index
pay rises 4/18–19 reinforcement schedules 3/23–25

piece rate 3/23, 5/2 relaxation response 2/12
’people problems’ 1/7 reliability errors 4/3, 4/5–6
perception and stress 2/8 resistance to change 9/18
performance appraisal 4/5–6, 8/21, 9/15 responsive organisations 8/27
case study 4/45–46 reward systems 3/19, 4/14–38, 6/23, 7/24–26,
defined 4/2 9/15
and expectancy theory 3/18 case study 4/46–48
management 4/3–5 and managerial power 7/4
methods 4/7–10 risk-taking, work group 6/18
performance, of groups 6/8, 6/23–25 Rokeach, M. 1/10
performance, job satisfaction and 1/25 role ambiguity 3/18
performance, motivation and 3/3 role conflict 3/18
performance-contingent reward behaviour 7/24, role demands 2/6
7/24 Rucker Plan 4/32–36
performing, in group development 6/17
permanent teams 8/23 safety needs 3/5
persistence traits 7/17 Scanlon plan 4/30–31, 5/21
personal factors of stress 2/8 schedules of reinforcement 3/23–25
personal traits 1/12–20 scientific management method 5/2–4
personal values 2/6 self-actualisation needs 3/5–6
personality 1/12–20 self-control traits 7/17
Peters, Tom 8/6, 8/27 self-directed teams 1/3, 1/10, 4/24, 4/31,
physiology 2/4, 2/10, 3/4–5 4/32–36, 5/14, 5/15–19, 5/22–23, 6/24,
piece-rate pay system 3/23, 5/2 8/30
planned change process 9/15–17 and managerial roles 7/15
political systems 2/6 and organisational change 9/15
political uncertainty, and stress 2/6 self-disclosure 2/12
politics, organisational 7/10–13, 8/32 self-esteem 1/23, 3/6, 3/18
positional status, in work groups 6/12–13 self-managed work concept 5/15–17
power 1/17, 1/19–20, 7/2–10 Selye, Hans 2/3
defined 7/3 service management 8/37–38
legitimate 7/4–5, 7/10–13, 7/20 service quality 8/36–44
problem-solving 1/4, 8/20 service-driven organisations 8/44–46
process change, system-wide 9/26–28 Sexton, D. 7/27
process controls 8/24–25 shareholders 2/18, 8/31
process losses 6/14 skill-based compensation 1/14, 4/25, 4/27
process motivation theory 3/11–19 skills, individual 2/19–20
product divisional design 8/8–10, 8/30, 8/34 Skinner, Professor B. F. 3/20
productivity 1/9–10, 1/12, 3/37, 6/40–43 small business firms 2/17, 7/26–27
profit-sharing 4/37–38 SOBC model 1/8
project teams 6/4 social loafing 6/25–26
psychology 2/4, 2/10, 5/6–9 socialisation process 9/5–7
punishments 3/22, 3/22, 3/27–30, 7/24–26 socially acquired needs 1/17–20, 3/20
socio-technical systems theory 5/13
quality control 4/38, 5/10 span of control 8/3–4, 8/12–13, 8/19, 8/46
quality of work life (QWL), defined 5/2 widening 8/27, 8/29
questionnaires 1/26–27, 9/26–28 sponsors 7/11, 7/29
staff reassignment 8/29
re-engineering 1/7, 2/18, 5/17 staff versus line conflict 7/11
referent power 7/5 Stalker, G. 8/3
refreezing 9/16 status symbols 6/12–13

Index
steering committee 9/17, 9/19 Type A and B behaviour 2/9

Steers, R. 6/23
storming 6/16, 6/23 unfreezing 9/16
strategic alliances 1/7, 8/18 units of analysis 1/3
stress unreliability/reliability problems 4/3, 4/5–6
case study 2/22–24 upward management 7/12–13
causes and consequences of 2/4–11 USA 1/11, 6/24, 7/12, 8/23, 8/24
and downsizing 2/16–20 cultural diversity 3/20
global job 2/2–3 executive compensation 4/21, 4/22
individual management of 2/11–13 and groups 5/13, 6/11, 6/24
management, organisational 2/13–15 health care insurance 2/19
stress model 2/4, 2/8 hierarchy of needs 3/20
stress responses 2/3–4 and job creation 2/5
subcultures 9/3 and job stress 2/2
subunits 7/8–10 Lincoln Electric Company 4/37–38
superior–subordinate relationship 7/12 and organisational design 8/14, 8/16, 8/18
supervision 1/4, 1/23, 8/21, 8/28 uses and abuses of power 7/10–13
support groups 9/24
supportive behaviours, House theory of 7/22 valence 3/14
survey feedback questionnaire 9/26–28 validity 4/4, 4/5
Survey of Organizations 9/27 values
’System 1’ organisation 5/20 in global organisations 1/11–12
’System 4’ organisation 5/17, 5/20, 5/23 individual 1/10–12, 2/6, 9/39–41
system-wide process questionnaire 9/26–28 instrumental values 1/10–11
terminal 1/10–11
task boundary 8/31–32 value judgements 1/10–12
task demands 2/6 vertical co-ordination mechanisms 8/20–22
task environments 9/14–15 vertical job loading 5/9–10
task groups 6/3, 6/21–23, 6/25 Vroom, V. 3/14
task-forces 8/20, 8/23
Tavistock Institute of Human Relations, London Walsh, Mike 8/28
5/13 Walton, R. 9/22–23
team concepts 5/13–23, 6/26–28, 9/26 Waterman, R. 8/6
innovation teams 7/30–31 well-being 2/2
self-managed work 5/15–17, 8/29 wellness plans 2/14–15
technological uncertainty 2/6 whistle-blowers 1/38–39, 2/6, 6/3, 7/11
technology 1/4, 2/6, 5/12–14, 8/30 work attitudes of employees 1/28–31
and environmental change 9/14 work behaviour and locus of control 1/13–15
telecommuting 5/11 work environment 2/6, 3/16
terminal values 1/10–11, 2/6 work motivation 3/2
territorial design 8/8, 8/34 work place inequities 3/11
T-groups 9/24–26, 9/25, 9/29 work restructuring 9/22
time and motion studies 5/2 work, home-based 5/11
time off pay system 4/25, 4/27 work, stress and well-being at 2/2
Tolman, E. C. 3/14 work-force
total quality management (TQM) 1/6, 8/24, change in 1/6
8/35 cultural diversity in 1/11, 5/29–31
training empowerment 8/29–30
cross-training 5/4, 5/9 and management 6/40–43, 9/10
traits 1/12–20, 7/16–17, 7/19 work-team concept 5/15–17, 5/29–31, 8/29–30
Trist, E. 5/13
two-factor theory 3/7–10, 5/4–6, 5/9 years in career 1/21

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Organisational

ISBN 0 273 60928 9

Pearson Education website: www.pearsoned-ema.com

First published in Great Britain in 2003

The right of Professor Robert Dailey to be identified as Author of

ISBN 0 273 60928 9

British Library Cataloguing in Publication Data

All rights reserved; no part of this publication may be reproduced, stored

Typesetting and SGML/XML source management by CAPDM Ltd. (www.capdm.com)

The publisher’s policy is to use paper manufactured from sustainable forests.

Module 1 The Basics of Organisational Behaviour and its Relation to 1/1

Module 2 Stress and Well-Being at Work 2/1

Module 3 Contemporary Theories of Motivation 3/1

Module 4 Organisational Control and Reward Systems 4/1

Module 5 Job Design and Employee Reactions to Work 5/1

Module 6 Understanding Work Group Dynamics and Group-Based Problem- 6/1

Organisational Behaviour Edinburgh Business School 5

6.3 Significant Aspects of Work Group Structure 6/12

Module 7 The Influence Processes in Organisations: Power, Politics, Leadership 7/1

Module 8 Organisational Design and New Forms of Service-Driven 8/1

Module 9 Managing Transitions: Organisational Culture and Change 9/1

Appendix 2 Practice Final Examinations and Worked Solutions A2/1

6 Edinburgh Business School Organisational Behaviour

Organisational Behaviour Edinburgh Business School 7

The competitive pressures on organisations continue to mount and skilful man-

New Topics and Themes

Organisational Behaviour Edinburgh Business School 9

Timely New Topics

10 Edinburgh Business School Organisational Behaviour

The Basics of Organisational

Organisational Behaviour Edinburgh Business School 1/1

• Distinguish organisational behaviour and management as different yet

1.1 Why Managers Need to Understand Organisational

1/2 Edinburgh Business School Organisational Behaviour

1.1.1 Distinguishing between Organisational Behaviour and Management

What is the Relationship of Management to Organisational Behaviour?

Organisational Behaviour Edinburgh Business School 1/3

What Role Does Management Play in Organisational Problem-Solving?

1 A technical component concerned with the efficient use of resources to

The amount of time managers spend in these activities is a function of their

Management and Technical Problem-Solving

1/4 Edinburgh Business School Organisational Behaviour

1.1.2 New Perspectives on the Manager’s Job

1 Managing individual performance (supervising).

Organisational Behaviour Edinburgh Business School 1/5

Table 1.1 Managers’ challenges in the twenty-first century

1 The work-force is changing. Companies must deal increasingly with mat-

1/6 Edinburgh Business School Organisational Behaviour

Why Do Managers Care about Organisational Behaviour?

Organisational Behaviour Edinburgh Business School 1/7

1.1.3 Making Sense of Human Behaviour in Organisations

S: All sensations from the environment which trigger human

O: The finite capacities of the individual which are governed by

B: Overt behaviours and actions such as performance or emotional responses

C: The outcomes of behaviour and performance such as recognition and

Figure 1.1 The SOBC sequence

1/8 Edinburgh Business School Organisational Behaviour

1.1.4 Defining Employee Needs and Organisational Productivity

Organisational Behaviour Edinburgh Business School 1/9

1.2 Values: The Building Blocks of Individual Differences

1/10 Edinburgh Business School Organisational Behaviour

Table 1.2 Terminal and instrumental values

1.2.1 Implications of Values in Global Organisations