DEPARTMENT OF BUSINESS MANAGEMENT

COAF 1103 PRINCIPLES OF MANAGEMENT

Management Defined
1. Management is an activity:
FORMAL DEFINITION OF MANAGEMENT

Management is the process of assembling and using sets of resources in a goal-directed manner to
accomplish tasks in an organizational setting.

Definition examined:
 Management is a process: as a verb, it is an activity; something you do. It is not passive.
 Of assembling and using resources: one of the main functions of management is to figure
out what resources are needed and then figure out the most effective and efficient ways to get
them.
 In a goal-directed manner: If you do not know what your objective is, you don’t know what
or how many resources to assemble. You would waste time and money and most likely be
completely ineffective. You would only achieve anything through chance.
 To accomplish tasks in an organizational setting: you use managerial skills such as time
management and effective planning and communication to complete tasks at home, but that is
not ‘Management’ and does not make you a ‘Manager.’ You are not accomplishing these tasks
in an organizational setting. I like to emphasize the “Capital M” in the “Management” that we
are studying in this course. Just because I like to sing and play piano, this does not mean I am
a professional “Singer” or “Pianist.” There needs to be a professional setting in order to be a
professional singer, or pianist, or manager.

2. Management as a noun can be used to describe the set of individuals who carry out management tasks and
hold management responsibility.

3. Management can refer to a specific group in negotiations as in Management-Labor negotiations.

WHY ARE MANAGERS IMPORTANT?

Managers have an important impact on both employees and the organizations in which they work. The
following three reasons address their importance:
A. Organizations need their managerial skills and abilities more than ever in these uncertain,
complex, and chaotic times.
B. Managers are critical to getting things done.
C. Managers do matter to organizations! According to thousands of managers and employees,
the relationship of manager to their employees and supervisors is single most important
variable in employee productivity and loyalty.

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WHO ARE MANAGERS AND WHERE DO THEY WORK?

Managers may not always be what we expect. Today’s managers range from 18 to 80, they‘re found in
a variety of different types of organizations, and they perform a variety of jobs from the top to the
bottom of the organization. Statistics also show an increasing number of women in management;
however, while their number is increasing it is mostly in the area of lower and middle management, not
top management.

Who Is a Manager?
A. How do we define a manager? A manager is someone who coordinates and oversees the work
of other people so that organizational goals can be accomplished. However, keep in mind that
managers may have additional work duties not related to coordinating the work of others.
D. Managers can be classified by their level in the organization, particularly in traditionally
structured organizations—those shaped like a pyramid (see Figure 1).
1. First-line managers (often called supervisors) are located on the lowest level of
management.
2. Middle managers include all levels of management between the first level and the
top level of the organization.
3. Top managers include managers at or near the top of the organization who are
responsible for making organization-wide decisions and establishing plans and goals
that affect the entire organization.

Fig 1. Management Levels

Where Do Managers Work?

A. An organization is a deliberate arrangement of people to accomplish some specific purpose. Organizations

share three common characteristics (Fig 2): (1) each has a distinct purpose; (2) each is composed of people;
and (3) each develops some deliberate structure so members can do their work.

Fig. 2 Characteristics of Management

B. Although these three characteristics are important in defining what an organization is, the concept of an
organization is changing. These changes include: flexible work arrangements, employee work teams, open
communication systems, and supplier alliances. Organizations are becoming more open, flexible, and
responsive to changes.

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What’s The Difference Between a Manager and a Leader?

1. to manage means to handle, to control

2. to lead means to guide; to cause to go with one
3. a manager controls people and production
4. a leader guides and inspires people
5. Traditionally, managers have perceived the environment as one to organize, control, and maintain – they are
tactical
a. energy focused on problem solving and controlling resources
b. taught to see the independence of their tasks and responsibilities
6. Traditionally, leaders see the big picture and are strategic
a. a leader is expected to thrive on chaos
b. oversees the interdependence of all tasks, people, and functions
7. Mintzberg studied what managers actually do
a. Manager’s work is about meetings, delivering performance results, and fire fighting
8.

Managers tend to: Leaders tend to:

Managers tend To
• Control resources.
• Be problem solvers.
• Seek efficiency.
• Be comfortable with order.
• Be concerned with how things get done.
• Play for time and delay major decisions.
• Seek compromises.
• Identify goals that arise out of necessity.
• Control resources.
• Adopt impersonal attitudes toward goals.
• Coordinate and balance opposing views.
• Avoid solitary activities.
• Work from low-risk positions.
• Avoid displaying empathy
Leaders tend to
• Create and provide resources through
motivation.
• Be comfortable with uncertainty.
• Function well in chaotic environments.
• Be concerned with what events and
decisions mean to people.
• Seek solutions that do not require
compromise.
• Take highly personal attitudes toward
goals.
• Identify goals that arise out of desire.
• Inspire strong emotions.
• Be comfortable with solitude.
• Work from or seek out high risk
activities.
• Have meaningful, highly personal
mentorship relationships.
• Be empathic, and actively read others’
emotional signals.

WHAT DO MANAGERS DO?

A. Management involves coordinating and overseeing the work activities of others so that their activities
are completed efficiently and effectively.
1. Coordinating and overseeing the work of others is what distinguishes a managerial
position from a non managerial one.
2. Efficiency is getting the most output from the least amount of inputs in order to
minimize resource costs. Efficiency is often referred to as “doing things right” (see Fig
3)

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 Fig.3 Efficiency and Effectiveness

3. Effectiveness is completing activities so that organizational goals are attained and is

often described as “doing the right things” (Fig 3)

B. Management Functions.
Henri Fayol, a French industrialist in the early 1900s, proposed that managers perform five
management functions: POCCC (planning, organizing, commanding, coordinating, and controlling).
1. Over time, Fayol’s five management functions have been reorganized into four functions,
which provide a foundation for the organization of many current management textbooks
(see Exhibit 1-4).

a. Planning involves defining goals, establishing strategies for achieving those

goals, and developing plans to integrate and coordinate activities.
b. Organizing involves arranging and structuring work to accomplish the
organization’s goals.
c. Leading involves working with and through people to accomplish organizational
goals.

Figure 4. Four Management Functions

d. Controlling involves monitoring, comparing, and correcting work performance.

2. In practice, managing is not always performed in a sequence as outlined above. Since
these four management functions are integrated into the activities of managers
throughout the workday, they should be viewed as an ongoing process.

Management Roles.

Managerial Roles: This typology was proposed By Henry Mintzberg and is based on the analysis of detailed
accounts of the work done by real managers.
A. Interpersonal Roles
 Figurehead: involves taking part in ceremonial activities as a representative of the company. I
like describing this as “acting as the icon of the company.”
 Leader: influencing and directing others
 Liaison: maintaining contacts outside the formal chain of command and even outside of the
company.
B. Informational Roles

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  Monitor: information seeking and gathering
 Disseminator: seeing that information gets to those who need access to it.
 Spokesperson: representing the work product of one’s unit. Student’s frequently have
difficulty differentiating this role from that of the figurehead. It can help to remind the student
that the figurehead is an interpersonal role and spokesperson is an informational role. Also,
the figurehead usually represents the entire company in a ceremonial manner, whereas the
spokesperson reports information from his/her workgroup.
C. Decisional Roles
 Entrepreneur: engaging in activities dealing with new projects, deciding which projects to
adopt and which to close down. Students usually are confused by this role as they associate
‘entrepreneur’ with a person who starts his/her own company. This might be a good time to
discuss the “Entrepreneurial Mindset,” one of the key managerial perspectives that will be
repeated at the end of each chapter.
 Disturbance Handler: settling conflicts among employees
 Resource Allocator: deciding how resources under one’s control will be distributed.
 Negotiator: representing the unit or organization in mediating agreements. Sometimes this
role can be less formal and more individual. For example, a manager might be negotiating
with a new hire for the terms of employment.

Although the functions approach represents the most useful way to describe the manager’s job, Mintzberg’s
roles give additional insight into managers’ work. Some of the 10 roles do not fall clearly into one of the 4
functions, since all managers do some work that is not purely managerial.

What Skills To Managers Need?

Skills are highly developed abilities and competencies built from aptitudes, education,
training, and experience.

1. Technical Skills:
 Specialized knowledge of procedures, processes, and equipment along with the
related understanding of how and when to use this knowledge.
 Most important at lower managerial levels
 Competence increases the respect of those being led
 Necessary but not sufficient for effective management

2. Interpersonal Skills:
 Include sensitivity, persuasiveness, empathy
 Particularly important in low and mid- level managerial positions
 Lack of interpersonal skills may limit advancement.
 Necessary but not sufficient for effective management
3. Conceptual Skills (cognitive ability, cognitive complexity):

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  Include logical reasoning, judgment, analytical abilities
 Strong predictor of managerial effectiveness
 Major factor in advancement to top management

The Evolution of Management Thought

The Evolution of Management Thought

A. Classical management ideas developed in the 19 th and 20th centuries are still used by many
organizations today.

1. Early Management Thought

A. Some of the earliest management ideas were presented 2,500 years ago by Sun Tzu who suggested that
strategy required a long-term perspective, and that it was important to attack an opponent’s weaknesses
and capitalize on one’s strengths.

B. Niccolo Machiavelli developed his ideas in the 16 th century. His ideas today are reflected by leaders
who engage in manipulative and self-serving behaviors.

C. Adam Smith recognized the principle of the division of labor in the 18th century. Smith claimed that a
production process in which each worker repeated one step over and over achieved greater time and
knowledge efficiencies. Smith’s ideas laid the groundwork for scientific management.

2. The Operational Perspective

A. The operational perspective was formed during the 19th and early 20th centuries when the factory
system and modern corporations evolved to meet the challenges of managing large, complex
organizations.

B. Three approaches fall into the operational perspective: scientific management; quantitative
management; and quality management.

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 1. Frederick Winslow Taylor developed scientific management a method that applies the principles
of the scientific method to the management process: determining the one best way to do a job and
sharing the rewards with the workers.
a. Taylor’s ideas were adopted by Henry Ford in the production of the Model-T.
2. The scientific management approach later became known as the quantitative management school.
a. Four quantitative methods used in the approach still used today are
1) break-even analysis
2) basic economic order quantity model
3) materials requirement planning
4) quality management.
3. W. Edwards Deming popularized the total quality management concept. Total quality
management (TQM) focuses on quality as an overreaching goal in which all employees and
organizational units work harmoniously to satisfy the customer.
a. The key elements are focus on the customer; employee involvement; and continuous
improvement.

6. Bureaucratic Management

A. Max Weber challenged the notion that authority should be based on birth and divine right and instead
developed the bureaucratic management perspective which examines the entire organization as a
rational entity, using impersonal rules and procedures for decision making.

7. Administrative Management

A. Henri Fayol developed the administrative management approach that explores an organization from
the perspective of the managers and executives responsible for coordinating the activities of diverse
groups and units across the entire organization.

B. Fayol identified five functions planning that are generic to all management activities.
1. Planning
2. Organizing
3. Commanding
4. Coordinating
5. Controlling

8. Behavioural Perspective

A. The behavioural approach suggests that knowledge of the psychological and social processes of
human behaviour can result in improvements in productivity and satisfaction.

B. This perspective can be traced to the work of Mary Parker Follett and the Hawthorne studies.
1. Follett advocated employee participation, greater employee autonomy, and organizing cross-
functional teams.
2. The Hawthorn effect suggested that when a manager or leader demonstrated concern for
employees, motivation and productivity levels were likely to increase.
3. The Hawthorne studies generated new interest in the human side of companies.
a. The human relations approach to management viewed the relationships between
employees and supervisors as the most salient aspect of management.
b. Abraham Maslow developed a theory of motivation based on a hierarchy of needs.
c. Douglas McGregor developed a perspective using what he called Theory X and Theory Y
assumptions.

9. Contemporary Management Perspectives

A. Contemporary perspectives include systems theory, contingency theory, and the learning organization
perspective.
1. According to systems theory an organization is a system of interrelated parts that
functions in a holistic way to achieve a common purpose.
a. The system receives feedback which allows the sender to clarify the message if its
true meaning is not received.

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 2. Contingency theory argues that what works for one organization may not work for
another because situational characteristics known as contingencies differ.
3. The learning organization approach suggests that organizations that can learn faster than
their counterparts have an advantage over competitors in the marketplace.
a. Learning organizations try to institutionalize continuous learning.
II. Emerging Perspectives and Issues

Two trends that are expected to influence management practice and theory in the future are the modular
organization and the intangible organization.

1. The Modular Organization

A. The classical organization form is being replaced by the modular corporation in which functions that
are not considered crucial are outsourced to an independent organization.

2. The Intangible Organization

A. Businesses are shifting their resources from tangible to intangible investments. In this new
organization, ideas, information, and relationships are valued more than production machinery,
physical products, and structured jobs.

B. Virtual teams are common, and managers must be flexible, creative and open to new opportunities.

Focusing on the Future: Using Management Theory in Daily Life

This feature explores five common management career tracks including the general or operations manager, the
accounting or financial manager, the human resource manager, the marketing or communications manager, and
the entrepreneur.

Teaching Suggestions: Ask students to research the management track that they most identify with. Then ask
students to use the government web site included in the text to learn about current opportunities, trends, and
wages for that track. Next, ask students to explore the Small Business Administration (SBA) site. What
assistance can the SBA provide to entrepreneurs? Finally, ask students to pick an industry from the Day in the
Life site listed in the text and show how managers in the industry apply the concepts presented in the chapter.

Fredrick Taylor/Scientific Management

1911, Frederick Winslow Taylor published his work, The Principles of Scientific Management, in which he
described how the application of the scientific method to the management of workers greatly could improve
productivity. Scientific management methods called for optimizing the way that tasks were performed and
simplifying the jobs enough so that workers could be trained to perform their specialized sequence of motions in
the one "best" way.

Prior to scientific management, work was performed by skilled craftsmen who had learned their jobs in lengthy
apprenticeships. They made their own decisions about how their job was to be performed. Scientific
management took away much of this autonomy and converted skilled crafts into a series of simplified jobs that
could be performed by unskilled workers who easily could be trained for the tasks.

Taylor became interested in improving worker productivity early in his career when he observed gross
inefficiencies during his contact with steel workers.
Soldiering

Working in the steel industry, Taylor had observed the phenomenon of workers' purposely operating well below
their capacity that is, soldiering. He attributed soldiering to three causes:

1. The almost universally held belief among workers that if they became more productive, fewer of them
would be needed and jobs would be eliminated.

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2. Non-incentive wage systems encourage low productivity if the employee will receive the same pay
regardless of how much is produced, assuming the employee can convince the employer that the slow pace
really is a good pace for the job. Employees take great care never to work at a good pace for fear that this
faster pace would become the new standard. If employees are paid by the quantity they produce, they fear
that management will decrease their per-unit pay if the quantity increases.

3. Workers waste much of their effort by relying on rule-of-thumb methods rather than on optimal work
methods that can be determined by scientific study of the task.

The theory of scientific management is the “brainchild” of Frederick Winslow Taylor. In its simplest form the
theory is the belief that there is “one best way” to do a job and scientific methods can be used to determine that
“one best way”.

Taylor developed his theory through observations and experience as a mechanical engineer. As a mechanical
engineer Taylor noticed that the environment lacked work standards, bred inefficient workers and jobs were
allocated to people without matching the job to the worker’s skill and ability. In addition to this the relationship
of the workers with the managers included many confrontations.

Over a 20 year period Taylor devised the “one best way” to do each of the jobs on the shop floor. He then
concluded that prosperity and harmony for both workers and managers could be achieved by following the 4
guidelines below:
Develop a science for each element of an individual’s work, which will replace the old rule of thumb method.
Scientifically select and then train, teach and develop the worker.
Heartily cooperate with the workers so as to ensure that all work is done in accordance with the principles of the
science that has been developed.
Divide work and responsibility almost equally between management and workers.
Management takes over all the work for which it is better fitted than the workers (rather than most of the work
and responsibility being assigned to the workers).

A well known example of the scientific management theory is the pig iron experiment. Iron was loaded onto
rail cars by workers each lot weighing 92 pounds (41.73kg) and known as a “pig”. On average 12.5 tons
(12500kg) were loaded onto the rail cars but Taylor believed that scientific management could be used to
increase this to 47/48 tons per day. Through experimenting with various procedures and tools Taylor achieved
this. This is how he did it:
Taylor ensured that he matched each of the jobs to each of the workers skills and abilities.
Taylor ensured that he provided the workers with the correct tools.
Taylor ensured that he provided workers with clear instructions about how to do each job. Taylor ensured that
the workers understood the instructions and then Taylor ensured that the workers followed the instructions
exactly as he had explained.
Taylor then created worker motivation by providing a significantly higher daily wage.

It is believed that through the use of scientific management Taylor increased productivity on the shop floor by
200 percent. Taylor’s ideas and thoughts were adopted throughout the world including in France, Russia and
Japan. In today’s world scientific management has been merged with other ideas and is used by managers in the
form of time and motion studies to eradicate wasted motions, incentive schemes based on performance and
hiring the best qualified workers for each job.

To counter soldiering and to improve efficiency, Taylor began to conduct experiments to determine the best
level of performance for certain jobs, and what was necessary to achieve this performance.
Time Studies

Taylor argued that even the most basic, mindless tasks could be planned in a way that dramatically would
increase productivity, and that scientific management of the work was more effective than the "initiative and
incentive" method of motivating workers. The initiative and incentive method offered an incentive to increase
productivity but placed the responsibility on the worker to figure out how to do it.

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To scientifically determine the optimal way to perform a job, Taylor performed experiments that he called time
studies, (also known as time and motion studies). These studies were characterized by the use of a stopwatch to
time a worker's sequence of motions, with the goal of determining the one best way to perform a job.

The following are examples of some of the time-and-motion studies that were performed by Taylor and others in
the era of scientific management.

Pig Iron

If workers were moving 12 1/2 tons of pig iron per day and they could be incentivized to try to move 47 1/2 tons
per day, left to their own wits they probably would become exhausted after a few hours and fail to reach their
goal. However, by first conducting experiments to determine the amount of resting that was necessary, the
worker's manager could determine the optimal timing of lifting and resting so that the worker could move the 47
1/2 tons per day without tiring.

Not all workers were physically capable of moving 47 1/2 tons per day; perhaps only 1/8 of the pig iron
handlers were capable of doing so. While these 1/8 were not extraordinary people who were highly prized by
society, their physical capabilities were well-suited to moving pig iron. This example suggests that workers
should be selected according to how well they are suited for a particular job.

The Science of Shoveling

In another study of the "science of shoveling", Taylor ran time studies to determine that the optimal weight that
a worker should lift in a shovel was 21 pounds. Since there is a wide range of densities of materials, the shovel
should be sized so that it would hold 21 pounds of the substance being shoveled. The firm provided the workers
with optimal shovels. The result was a three to four fold increase in productivity and workers were rewarded
with pay increases. Prior to scientific management, workers used their own shovels and rarely had the optimal
one for the job.

Bricklaying

Others performed experiments that focused on specific motions, such as Gilbreth's bricklaying experiments that
resulted in a dramatic decrease in the number of motions required to lay bricks. The husband and wife Gilbreth
team used motion picture technology to study the motions of the workers in some of their experiments.
Taylor's 4 Principles of Scientific Management

After years of various experiments to determine optimal work methods, Taylor proposed the following four
principles of scientific management:

Replace rule-of-thumb work methods with methods based on a scientific study of the tasks.

Scientifically select, train, and develop each worker rather than passively leaving them to train themselves.

Cooperate with the workers to ensure that the scientifically developed methods are being followed.

Divide work nearly equally between managers and workers, so that the managers apply scientific management
principles to planning the work and the workers actually perform the tasks.

These principles were implemented in many factories, often increasing productivity by a factor of three or more.
Henry Ford applied Taylor's principles in his automobile factories, and families even began to perform their
household tasks based on the results of time and motion studies.
Drawbacks of Scientific Management

While scientific management principles improved productivity and had a substantial impact on industry, they
also increased the monotony of work. The core job dimensions of skill variety, task identity, task significance,
autonomy, and feedback all were missing from the picture of scientific management.

While in many cases the new ways of working were accepted by the workers, in some cases they were not. The
use of stopwatches often was a protested issue and led to a strike at one factory where "Taylorism" was being
tested. Complaints that Taylorism was dehumanizing led to an investigation by the United States Congress.

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Despite its controversy, scientific management changed the way that work was done, and forms of it continue to
be used today.

Scientific Management

Scientific management (also called Taylorism or the Taylor system) is a theory of management that analyzes
and synthesizes workflows, improving labour productivity. The core ideas of the theory were developed by
Frederick Winslow Taylor in the 1880s and 1890s, and were first published in his monographs, Shop
Management (1905) and The Principles of Scientific Management (1911).

Frederick Taylor believed that decisions based upon tradition and rules of thumb should be replaced by precise
procedures developed after careful study of an individual at work. Its application is contingent on a high level of
managerial control over employee work practices.

Taylorism is a variation on the theme of efficiency; it is a late-19th-and-early-20th-century instance of the larger

recurring theme in human life of increasing efficiency, decreasing waste, and using empirical methods to decide
what matters, rather than uncritically accepting pre-existing ideas of what matters. Thus it is a chapter in the
larger narrative that also includes, for example, the folk wisdom of thrift, time and motion study, Fordism, and
lean manufacturing. It overlapped considerably with the Efficiency Movement, which was the broader cultural
echo of scientific management's impact on business managers specifically.

In management literature today, the greatest use of the concept of Scientific Management (or Taylorism) is as a
contrast to a new, improved way of doing business. In political and sociological terms, Taylorism can be seen as
the division of labour pushed to its logical extreme, with a consequent de-skilling of the worker and
dehumanisation of the workplace.

Objectives of Scientific Management

The four objectives of management under scientific management were as follows:

1. The development of a science for each element of a man's work to replace the old rule-of-thumb
methods.

2. The scientific selection, training and development of workers instead of allowing them to choose their
own tasks and train themselves as best they could.

3. The development of a spirit of hearty cooperation between workers and management to ensure that
work would be carried out in accordance with scientifically devised procedures.

4. The division of work between workers and the management in almost equal shares, each group taking
over the work for which it is best fitted instead of the former condition in which responsibility largely
rested with the workers. Self-evident in this philosophy are organizations arranged in a hierarchy,
systems of abstract rules and impersonal relationships between staff.

Drawbacks of Scientific Management

While scientific management principles improved productivity and had a substantial impact on industry, they
also increased the monotony of work. The core job dimensions of skill variety, task identity, task significance,
autonomy, and feedback all were missing from the picture of scientific management.

While in many cases the new ways of working were accepted by the workers, in some cases they were not. The
use of stopwatches often was a protested issue and led to a strike at one factory where "Taylorism" was being
tested. Complaints that Taylorism was dehumanizing led to an investigation by the United States Congress.
Despite its controversy, scientific management changed the way that work was done, and forms of it continue to
be used today.

Criticism on Scientific Management

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Applications of scientific management sometimes fail to account for two inherent difficulties:

It ignores individual differences: the most efficient way of working for one person may be inefficient for
another;

It ignores the fact that the economic interests of workers and management are rarely identical, so that both the
measurement processes and the retraining required by Taylor's methods would frequently be resented and
sometimes sabotaged by the workforce.

Both difficulties were recognized by Taylor, but are generally not fully addressed by managers who only see the
potential improvements to efficiency. Taylor believed that scientific management cannot work unless the worker
benefits. In his view management should arrange the work in such a way that one is able to produce more and
get paid more, by teaching and implementing more efficient procedures for producing a product.

Although Taylor did not compare workers with machines, some of his critics use this metaphor to explain how
his approach makes work more efficient by removing unnecessary or wasted effort. However, some would say
that this approach ignores the complications introduced because workers are necessarily human: personal needs,
interpersonal difficulties and the very real difficulties introduced by making jobs so efficient that workers have
no time to relax. As a result, workers worked harder, but became dissatisfied with the work environment. Some
have argued that this discounting of worker personalities led to the rise of labour unions.

It can also be said that the rise in labour unions is leading to a push on the part of industry to accelerate the
process of automation, a process that is undergoing a renaissance with the invention of a host of new
technologies starting with the computer and the Internet. This shift in production to machines was clearly one of
the goals of Taylorism (or Scientific Management), and represents a victory for his theories.

However, tactfully choosing to ignore the still controversial process of automating human work is also
politically expedient, so many still say that practical problems caused by Taylorism led to its replacement by the
human relations school of management in 1930. Others (Braverman 1974) insisted that human relations did not
replace Taylorism but that both approaches are rather complementary: Taylorism (or Scientific Management)
determining the actual organisation of the work process and human relations helping to adapt the workers to the
new procedures.

However, Taylor's theories were clearly at the roots of a global revival in theories of scientific management in
the last two decades of the 20th century, under the moniker of 'corporate reengineering'. As such, Taylor's ideas
can be seen as the root of a very influential series of developments in the workplace, with the goal being the
eventual elimination of industry's need for unskilled, and later perhaps, even most skilled labour in any form,
directly following Taylor's recipe for deconstructing a process. This has come to be known as commodification,
and no skilled profession, even medicine, has proven to be immune from the efforts of Taylor's followers, the
'reengineers', who are often called derogatory names such as 'bean counters'.

FRANK (1868-1924) AND LILLIAN GILBERTH (1878-1972) Scientific Management

FRANK (1868-1924) AND LILLIAN GILBERTH (1878-1972) • Fatigue and motion studies to finding the
ways of promoting the individual workers welfare. • Using motions cameras found the most economical motions
and then upgrade performance and reduce fatigue. • Raise worker moral

MH.1 HISTORICAL BACKGROUND OF MANAGEMENT

MH-Management History
Many fascinating examples from history illustrate how management has been practiced for thousands
of years.
A. Organizations and managers have existed for thousands of years. The Egyptian pyramids and
the Great Wall of China were projects of tremendous scope and magnitude, requiring the
efforts of tens of thousands of people. How was it possible for these projects to be completed
successfully? The answer is management. Regardless of the titles given to managers
throughout history, someone has always had to plan what needs to be accomplished, organize
people and materials, lead and direct workers, and impose controls to ensure that goals were
attained as planned.

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 B. Examples of early management practices can also be seen by studying the Arsenal of Venice.
Assembly lines, accounting systems, and personnel functions are only a few of the processes
and activities used in business in the fifteenth century that are common to today’s
organizations as well.
C. Adam Smith, author of the classical economics doctrine The Wealth of Nations, argued
brilliantly for the economic advantages that he believed division of labor (the breakdown of
jobs into narrow, repetitive tasks) would bring to organizations and society.
D. The Industrial Revolution is possibly the most important pre-twentieth-century influence on
management. The introduction of machine powers combined with the division of labor made
large, efficient factories possible. Planning, organizing, leading, and controlling became
necessary activities.
E. Exhibit MH-1 illustrates the development of management theories.

MH.2 CLASSICAL APPROACH

A. Scientific management is defined as the use of the scientific method to determine the “one
best way” for a job to be done.
1. Frederick W. Taylor is known as the “father” of scientific management. Taylor’s
work at the Midvale and Bethlehem Steel companies stimulated his interest in
improving efficiency.
a. Taylor sought to create a mental revolution among both workers and
managers by defining clear guidelines for improving production efficiency.
He defined four principles of management (Exhibit MH-2).

Taylor's 4 Principles of Scientific Management

After years of various experiments to determine optimal work methods, Taylor proposed the following four
principles of scientific management:

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 Replace rule-of-thumb work methods with methods based on a scientific study of the tasks.

 Scientifically select, train, and develop each worker rather than passively leaving them to train
themselves.

 Cooperate with the workers to ensure that the scientifically developed methods are being followed.

 Divide work nearly equally between managers and workers, so that the managers apply scientific
management principles to planning the work and the workers actually perform the tasks.

These principles were implemented in many factories, often increasing productivity by a factor of three
or more. Henry Ford applied Taylor's principles in his automobile factories, and families even began to
perform their household tasks based on the results of time and motion studies.

b. His pig iron experiment is probably the most widely cited example of his scientific
management efforts.
Pig Iron

If workers were moving 12 1/2 tons of pig iron per day and they could be incentivized to try to
move 47 1/2 tons per day, left to their own wits they probably would become exhausted after a
few hours and fail to reach their goal. However, by first conducting experiments to determine
the amount of resting that was necessary, the worker's manager could determine the optimal
timing of lifting and resting so that the worker could move the 47 1/2 tons per day without
tiring.

Not all workers were physically capable of moving 47 1/2 tons per day; perhaps only 1/8 of
the pig iron handlers were capable of doing so. While these 1/8 were not extraordinary people
who were highly prized by society, their physical capabilities were well-suited to moving pig
iron. This example suggests that workers should be selected according to how well they are
suited for a particular job.

c. Using his principles of scientific management, Taylor was able to define the
“one best way” for doing each job.
d. Frederick W. Taylor achieved consistent improvements in productivity in
the range of 200 percent. He affirmed the role of managers to plan and
control and the role of workers to perform as they were instructed.
2. Frank and Lillian Gilbreth were inspired by Taylor’s work and proceeded to study
and develop their own methods of scientific management.
a. Frank Gilbreth is probably best known for his experiments in reducing the
number of motions in bricklaying.
b. The Gilbreths were among the first to use motion picture films to study
hand-and-body motions in order to eliminate wasteful motions.
c. They also devised a classification scheme to label 17 basic hand motions
called therbligs (Gilbreth spelled backward, with the th transposed).

3. How Do Today’s Managers Use Scientific Management?

Guidelines devised by Taylor and others to improve production efficiency are still
used in today’s organizations. However, current management practice is not
restricted to scientific management practices alone. Elements of scientific
management still used include:
a. Using time and motion studies
b. Hiring best qualified workers
c. Designing incentive systems based on output

B. General Administrative Theorists. This group of writers, who focused on the entire
organization, developed more general theories of what managers do and what constitutes good
management practice.

14
 1. Henri Fayol, who was a contemporary of Frederick W. Taylor, was the managing
director of a large French coal-mining firm.
a. Fayol focused on activities common to all managers.
b. He described the practice of management as distinct from other typical
business functions.
c. He stated 14 principles of management (fundamental or universal truths of
management that can be taught in schools;

Fayol's work was one of the first comprehensive statements of a general theory of management.[2] He
proposed that there were six primary functions of management and 14 principles of management[3]

Functions of management
Forecasting, planning, organizing, commanding, coordinating, monitoring.

Principles of Management
1. Division of work. This principle is the same as Adam Smith's 'division of labour'.
Specialisation increases output by making employees more efficient.
2. Authority. Managers must be able to give orders. Authority gives them this right. Note
that responsibility arises wherever authority is exercised.
3. Discipline. Employees must obey and respect the rules that govern the organisation.
Good discipline is the result of effective leadership, a clear understanding between
management and workers regarding the organisation's rules, and the judicious use of
penalties for infractions of the rules.
4. Unity of command. Every employee should receive orders from only one superior.
5. Unity of direction. Each group of organisational activities that have the same objective
should be directed by one manager using one plan.
6. Subordination of individual interests to the general interest. The interests of any one
employee or group of employees should not take precedence over the interests of the
organisation as a whole.
7. Remuneration. Workers must be paid a fair wage for their services.
8. Centralisation. Centralisation refers to the degree to which subordinates are involved in
decision making. Whether decision making is centralised (to management) or
decentralised (to subordinates) is a question of proper proportion. The task is to find the
optimum degree of centralisation for each situation.
9. Scalar chain. The line of authority from top management to the lowest ranks represents
the scalar chain. Communications should follow this chain. However, if following the
chain creates delays, cross-communications can be allowed if agreed to by all parties and
superiors are kept informed.
10. Order. People and materials should be in the right place at the right time.
11. Equity. Managers should be kind and fair to their subordinates.
12. Stability of tenure of personnel. High employee turnover is inefficient. Management
should provide orderly personnel planning and ensure that replacements are available to
fill vacancies.
13. Initiative. Employees who are allowed to originate and carry out plans will exert high
levels of effort.
14. Esprit de corps. Promoting team spirit will build harmony and unity within the
organisation.

Fayol's work has stood the test of time and has been shown to be relevant and appropriate to
contemporary management. Many of today’s management texts have reduced the six functions to four:
(1) planning; (2) organizing; (3) leading; and (4) controlling.

2. Max Weber (pronounced VAY-ber) was a German sociologist who wrote in the
early twentieth century.
a. Weber developed a theory of authority structures and described
organizational activity based on authority relations.
b. He described the ideal form of organization as a bureaucracy marked by
division of labor, a clearly defined hierarchy, detailed rules and regulations,
and impersonal relationships (see Exhibit MH-4).

15
The Key Characteristics of a Bureaucracy

Weber coined this last type of authority with the name of a bureaucracy. The term bureaucracy in terms
of an organization and management functions refers to the following six characteristics:

1. Management by rules. A bureaucracy follows a consistent set of rules that control the
functions of the organization. Management controls the lower levels of the organization's
hierarchy by applying established rules in a consistent and predictable manner.

2. A formal hierarchical structure. Each level controls the level below and is controlled by the
level above. A formal hierarchy is the basis of central planning and centralized decision
making.

3. Division of labour. Authority and responsibility are clearly defined and officially sanctioned.
Job descriptions are specified with responsibilities and line of authority. All employees have
thus clearly defined rules in a system of authority and subordination.

4. Formal hierarchical structure. An organization is organized into a hierarchy of authority and

follows a clear chain of command. The hierarchical structure effectively delineates the lines of
authority and the subordination of the lower levels to the upper levels of the hierarchical
structure.

5. Personnel hired on grounds of technical competence. Appointment to a position within the

organization is made on the grounds of technical competence. Work is assigned based on the
experience and competence of the individual.

6. Managers are salaried officials. A manager is a salaried official and does own the
administered unit. All elements of a bureaucracy are defined with clearly defined roles and
responsibilities and are managed by trained and experienced specialists.

16
 7. Written documents. All decisions, rules and actions taken by the organization are formulated
and recorded in writing. Written documents ensure that there is continuity of the
organization’s policies and procedures.

Advantages and Disadvantages of Weber’s Bureaucracy

Weber’s bureaucracy is based on logic and rationality which are supported by trained and qualified
specialists. The element of a bureaucracy offers a stable and hierarchical model for an organization.

Nevertheless, Weber’s bureaucracy does have its limitations since it is based on the roles and
responsibilities of the individuals rather than on the tasks performed by the organization. Its rigidity
implies a lack of flexibility to respond to the demands of change in the business environment.

3. How Do Today’s Managers Use General Administrative Theories? Some current

management concepts and theories can be traced to the work of the general
administrative theorists.
a. The functional view of a manager’s job relates to Henri Fayol’s concept of
management.
b. Weber’s bureaucratic characteristics are evident in many of today’s large
organizations—even in highly flexible organizations that employ talented
professionals. Some bureaucratic mechanisms are necessary in highly
innovative organizations to ensure that resources are used efficiently and
effectively.

MH.3 BEHAVIORAL APPROACH

The field of study concerned with the actions (behaviours) of people at work is organizational
behaviour. Organizational behaviour (OB) research has contributed much of what we know about
human resources management and contemporary views of motivation, leadership, trust, teamwork, and
conflict management.
A. Early Advocates of Organizational Behaviour
Four individuals—Robert Owen, Hugo Munsterberg, Mary Parker Follett, and Chester
Barnard—were early advocates of the OB approach. Their ideas served as the foundation for
employee selection procedures, motivation programs, work teams, and organization
environment management techniques.

 Organizational Behaviour
 study of the actions of people at work
 early advocates
 late 1800s and early 1900s
 believed that people were the most important asset of the organization
 ideas provided the basis for a variety of human resource management programs
• employee selection
• employee motivation
• Organizational behaviour (OB) research has contributed much of what we
know about human resources management, motivation, leadership, trust,
teamwork, and conflict management.

17
 Exhibit MH 5 EARLY ADVOCATES

1. Robert Owen, a successful Scottish businessman, proposed a utopian workplace.

2. Hugo Munsterberg created the field of industrial psychology—the scientific study of individuals at
work to maximize their productivity and adjustment.
3. Mary Parker Follett was a social philosopher who thought the manager’s job was to harmonize and
coordinate group efforts.
4. Chester Barnard, president of New Jersey Bell Telephone Company, saw organizations as social
systems that required human cooperation.
a. He believed that managers’ major roles were to communicate and stimulate subordinates to
high levels of effort.
b. He also introduced the idea that managers have to examine the environment and then adjust
the organization to maintain a state of equilibrium.

B. The Hawthorne Studies were the most important contribution to the development of
organizational behaviour.
1. This series of experiments conducted from 1924 to the early 1930s at the Western
Electric Company Works in Cicero, Illinois, were initially devised as a scientific
management experiment to assess the impact of changes in various physical
environment variables on employee productivity.
2. After Harvard professor Elton Mayo and his associates joined the study as
consultants, other experiments were included to look at redesigning jobs, make
changes in workday and workweek length, introduce rest periods, and introduce
individual versus group wage plans.
1. The researchers concluded that social norms or group standards were key
determinants of individual work behaviour.
2. Although not without criticism (concerning procedures, analyses of findings, and the
conclusions), the Hawthorne Studies stimulated interest in human behaviour in
organizational settings.

18
 C. How Do Today’s Managers Use the Behavioural Approach?
1. The behavioural approach assists managers in designing jobs that motivate workers,
in working with employee teams, and in facilitating the flow of communication
within organizations.
2. The behavioural approach provides the foundation for current theories of motivation,
leadership, and group behaviour and development.

QUANTITATIVE APPROACH TO MANAGEMENT

The quantitative approach to management sometimes known as operations research or management
science, uses quantitative techniques to improve decision making. This approach includes applications
of statistics, optimization models, information models, and computer simulations.

A. Important Contributions.
1. The quantitative approach originated during World War II as mathematical and
statistical solutions to military problems were developed for wartime use.
2. As often happens after wartime, methods that were developed during World War II to
conduct military affairs were applied to private industry following the war. For
instance, a group of military officers—the Whiz Kids—used quantitative methods to
improve decision making at Ford Motor Company in the mid-1940s.
B. How Do Today’s Managers Use the Quantitative Approach?
1. The quantitative approach has contributed most directly to managerial decision
making, particularly in planning and controlling.
2. The availability of sophisticated computer software programs has made the use of
quantitative techniques more feasible for managers.
C. Total Quality Management.
1. Quality management is a philosophy of management that is driven by continual
improvement and response to customer needs and expectations (see Exhibit MH-6).

2. TQM was inspired by a small group of quality experts, including W. Edwards

Deming, who was one of its chief proponents.
3. TQM represents a counterpoint to earlier management theorists who believed that
low costs were the only road to increased productivity.
4. The objective of quality management is to create an organization committed to
continuous improvement in work processes.

MH.5 CONTEMPOARY APPROACH

A. Systems Theory. During the 1960s researchers began to analyse organizations from a systems
perspective based on the physical sciences. A system is a set of interrelated and interdependent
parts arranged in a manner that produces a unified whole. The two basic types of systems are
closed and open. A closed system is not influenced by and does not interact with its environment.
An open system interacts with its environment (see

19
B. Exhibit MH-7).

1. Using the systems approach, managers envision an organization as a body with many
interdependent parts, each of which is important to the well-being of the organization
as a whole.
2. Managers coordinate the work activities of the various parts of the organization,
realizing that decisions and actions taken in one organizational area will affect other
areas.
3. The systems approach recognizes that organizations are not self-contained; they rely
on and are affected by factors in their external environment.

B. The Contingency Approach. The contingency approach recognizes that different organizations
require different ways of managing.
1. The contingency approach to management is a view that the organization recognizes
and responds to situational variables as they arise.
2. Some popular contingency variables are shown in Exhibit MH-7.

20
Planning
Defining Planning
1. Planning is the process of determining how the management system will
achieve its objectives

Initial Terminology

1. Objectives: the end states or targets that managers aim for

2. Plans: the means by which managers hope to hit the desired targets
3. Planning: a decision-making process that focuses on the future of the organization and how it’s going
to get where it wants to go.

According to C.W. Roney, there are two purposes—protective and affirmative:

1. The protective purpose is to minimize risk by reducing uncertainties surrounding business conditions
and by clarifying the consequences of related management action.
2. The affirmative purpose is to increase the degree of organizational success.
3. Another purpose is to establish a coordinated effort within the organization.
 According to Koontz and O’Donnell, the primary purpose is to “facilitate the accomplishment
of enterprise and objectives.”
Planning: Advantages and Potential Disadvantages
1. Advantages:
 Future-oriented
 Decision coordination
 Emphasis on organizational objectives
2. Potential disadvantage:
 An overemphasized planning program can take up too much managerial time.
 Managers must strike an appropriate balance between time spent planning and time
spent on organizing, influencing, and controlling.

Key Elements of Planning

• Goals or targets that the firm wishes to reach within a stated amount of time
• The specific steps the firm intends to take to achieve the desired objectives
• A plan states where resources will come from and how they will be deployed
• Show how the intended actions will be carried out

The Benefits of Planning

• Assessment of external forces

21
 • Developing a sense of direction and purpose
• Identifying the factors that affect the organization
• Encouraging participation
• Coordination of efforts
• Establishment of priorities
• Focusing attention on different time horizons
• Understanding circumstances contributing to past success or failure
• Ensuring the availability of adequate resources
• Establishing performance standards
• Supporting the organizational control systems
• Developing “what-if” scenarios
• Management development

Why Should Managers Formally Plan?

Managers should engage in planning for at least four reasons.
Planning provides direction
It reduces the impact of change.
Planning minimizes waste and redundancy
It sets the standards to facilitate control.
Planning establishes coordinated effort.
Understanding where the organization is going and what must be contributed to reach the objectives,
helps members to coordinate their activities and fosters teamwork.
A lack of planning can cause various organizational members or their units to work against one
another.
Planning reduces uncertainty.
It clarifies the consequences of actions.
It is precisely what is needed when managing in a chaotic environment.
Planning also reduces overlapping and wasteful activities.
Finally, planning establishes objectives or standards that facilitate control.

Planning for “What If”

• Be prepared for the unimaginable

• Create alternative scenarios
• Try to estimate probabilities
• Use internal markets
• Create a culture that insists on facing reality

The Pitfalls of Planning

• Poor forecasts of future conditions

• Plans imposed from above
• Planning as a self-contained activity
• Extensive bureaucratization
• Inflexible adherence to objectives and processes

Keys to Successful Planning

• Decentralize planning process

• Use numerical and judgmental methods
• View planning as continuous and capable of adapting to change
• Avoid paralysis of the analysis
• Concentrate on a manageable set of issues
• Assess external forces
• Develop a sense of direction and purpose
• Identify factors that affect the organization
• Encourage participation
• Coordinate efforts
• Establish priorities

22
Types of Plans
1. The three types of plans can be differentiated across several dimensions.
a. Time Horizon
b. Scope
c. Complexity
d. Impact
e. Interdependence

2. The three types of plans are

a. Strategic Plans
i. Focus on the broad future of the organization
ii. Involve analysis and alignment of external environmental demands with internal
resource capability
iii. Some evidence links rigorous strategic planning with increased financial
performance
iv. Cover all aspects of the organization
v. Are longer in duration than the other types of plans, frequently encompassing 3-5
years.
b. Tactical Plans
i. Translate strategic plans into specific goals for specific parts of the organization
ii. Somewhat shorter time frames than strategic plans
iii. Narrower in scope than strategic plans
iv. Generally apply to a single business within an organization
v. They support the overall strategic plan but may be independent of the tactical plans
of other parts of the company
c. Operational Plans
i. Translate tactical plans into specific goals and actions for small units of the
organization
ii. Focus on the near term, usually 12 months or less
iii. The least complex type of plan
iv. Impact only the immediate department in which they are prepared
d. Specific Plans
i. Plans that are clearly defined and leave no room for interpretation.
e. Directional Plans
i. Flexible plans that set out general guidelines and provide focus, yet allow discretion
in implementation.
f. Single-Use Plan
A one-time plan specifically designed to meet the need of a unique situation.
g. Standing Plans

23
 Ongoing plans that provide guidance for activities performed repeatedly.
Organizational Levels at which Plans are Developed
Different levels of the organization have different challenges to meet and ask different questions while planning.
1. Corporate Level
a. The focus is on the wide future
b. Questions asked include:
i. What industries should we get into or out of?
ii. What markets should the firm be in? What should our international presence consist
of?
iii. In which businesses should the corporation invest money
iv. How should resources be allocated across our business units?
v. Currently, corporate reputation is of critical interest to planners at the corporate level.
2. Business Level :
a. Elements at this level are frequently called Strategic Business Units (SBUs)
b. Environmental analysis at this level is particularly concerned with competitive analysis. It is
concerned with how to compete today.
i. SBUs may be competing in completely different industries or in widely differing
segments of the same industry.
ii. They are interested in how to compete with others in their particular industry or
industry segment.
c. Questions asked at this level include:
i. Who are our direct competitors?
ii. What are their strengths and weaknesses?
iii. What are our strengths and weaknesses?
iv. What do our customers want? How can we provide it?
v. Do we have any advantages over the competition? If so, how can we leverage them?
If not, can we develop some?
3. Functional Level
a. The focus is on facilitating the tactical plan of their SBU and thus the overall corporate
strategic plan.
b. Managers at this level head departments such as HR, Finance, and Marketing.
c. Questions asked at this level include:
i. What activities does my unit need to perform well in order to meet customer
expectation?
ii. What information about competitors does my unit need in order to help the business
compete effectively?
iii. What are my unit’s strengths and weaknesses?

Interaction Between Types and Levels

1. Corporate managers formulate the strategic plan but are usually not directly involved in developing
tactical or operational plans
2. Business Level Managers may help in developing the strategic plan and are responsible for developing
their unit’s tactical plan. They generally do not get involved in the development of individual
operational plans.
3. Functional level managers are generally only involved in the development of their unit’s specific
operational plan.

THE PLANNING PROCESS

The Planning Process consists of six key elements. This section examines some critical elements or tools used in
each of the steps of the planning process.
Analysing the Firm’s External Environment
a. Forecasts
i. Forecasts can be made about virtually any critical environmental element
ii. The accuracy of forecast is important because of the cascading effects in processes.
Effective managers track changes in forecasts in order to insure accuracy and avoid
cascading errors.
iii. Environmental Uncertainty
1. Forecasting and other analyses become more difficult with increasing
environmental uncertainty.
2. As uncertainty increases, plans need to become more flexible.

24
 3. In uncertain environments, managers usually develop contingency plans
a. Contingency plans identify key factors that could affect the desired
results and specific different actions to take if the environment
differs at each point from what is anticipated.
b. Benchmarking:
i. Managers compare their results in critical areas against the best results in both
competitor and non-competitor firms to judge their relative performance.
ii. Managers who find other companies doing better than they examine the practices of
those companies that allow them to achieve higher results. The managers may then
attempt to apply those practices to increase their own unit’s performance.
iii. Comparisons against non-competitors may be lead to inapplicable practices.

2. Assessing the Firm’s Internal Resources

What do we need to get from here to there? And, do we have it or can we get it?
a. Resources Available: what resources do we have?
i. This analysis should be done simultaneously with the analysis of the external
environment.
ii. Available resources will affect the objectives (goals) that can be set.
iii. If required resources exceed resources available, new resources must be obtained or
the plan changed.
iv. Not only must the company have the required resources, those resources must be
available for use in this particular plan.
v. Assessment of resources involves questions such as:
1. What human capital do we have currently? [Human Capital refers to the
knowledge, education, training, skills, and expertise of a firm’s workers.
This definition is from Dessler, G. (2011) Human Resource Management
12e. Prentice Hall.]
2. Can people work on new and additional projects or will new people be
needed?
3. Can we develop or acquire additional human capital if needed for new
projects?
4. What financial resources do we have available? Can we obtain additional
funding from the debt or equity markets if needed?
5. Do we have the cutting edge technology or can we gain access to it at a cost
effective price?

3. Setting Objectives
a. Priorities and Multiple Objectives
i. Companies frequently have many goals.
ii. It is imperative that managers know which are the priority goals so that they are all
working towards the same end.
iii. Some goals are more or less important when compared at the same time.
iv. Temporal priorities also exist. Priorities can change over time, with one goal being
more important now, and another being more important later.
b. Measuring Objectives
i. At this stage in the planning process, managers also need to make decisions about
how performance will be measured. What specific information needs to be collected
and in what form.
4. Developing Action Plans
a. Sequence and Timing
i. When developing action plans, managers plot out the exact order in which steps must be taken
and how long each step is expected to take.
ii. Tools such as Gantt charts can be useful in scheduling activities and checking for bottlenecks
and overlaps.
b. Accountability
i. At this point in the planning process specific assignments are given so that everyone knows
who is responsible for what aspects of the plan.
ii. This facilitates coordination
iii. This increases the likelihood that actions will be taken when needed, and that none will be
overlooked.

25
 5. Implementing Plans: Plans will often fail in the implementation stage because of inadequate resource
assessment and lack of accountability
i. The quality of the implementation is at least as important as the quality of the plan itself.
ii. Monitoring the Implementation
iii. There are three critical factors that must be monitored:
i. The progress of the plan and its implementation. Planners frequently use
‘milestones’ to mark check points in the plan.
ii. The level of support the plan is receiving as it is being implemented. Are the
physical and emotional support resources adequate?
iii. The level and sources of resistance to the implementation. Refer to Chapters
2 and 17 for information on the causes and cures for resistance to change.
iv. Real Time Adjustment
i. Managers in dynamic environments need to plan for categories of problems rather than
trying to anticipate every possible problem.
ii. Managers need to help employees recognize the need to adapt plans in real time and
foster the skills that will make this possible.
6. Monitoring Outcomes
iii. Plans may result in unanticipated negative or positive outcomes.
iv. These unanticipated outcomes can be valuable learning tools.

PLANNING TOOLS
1. Budgets
a. Used to allocate resources to specific activities
b. Usually set on an annual basis in organizations
c. There are different types of budgets:
i. Capital Expenditure Budget: money is allocated for purchase of expensive items with
long term use
ii. Expense Budget
1. includes all primary activity items (see value chain analysis – Chapter 6) the
unit expects to spend money on during the upcoming year
2. used in virtually all profit and non-profit organizations of moderate or larger
size
3. used for both planning and control purposes
d. Budgets are created using various processes:
i. Two part process
1. A proposed budget including capital expenditures and expenses is created
and sent to a budget review committee.
2. The approved budget is returned from the budget committee to the manager
and specifies authorized expenditures for the coming year.
ii. Incremental Budgeting
1. the previous year’s budget serves as the starting point
2. increases or decreases in particular items and the addition of new items are
proposed
3. Efficient due to time savings. The budget isn’t started from scratch each
year
4. Drawback: items become institutionalized, with money allocated simply
because the items were funded in the past.
iii. Zero-Based Budgeting
1. all items must be justified each year
2. benefit: all items must be justified on their current merits regardless of their
past history
3. generally leads to a more effective overall allocation of financial resources
4. drawback: takes a lot of time.
e. Budgets are used as:
i. Planning tools
1. determine priorities
2. determine required resources
3. aid in implementation of plans
Traditional Goal Setting

26
 • Broad goals are set at the top of the organization.
• Goals are then broken into sub-goals for each organizational level.
• Goals are intended to direct, guide, and constrain from above.
• Goals lose clarity and focus as lower-level managers attempt to interpret and define the goals for their
areas of responsibility.

Steps in Goal Setting

1. Review the organization’s mission statement.

Do goals reflect the mission?
2. Evaluate available resources.
Are resources sufficient to accomplish the mission?
3. Determine goals individually or with others.
Are goals specific, measurable, and timely?
4. Write down the goals and communicate them.
Is everybody on the same page?
5. Review results and whether goals are being met.
What changes are needed in mission, resources, or goals?

2. Goal Setting
a. A planning process for managing performance
b. Principles of effective goal setting are applicable at the individual, department, business and
corporate levels.
c. Effective goals are SMART goals
i. Specific
1. the more specific the goal, the more likely it is to be achieved
2. the more specific the goal, the more likely it is to achieve the actual, desired
outcome, to solve the real problem
ii. Measurable
1. You should be able to measure both progress toward and achievement of an
effective goal.
2. the frequency of progress measurement is related to the activities associated
with achieving the goal. This is almost always more than twice per year.
iii. Agreement (Commitment)
1. the most effective goals are discussed and agreed upon between manager
and subordinate rather than imposed by the manager
2. Acceptance of a goal leads to commitment to achieving the goal
3. Managers need to foster an atmosphere of openness and candor in setting
goals, actively listen to subordinates feelings of commitment or resistance to
a goal.
iv. Realistic:

27
 1. goals need to be challenging but achievable: neither too easy, nor too hard
v. Time bound
1. there should be a specific time span for achievement of the goal
2. goals that will take a long time should have shorter term milestones built in

MANAGEMENT BY OBJECTIVES (MBO)

A. Management by objectives (MBO) is a management approach that uses organizational
objectives as the primary means by which to manage organizations.
B. Three major characteristics of the MBO strategy are:
1. All individuals within an organization are assigned a specialized set of
objectives.
2. Performance reviews are conducted periodically.
3. Rewards are given on the basis of how close they come to reaching their goals.
Key elements of MBO:
a. goal specificity
b. participative decision making
c. an explicit performance/evaluation period
d. feedback
C. The Steps in the MBO Process include:

1. The organization’s overall objectives and strategies are formulated./ Review organizational
objectives
2. Major objectives are allocated among divisional and departmental units.
3. Unit managers collaboratively set specific objectives for their units with their managers.
4. Specific objectives are collaboratively set with all department members./ Set worker
objectives
5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by
managers and employees.
6. The action plans are implemented.

28
 7. Progress toward objectives is periodically reviewed, and feedback is provided./ Monitor
progress
8. Successful achievement of objectives is reinforced by performance-based rewards.
(Some texts give 5 steps only, but these are expanded to 8 in this case)

D. Factors Necessary for a Successful MBO Program

1. Top management must be committed to the MBO process and set appropriate
objectives for the overall organization.
2. Managers and subordinates together must develop and agree on each
individual’s goals.
3. Employee performance should be conscientiously evaluated on the basis of
established objectives.
4. Management must follow through on employee performance evaluations and
reward employees accordingly.
E. MBO Programs: Advantages and Disadvantages
1. Two advantages are:
a. MBO programs continually emphasize what should be done in an organization to
achieve organizational goals.
b. The MBO process secures employee commitment to attaining organizational
goals.
2. Disadvantages are:
a. Because organization members develop objectives together, they actually have less
time in which to do their work.
b. Elaborate written goals, careful communication of goals, and detailed
performance evaluations naturally increase the volume of paperwork in an
organization.
c. Not as effective in dynamic environments that require constant resetting of goals.
1. Overemphasis on individual accomplishment may create problems with teamwork.

What Are Some Criticisms of Formal Planning?

 Formal planning by managers makes intuitive sense.
i. An organization needs direction.
 Planning may create rigidity.
i. Formal planning efforts lock an organization into specific goals and specific
timetables.
ii. The assumption may be that the environment won’t change during the time period
the objectives cover.
a. If that assumption is faulty, managers who follow a plan may have trouble.
b. Forcing a course of action when the environment is fluid can be a recipe for
disaster.
 Formal plans can’t replace intuition and creativity
 Visions have a tendency to become formalized as they evolve.
 Formal planning efforts typically follow a methodology that reduces the vision to a
programmed routine.
i. The rapid rise of Apple Computer in the late 1970s and throughout the
1980s was attributed, in part, to the creativity and anti-corporate attitudes of
one of its cofounders, Steven Jobs.
ii. Ultimately Jobs was ousted and with his departure came increased
organizational formality—the very thing he despised because it hampered
creativity.
 Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival.

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  Formal planning tends to focus on how to best capitalize on existing business opportunities
within the industry.
 It often does not allow for managers to consider creating or reinventing the industry.
 Some companies have found much of their success to be the result of forging into
uncharted waters, designing and developing new industries as they go.
 Formal planning reinforces success, which may lead to failure.
i. Success may, in fact, breed failure in an uncertain environment.
ii. It is hard to change or discard successful plans.
iii. Successful plans may provide a false sense of security.
Does Planning Improve Organizational Performance?
Contrary to the critics, the evidence generally supports having formal plans. However, organizations that
formally plan do not always outperform those that don’t.
Conclusions from studies of the relationship between planning and performance.
 There are generally higher profits, higher return on assets with a formal planning process.
 The quality of the process and appropriate implementation of the plans probably contribute
more to high performance than does the extent of planning.
 Finally, in those organizations in which formal planning did not lead to higher
performance, the environment was typically the culprit.
 Government regulations and similar environmental constraints leave managers with fewer
 viable alternatives

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Decision Making
THE DECISION-MAKING PROCESS
A decision is a choice made from two or more alternatives. The decision-making process is a set of
eight steps that include identifying a problem, selecting an alternative, and evaluating the decision’s
effectiveness. (See Exhibit 7-1 for an illustration of the decision-making process.)

A. Step 1: Identifying a problem. A problem is a discrepancy between an existing and a desired

state of affairs. In order to identify a problem, you as a manager should recognize and
understand the three characteristics of problems:
1. You must be aware of the problem. Be sure to identify the actual problem rather than
a symptom of the problem.
2. You must be under pressure to act. A true problem puts pressure on the manager to
take action; a problem without pressure to act is a problem that can be postponed.
3. You must have the authority or resources to act. When managers recognize a problem
and are under pressure to take action but do not have necessary resources, they
usually feel that unrealistic demands are being put upon them.
B. Step 2: Identifying decision criteria. Decision criteria are criteria that define what is relevant
in a decision.
• Decision criteria are factors that are important (relevant) to resolving the problem, such
as:
– Costs that will be incurred (investments required)
– Risks likely to be encountered (chance of failure)
– Outcomes that are desired (growth of the firm)

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C. Step 3: Allocating weights to the criteria. The criteria identified in Step 2 of the decision-
making process do not have equal importance, so the decision maker must assign a weight to
each of the items in order to give each item accurate priority in the decision. Exhibit 7-2 lists
the criteria and weights for purchase decision for new computers.

D. Step 4: Developing alternatives. The decision maker must now identify viable alternatives
that could resolve the problem.
E. Step 5: Analysing alternatives. Each of the alternatives must now be critically analysed by
evaluating it against the criteria established in steps 2 and 3. Exhibit 7-3 shows the values that
Amanda assigned to each of her alternatives for a new computer.

Exhibit 7-4 reflects the weighting for each alternative, as illustrated in Exhibits 7-2 and 7-3.

F. Step 6: Selecting an alternative. This step to select the best alternative from among those
identified and assessed is critical. If criteria weights have been used, the decision maker
simply selects the alternative that received the highest score in Step 5.
G. Step 7: Implementing the alternative. The selected alternative must be implemented by
effectively communicating the decision to the individuals who will be affected by it and
winning their commitment to the decision.
H. Step 8: Evaluating decision effectiveness. This last step in the decision-making process
assesses the result of the decision to determine whether or not the problem has been resolved.

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MANAGERS MAKING DECISIONS
Manager as a decision maker and how decisions are actually made in organizations. Exhibit 7-5 shows
how decision making fits into the four functions of management.

How decisions are made, the types of problems and decisions faced by real-life managers, the
conditions under which managers make decisions, and decision-making styles.
A. Making Decisions: Rationality. Managerial decision making is assumed to be rational—that
is, making choices that are consistent and value-maximizing within specified constraints. If a
manager could be perfectly rational, he or she would be completely logical and objective.
1. Rational decision making assumes that the manager is making decisions in the best
interests of the organization, not in his or her own interests.
2. The assumptions of rationality can be met if the manager is faced with a simple
problem in which (1) goals are clear and alternatives limited, (2) time pressures are
minimal and the cost of finding and evaluating alternatives is low, (3) the
organizational culture supports innovation and risk taking, and (4) outcomes are
concrete and measurable.
B. Making Decisions: Bounded Rationality. In spite of these limits to perfect rationality,
managers are expected to be rational as they make decisions. Because the perfectly rational
model of decision making isn’t realistic, managers tend to operate under assumptions of
bounded rationality, which is decision-making behaviour that is rational, but limited
(bounded) by an individual’s ability to process information.
1. Under bounded rationality, managers make satisficing decisions, in which they accept
solutions that are “good enough.”
2. Managers’ decision making may be strongly influenced by the organization’s culture,
internal politics, power considerations, and by a phenomenon called escalation of
commitment—an increased commitment to a previous decision despite evidence that
it may have been wrong.
C. Making Decisions: The Role of Intuition. Managers also regularly use their intuition. Intuitive
decision making is a subconscious process of making decisions on the basis of experience and
accumulated judgment.

33
 Exhibit 7-6 describes the five different aspects of intuition.

1. Making decisions on the basis of gut feeling doesn’t necessarily happen

independently of rational analysis; the two complement each other.
2. Although intuitive decision making will not replace the rational decision-making
process, it does play an important role in managerial decision making.
D. Making Decisions: The Role of Evidence-Based Management. The premise behind evidence-
based management (EBMgt) is that any decision making process is likely to be enhanced
through the use of relevant and reliable evidence. EBMgt promotes the use of the best
available evidence to improve management practice.
1. The four essential elements of EBMgt are the decision maker’s expertise and
judgment; external evidence that’s been evaluated by the decision maker; opinions,
preferences, and values of those who have a stake in the decision; and relevant
organizational (internal) factors such as context, circumstances, and organizational
members.
2. The strength or influence of each of these elements on a decision will vary with each
decision.
3. The key for managers is to recognize and understand the mindful, conscious choice
as to which element(s) are most important and should be emphasized in making a
decision.

7.3 TYPES OF DECISIONS AND DECISION-MAKING CONDITIONS

A. Types of Decisions. Managers encounter different types of problems and use
different types of decisions to resolve them.
1. Structured problems are straightforward, familiar, and easily defined. In
dealing with structured problems, a manager may use a programmed
decision, which is a repetitive decision that can be handled by a routine
approach. Managers rely on three types of programmed decisions:
a. A procedure is a series of interrelated sequential steps that can be
used to respond to a structured problem.
b. A rule is an explicit statement that tells managers what they can or
cannot do.
c. A policy is a guideline for making decisions.
2. Unstructured problems are problems that are new or unusual and for
which information is ambiguous or incomplete. These problems are best
handled by a nonprogrammed decision that is a unique decision that
requires a custom-made solution.

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 4. Exhibit 7-7describes differences between programmed versus nonprogrammed decisions.

a. At higher levels in the organizational hierarchy, managers deal

more often with difficult, unstructured problems and make
nonprogrammed decisions in attempting to resolve these problems
and challenges.
b. Lower-level managers handle routine decisions themselves, using
programmed decisions. They let upper-level managers handle
unusual or difficult decisions.

B. Decision-Making Conditions
1. Certainty is a situation in which a manager can make accurate decisions
because all outcomes are known. Few managerial decisions are made under
the condition of certainty.
2. More common is the situation of risk, in which the decision maker is able to
estimate the likelihood of certain outcomes. Exhibit 7-8 shows an example
of how a manager might make decisions using “expected value,”
considering the conditions of risk.

3. Uncertainty is a situation in which the decision maker is not certain and cannot even
make reasonable probability estimates concerning outcomes of alternatives.
a. The choice of alternative is influenced by the limited amount of information
available to the decision maker.
b. It’s also influenced by the psychological orientation of the decision
maker/optimistic or Pessimistic

B. Decision-Making Biases and Errors

Managers use different styles and “rules of thumb” (heuristics) to simplify their decision
making. See Exhibit 7-11 for the common decision making biases.
1. Overconfidence bias occurs when decision makers tend to think that they know more
than they do or hold unrealistically positive views of themselves and their
performance.
2. Immediate gratification bias describes decision makers who tend to want immediate
rewards and avoid immediate costs.
3. The anchoring effect describes when decision makers fixate on initial information as
a starting point and then, once set, fail to adequately adjust for subsequent
information.
4. Selective perception bias occurs when decision makers selectively organize and
interpret events based on their biased perceptions.

35
Common Decision Making Biases

5. Confirmation bias occurs when decision makers seek out information that reaffirms
their past choices and discount information that contradicts their past judgments.
7. Framing bias occurs when decision makers select and highlight certain aspects of a
situation while excluding others.
7. Availability bias is seen when decision makers tend to remember events that are the
most recent and vivid in their memory.
8. Decision makers who show representation bias assess the likelihood of an event
based on how closely it resembles other events or sets of events.
9. Randomness bias describes the effect when decision makers try to create meaning out
of random events.
10. The sunk costs error is when a decision maker forgets that current choices cannot
correct the past. Instead of ignoring sunk costs, the decision maker cannot forget
them. In assessing choices, the individual fixates on past expenditures rather than on
future consequences.
11. Self-serving bias is exhibited by decision makers who are quick to take credit for
their successes and blame failure on outside factors.
12. Hindsight bias is the tendency for decision makers to falsely believe, once the
outcome is known, that they would have accurately predicted the outcome.

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C. Overview Managerial Decision Making
1. Exhibit 7-12 provides an overview of managerial decision making. Managers want
to make good decisions because doing so is in their best interests.

2. Regardless of the decision, it has been shaped by a number of factors, which have
been discussed in Chapter Seven.

EFFECTIVE DECISION MAKING FOR TODAY’S WORLD

Today’s business world revolves around making decisions, which are often risky ones made with
incomplete or inadequate information and under intense time pressure. How can managers make
effective decisions under these conditions?
A. Understand cultural differences.
B. Know when it is time to call it quits.
C. Use an effective decision-making process.
D. Build highly reliable organizations (HROs) that practice five habits:
1. Do not be tricked by your own success.
2. Defer to the experts on the front lines.
3. Let unexpected circumstances provide the solution.
4. Embrace complexity.
5. Anticipate, but also recognize the limits to your ability to anticipate.

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ORGANIZATION

1. Span of control
 Factors determining an effective span
 Departmentalization
2. Formal & Informal organization
3. Authority & power
4. Line and staff concepts
 Line authority
 Staff concept
 Line and staff organization of a typical manufacturing company
 Nature of line & staff concepts
5. Delegation of authority
 Splintered authority
 Recovery of delegated authority
 The art of delegation of authority
 Personal attitude toward delegation
 Guidelines for overcoming weak delegation

INTRODUCTION
Designing organizational structure involves the process of organizing (the second management
function) and plays an important role in the success of a company.

10.1 DEFINING ORGANIZATIONAL STRUCTURE

Managers need to establish structural designs that will best support and allow employees to do their
work effectively and efficiently.
Several important terms must be defined in order to understand the elements of organizational structure
and design:
1. Organizing is arranging and structuring work to accomplish the organization’s goals.
This process has several purposes, as shown in Exhibit 10-1.

2. Organizational structure is the formal arrangement of jobs within an organization.

3. Organizational design is developing or changing an organization’s structure. This
process involves decisions about six key elements: work specialization,
departmentalization, chain of command, span of control, centralization/
decentralization, and formalization.
A. Work Specialization. Work specialization is dividing work activities into separate job tasks. Most
of today’s managers regard work specialization as an important organizing mechanism, but not as
a source of ever-increasing productivity. Exhibit 10-2 illustrates the human diseconomies from
division of labour—boredom, fatigue, stress, low productivity, poor quality, increased
absenteeism, and high turnover— eventually exceed the economic advantages created by work
specialization.

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As Exhibit 10-2 illustrates, at some point, the human diseconomies from division of labour—boredom, fatigue,
stress, low productivity, poor quality, increased absenteeism, and high turnover—exceed the economic
advantages.

B. Departmentalization. When work tasks have been defined, they must be arranged in order to
accomplish organizational goals. This process, known as departmentalization, is the basis by
which jobs are grouped. There are five major ways to departmentalize (see Exhibit 10-3):
1. Functional departmentalization groups jobs by functions performed.
2. Product departmentalization groups jobs by product line.
3. Geographical departmentalization groups jobs on the basis of geographical region.
4. Process departmentalization groups jobs on the basis of product or customer flow.

COMMON ORGANIZATIONAL STRUCTURES

1. There are a multitude of organizational structures; however, there are six basic, generic structures.
2. Frequently these structures are combined within one organization.

39
3. Environmental factors determine which structure will be the most effective for a given organization –
that is the job of organizational design.
4. The six basic structures are:
A. Functional Structure
i. Simplest structure
ii. Organized by departments (HR, Accounting, Finance, etc.)
iii. Advantages
a. effective in small to medium sized firms with limited product diversification
b. increases specialization
c. limits duplication of functional resources
d. facilitates coordination within functional areas.
B. Product Structure
i. Organization based on specific products or related sets of products
ii. Each product group has its own full set of functional departments
iii. Each product is a profit center
iv. Advantages:
a. Functional areas managers focus on the products and customers
b. Performance of a specific product or related group of products is easier to
evaluate
c. Faster responsiveness to market changes
d. Top executives are responsible for fewer operational decisions – only for the
product, not the entire company.
v. Disadvantages
a. Repetition of functional area costs
b. Confusion across product groups
c. Conflict between product group objectives and corporate objectives
d. Difficulty coordinating across product groups.
C. Division Structure
i. May be viewed as an extension of the product structure
ii. Organized around groups of loosely related products. They may only be related by
category such as toys, or clothing, or healthcare products, with several very different
product lines within each division.
iii. Advantages:
a. Reduction of functional duplication
b. Enhancement of economies of scale
c. Customer focus may be enhanced
d. Cross-product coordination within the division is increased
e. Cross-regional coordination within product families is improved.
i. Disadvantages
a. Appropriate only for large, diversified companies
b. Can inhibit cross-division coordination
c. Can enhance coordination difficulties between division and corporate
objectives.
D. Customer Structure
i. Structure is organized around categories of customers
ii. Advantages:
a. In-depth understanding of customer needs
b. Faster response to changes in customer preferences
iii. Disadvantages:
a. Duplication of functional resources
b. Conflicts between customer focused goals and organizational goals
c. Failure to leverage technological strengths across units
A. Geographic/Regional Structure
i. Organizations are structured by geographic or other region
ii. Regional executives responsible for all functional activities and products in their
regions
iii. Individual regions often treated as profit centres
iv. Advantages:
a. In-depth understanding of the market, customers, governments, and
competitors within a given geographical area

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 b. Strong sense of regional accountability
c. Increased, speedy response to regional market changes
i. Disadvantages:
a. Difficulty coordinating and communicating between regions
b. Increased conflict between regional and corporate management
c. Duplication of functional resources
d. Lowered economies of scale due to separate production facilities
e. Competitive behaviour between regions can frustrate cross-regional
customers.
A. Matrix
i. Two or more structures superimposed on each other (i.e.; product division with
functional departments)
ii. Overlapping structures are based on the dominant aspects of the organization’s
environment

iii. Advantages:
a. Facilitates information flow
b. Enhances decision quality
c. Rapid response to changing and complicated business environments
d. Flexible use of human resources
i. Disadvantages:
a. Increases complexity of performance evaluations (individuals have two or
more bosses)
b. Inhibits the organization’s ability to respond to changes quickly
c. Diffusion of accountability
d. Increased conflict

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 5. Customer departmentalization groups jobs on the basis of specific and unique
customers who have common needs.
6. Popular trends in departmentalization include the following:
a. Customer departmentalization continues to be a highly popular approach
because it allows better monitoring of customers’ needs and responds to
changes in the needs of customers.
b. Cross-functional teams, which are work teams composed of individuals
from various functional specialties, are being used along with traditional
departmental arrangements.

C. Chain of Command. The chain of command is the line of authority extending from upper
organizational levels to the lowest levels, which clarifies who reports to whom. Three
concepts related to chain of command are authority, responsibility, and unity of command.
1. Authority is the rights inherent in a managerial position to tell people what to do and
to expect them to do it.
a. The acceptance theory of authority proposed by Chester Barnard says that
authority comes from the willingness of subordinates to accept it. Barnard
contended that subordinates will accept orders only if the following
conditions are satisfied:
1. They understand the order.
2. They feel the order is consistent with the organization’s purpose.
3. The order does not conflict with their personal beliefs.
4. They are able to perform the task as directed.
b. Line authority entitles a manager to direct the work of an employee. It is
the employer–employee authority relationship that extends from the top of
the organization to the lowest echelon, according to the chain of command,
as shown in Exhibit 10-4.

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 Chain of Command and Line Authority

c. Staff authority functions to support, assist, advise, and generally reduce

some of their informational burdens. Exhibit 10-5 illustrates line and staff
authority.
2. Responsibility is the obligation to perform any assigned duties.
3. Unity of command is the management principle that each person should report to
only one manager.
D. Span of Control. Span of control is the number of employees a manager can efficiently and
effectively manage.
1. The span of control concept is important because it determines how many levels and
managers an organization will have. (See Exhibit 10-6 for an example)

43
 2. What determines the “ideal” span of control? Contingency factors such as the skills
and abilities of the manager and the employees, the characteristics of the work being
done, similarity and complexity of employee tasks, the physical proximity of
subordinates, the degree to which standardized procedures are in place, the
sophistication of the organization’s information system, the strength of the
organization’s culture, and the preferred style of the manager influence the ideal
number of subordinates.
1. The trend in recent years has been toward wider (larger) spans of control.
E. Centralization and Decentralization. The concepts of centralization and decentralization
address who, where, and how decisions are made in organizations.
1. Centralization is the degree to which decision making is concentrated at upper
levels of the organization.
2. Decentralization is the degree to which lower-level employees provide input or
actually make decisions.
3. The current trend is toward decentralizing decision making in order to make
organizations more flexible and responsive.
4. Employee empowerment is giving employees more authority (power) to make
decisions.
5. A number of factors influence the degree of centralization or decentralization in an
organization (see Exhibit 10-7).

F. Formalization refers to the degree to which jobs within an organization are standardized and
the extent to which employee behaviour is guided by rules and procedures.

44
 1. In a highly formalized organization, employees have little discretion, and a high level
of consistent and uniform output exists. Formalized organizations have explicit job
descriptions, many organizational rules, and clearly defined procedures.
2. In a less-formalized organization, employees have much freedom and can exercise
discretion in the way they do their work.
3. Formalization not only fosters relatively unstructured job behaviours, but also
eliminates the need for employees to consider alternatives.
4. The degree of formalization can vary widely between organizations and even within
organizations.

Formalization & Informalization

1. Organizations span a continuum from formal to informal.
2. Formalization is represented by the defined structures and systems in decision making, communication,
and control in the organization.
a. The greater an organization’s reliance on rules, standard procedures, SOPs, the more formal
the structure.
3. The formal and informal structure of an organization defines how people and activities are both
separated and brought together (differentiated and integrated).
4. Formal organizations stress
A. Line of authority
i. Refers to the lines connecting boxes on the organizational chart
ii. Defines who reports to whom
iii. The more formal the organization, the greater the expectation that you will not
bypass the line of authority in communication and decision making.
B. Unity of Command
i. An employee should report to one and only one boss
C. Span of Control
i. Refers to how many individuals should report to one manager
ii. Highly formal organizations tend to have narrow spans of control (few people
reporting to the manager)
a. It is easier to closely monitor and direct fewer individuals.
iv. Several factors can affect the effective span of control (See exhibit 6.3)
a. Routine tasks allow for wide spans of control
b. High levels of subordinate ability allows for wide spans of control
c. More highly skilled managers can work with a wider span of control.
v. Organizational “shape” reflects consistent spans of control
a. Tall organizational structures
a. Result from organizations with narrow spans of control
b. Are best suited to stable external environments
c. Slow decision making and response to change.
b. Flat organizational structures
a. Reflect organizational use of wide spans of control
b. Become more desirable as environmental uncertainty increases.
c. Require managers and subordinates to have greater capabilities and
competencies.
d. Use increases with increased use of technology.

The Informal Organization

1. Consists of the unofficial but influential means of communication, decision making, and
control that are part of the habitual way things get done in the organization
2. Informal structures are frequently not noted on an organization chart.
3. Levels of both formalization and informalization may vary from company to company
4. Levels of both formalization and informalization may and also from country to country
a. Japanese firms tend to be much more informal than those in the U.S.
i. Nemawasi: The Japanese process of accomplishing decision making,
communication and control through face-to-face meetings among those
without formal reporting relationships. This process results in informal,
incremental decisions which will later be ratified in a formal meeting.

45
 ii. Guanxi: The trust that exists between two people. These individuals will
undertake actions that benefit one another without the need for a more
formal relationship.
Centralization and Decentralization
1. This refers to the level at which decisions are made in an organization
2. In centralized organizations decisions are made as close to the top of the organization as possible.
3. In decentralized organizations, decision making is pushed down to the lowest feasible level.

10.2 MECHANISTIC AND ORGANIC STRUCTURES

Organizations do not have identical structures. Even companies of comparable size do not necessarily
have similar structures.

A. Two Models of Organizational Design. (See Exhibit 10-8)

1. A mechanistic organization is an organizational design that is rigid and tightly
controlled. It is characterized by high specialization, rigid departmentalization,
narrow spans of control, high formalization, a limited information network, and little
participation in decision making by lower-level employees.
2. An organic organization is an organizational design that is highly adaptive and
flexible. It is characterized by little work specialization, minimal formalization, and
little direct supervision of employees.
3. Under what circumstances is each design favoured? It “depends” on contingency
variables.
10.3 CONTINGENCY FACTORS
Appropriate organizational structure depends upon four contingency variables:
A. Strategy and structure. The organization’s strategy is one of the contingency variables that
influences organizational design.
1. Alfred Chandler originated the strategy-structure relationship. His finding that
structure follows strategy indicates that as organizations change their strategies, they
must change their structure to support that strategy.
2. Most current strategy/structure frameworks focus on three strategy dimensions:
a) Innovation needs the flexibility and free flow of information present in the
organic organization.
b) Cost minimization needs the efficiency, stability, and tight controls of the
mechanistic organization.
c) Imitation uses some of the characteristics of both mechanistic and organic
organizations.
B. Size and structure. Considerable historical evidence indicates that an organization’s size
significantly affects its structure. Larger organizations tend to have more specialization,
departmentalization, centralization, and formalization, although the size-structure relationship
is not linear.
C. Technology has been shown to affect an organization’s choice of structure.
1. Every organization uses some form of technology to transform inputs into outputs.
2. Joan Woodward’s study of structure and technology shows that organizations adapt
to their technology. She found that three distinct technologies have increasing levels
of complexity and sophistication.
a) Unit production is the production of items in units or small batches.
b) Mass production is the production of items in large batches.
c) Process production is the production of items in continuous processes.

46
D. Environmental uncertainty and structure
Environmental uncertainty is the final contingency factor that has been shown to affect
organizational structure. Environmental uncertainty may be managed by making adjustments
in the organization’s structure. The more uncertain the environment, the more flexible and
responsive the organization needs to be.

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Leadership
A leader is defined as any person who influences individuals and groups within an organization, helps them
in the establishment of goals, and guides them toward achievement of those goals, thereby allowing them to
be effective.
A leader is effective when his or followers achieve their goals, can function well together, and can adapt to
the changing demands from external forces

THE NATURE OF LEADERSHIP

Key Definitions. Leadership as an influence process.

Leader. An individual within a group or organization who wields the most influence over others.

Leadership. The process whereby one individual influences other group members toward the attainment of
defined group or organizational goals.

Important Characteristics of Leadership. These are the main characteristics of the leadership process.

Leadership Involves Noncoercive Influence. Dictators use coercion, leaders do not: the point of leadership rests,
at least in part, on developing positive feelings between leaders and subordinates. Followers accept influence
from leaders because they respect, like, or admire them, not because the leader holds a position of authority.

Leadership Influence Is Goal-Directed. Leadership is the exercise of influence for a purpose. Specifically, the
purpose of attaining defined group or organizational goals.

Leadership Requires Followers. Due to the central role of influence, there must be followers for leadership to
exist. In this reciprocal relationship leaders influence followers and followers influence leaders.

Leaders versus Managers: A Key Distinction—At Least in Theory.

Primary Function of a Leader. To create the essential purpose or mission of the organization and the strategy
for attaining it. Leaders cope with change. Leaders establish direction by creating a vision of the future.

Primary Function of a Manager, To implement the leader’s vision. Managers cope with complexity. Managers
create plans and monitor results relative to the leader’s plans.

Practical Considerations. In practice, the distinction between the tasks performed by leaders and managers is
often blurred. The several overlapping roles played by leaders and managers in real organizations may make the
distinction between them somewhat difficult to make. But there are differences.

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Leader Versus Manager

Managers tend To Leaders tend to

• Control resources.
• Be problem solvers.
• Seek efficiency.
• Be comfortable with order.
• Be concerned with how things get done.
• Play for time and delay major decisions.
• Seek compromises.
• Identify goals that arise out of necessity.
• Control resources.
• Adopt impersonal attitudes toward goals.
• Coordinate and balance opposing views.
• Avoid solitary activities.
• Work from low-risk positions.
• Avoid displaying empathy
• Create and provide resources through
motivation.
• Be comfortable with uncertainty.
• Function well in chaotic environments.
• Be concerned with what events and
decisions mean to people.
• Seek solutions that do not require
compromise.
• Take highly personal attitudes toward
goals.
• Identify goals that arise out of desire.
• Inspire strong emotions.
• Be comfortable with solitude.
• Work from or seek out high risk
activities.
• Have meaningful, highly personal
mentorship relationships.
• Be empathic, and actively read others’
emotional signals.

THE TRAIT APPROACH TO LEADERSHIP: HAVING THE RIGHT STUFF

Premise. This approach to leadership assumes leadership is derived from the characteristics that people possess
(physical attributes, personality, or other genetic trait).

The Great Person Theory. The view that leaders possess special traits that set them apart from others and that
these traits are responsible for their assuming positions of power and authority. These leadership traits remain
stable over time and across different groups: in other words, these are traits that can be identified in others and
used to recognize leaders in any time or place.

Leadership Traits. Leaders tend to have the following characteristics.

LEADERSHIP BEHAVIOR: WHAT DO LEADERS DO

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Premise. As opposed to studying leadership by examining traits in the individual, another means is to study the
behaviours exhibited by leaders. The benefit of this process is that unlike traits (which are inherent in the
individual) behaviours can be taught to anyone. This means that everyone can become better leaders by studying
leadership and learning leadership behaviours.

INTRODUCTION
The quality of leadership is an important element in an organization’s success, since
leaders influence employees to work together toward the fulfillment of a company’s mission
and the achievement of its goals.

1. WHO ARE LEADERS, AND WHAT IS LEADERSHIP

Certain distinctions can be made between managers and leaders.
A. While managers are appointed and have legitimate power within the
organization, a leader is someone who can influence others and who has
managerial authority.
B. Leadership is the process of influencing a group to achieve goals.

2. EARLY LEADERSHIP THEORIES

Researchers began to study leadership in the early twentieth century and developed
behavioral theories that focused on the leader (trait theories) and how the leader
interacts with his or her group members.
A. Leadership Trait Theories
1. Research in the 1920s and 1930s focused on traits of the leader, with the
intent to isolate characteristics that might by used to differentiate leaders
from nonleaders.
2. Identifying a set of traits consistently associated with the process of
leadership proved to be more successful than one set of traits that
would always differentiate leaders from nonleaders.
3. Six traits associated with effective leadership are described in Exhibit
17-1.

Exhibit 17-1: Seven Traits Associated with Leadership

Attempts to identify traits consistently associated with leadership (the process of leading, not
the person) were more successful. The seven traits shown to be associated with effective
leadership are described briefly in Exhibit 17-1.

50
 B. Leadership Behavior Theories
1. Researchers began to hope that a behavioral theories approach would
provide more definitive information about the nature of leadership than
did trait theories.
2. Four main leader behavior studies are summarized in Exhibit 17-2.
Exhibit 17-2: Behavioral Theories of Leadership

Researchers hoped that the behavioral theories approach would provide more
definitive answers about the nature of leadership than did the trait theories. The four
main leader behavior studies are summarized in Exhibit 17-2.
a. University of Iowa Studies. Kurt Lewin and his associates
explored three leadership styles: autocratic, democratic, and
laissez-faire.
b. The Ohio State Studies identified two important dimensions of
leader behavior: initiating structure and consideration.
c. University of Michigan Studies identified two dimensions of
leader behavior: leaders who were employee oriented and
leaders who were production oriented.
d. The Managerial Grid is a two-dimensional grid used to
appraise leadership styles using “concern for people” and
“concern for production” as dimensions.
3. Predicting leadership success involved more than isolating a few
leader traits or behavior. The lack of success in attaining consistent
results led to a focus on situational influences.

3. CONTINGENCY THEORIES OF LEADERSHIP

A. The Fiedler contingency model, developed by Fred Fiedler, is a
contingency theory proposing that effective group performance depended

51
upon the proper match between a leader’s style of interacting with his/her
followers and the degree to which the situation allowed the leader to control
and influence.
1. Fiedler developed the least-preferred coworker (LPC)
questionnaire, which measures whether a person is task or
relationship oriented. This questionnaire contained 18 pairs of
contrasting adjectives. Respondents were asked to think of all the
coworkers they had ever had and to describe the person they least
preferred to work with, using the 18 sets of adjectives. Fiedler
believed that a person’s basic leadership style could be determined on
the basis of their answers.

2. Fiedler also isolated three situational criteria that he believed could be

manipulated to create the proper match with the behavioral orientation
of the leader:
a. Leader-member relations described the degree of
confidence, trust, and respect subordinates have in their
leader.
b. Task structure described the degree to which job
assignments were formalized and procedurized.
c. Position power described the degree of influence a leader
had over power-based activities such as hiring, firing,
discipline, promotions, and salary increases.
3. Next, Fiedler used the above variables to evaluate the situation. He
defined eight different situations in which a leader could find himself or
herself. (See Exhibit 17-3)

Exhibit 17-3: The Fiedler Model

Each leadership situation was evaluated in terms of these three contingency variables, which
when combined produced eight possible situations that were either favorable or unfavorable
for the leader. (See the bottom of the chart in Exhibit 17-3.) Situations I, II, and III were
classified as highly favorable for the leader. Situations IV, V, and VI were moderately
favorable for the leader. Situations VII and VIII were described as highly unfavorable for the
leader.

52
 4. The Fiedler model proposes matching an individual’s LPC and an
assessment of the three contingency variables to achieve maximum
leadership effectiveness.
5. Fiedler concluded that task-oriented leaders tend to perform better in
situations that are either very favorable or very unfavorable to them.
6. He concluded that relationship-oriented leaders perform better in
moderately favorable situations.
7. Fiedler believed that an individual’s leadership style was fixed; he
concluded that leader effectiveness could be improved in only two
ways:
a. Bring in a new leader whose style fits better to the situation.
b. Change the situation to fit the leader.
8. Research has generally supported the validity of Fiedler’s model.
However, some drawbacks are associated with the model.
B. Hersey and Blanchard’s Situational Leadership Theory (SLT) is a leadership
contingency theory developed by Paul Hersey and Ken Blanchard that
focuses on followers’ readiness.
1. Hersey and Blanchard propose that successful leadership is achieved
by selecting the right leadership style that matches the level of the
followers’ readiness.
2. Readiness is the extent to which people have the ability and
willingness to accomplish a specific task.
3. SLT uses the same leadership dimensions identified by Fiedler: task
and relationship behaviors.
4. Each of the two leadership dimensions is considered either high or low
and then combined into four specific leadership styles.
5. Research efforts to test and support this theory generally have been
disappointing, possibly because of internal ambiguities or
inconsistencies in the model itself.
C. Path-goal theory, developed by Robert House, is a leadership theory that
purports that it is the leader’s job to assist his or her followers in attaining their
goals and to provide the direction or support needed to ensure that their goals
are compatible with the overall objectives of the organization. (See Exhibit
17-4)

Exhibit 17-4: Path-Goal Model

As Exhibit 17-4 illustrates, path-goal theory proposes two situational or contingency

variables that moderate the leadership behavior-outcome relationship: those in the

53
 environment that are outside the control of the follower (factors including task structure,
formal authority system, and the work group) and those that are part of the personal
characteristics of the follower (including locus of control, experience, and perceived ability).
1. Four leadership behaviors were identified by House:
a. The directive leader lets subordinates know what is expected
of them, schedules work to be done, and gives specific
guidance on how to accomplish tasks.
b. The supportive leader is friendly and shows concern for
subordinates’ needs.
c. The participative leader consults with subordinates and uses
their suggestions before making a decision.
d. The achievement-oriented leader sets challenging goals and
expects subordinates to perform at their highest level.
2. The path-goal theory proposes two classes of situational or
contingency variables that moderate the leadership behavior-outcome
relationship:
a. Variables in the environment that are outside of the control of
the follower
b. Variables that are part of the personal characteristics of the
follower
3. The following hypotheses have evolved from path-goal theory:
a. Directive leadership leads to greater satisfaction when tasks
are ambiguous or stressful than when they are highly
structured and well laid out.
b. Supportive leadership results in high employee performance
and satisfaction when subordinates are performing structured
tasks.
c. Directive leadership leads to higher employee satisfaction
when there is substantive conflict within a work group.
d. Achievement-oriented leadership increases subordinates’
expectancies that effort will lead to high performance when
tasks are ambiguously structured.
e. Subordinates with an external locus of control will be more
satisfied with a directive style.
f. Achievement-oriented leadership will increase subordinates’
expectations that effort will lead to high performance when
tasks are ambiguously structured.
4. Although not every research finding has been positive, the majority of
the evidence supports the following logic underlying path-goal theory:
a. Employee performance and satisfaction are likely to be
positively influenced when the leader compensates for
shortcomings in either the employee or the work setting.
b. However, if the leader spends time explaining tasks when
those tasks are already clear or when the employee has the
ability and experience to handle them, the employee is likely to
see such behavior as redundant or even insulting.

4. CONTEMPORARY VIEWS ON LEADERSHIP

The most current approaches to looking at leadership are discussed in this section of
the text.
A. Leader-Member Exchange (LMX) Theory states that leaders create in-
groups and out-groups and those in the in-group will have higher
performance, less turnover, and greater job satisfaction.
1. The leader will categorize a follower as an “in” or an “out.” Both leader
and follower must “invest” in the relationship.

54
 2. The leader does the choosing, but the follower’s characteristics drive the
decision.
3. Research is supportive of the LMX theory.
B. Transformational-Transactional Leadership
What is the difference between transactional and transformational leaders?
1. Transactional leaders are leaders who lead primarily by using social
exchanges (or transactions).
2. Transformational leaders are leaders who stimulate and inspire
(transform) followers to achieve extraordinary outcomes. Evidence
supporting the superiority of transformational leadership over
transactional leadership is overwhelmingly impressive.
C. Charismatic-Visionary Leadership
1. A charismatic leader is an enthusiastic, self-confident leader whose
personality and actions influence people to behave in certain ways.
a. Five personal characteristics of charismatic leaders have been
identified. Charismatic leaders have a vision, are able to
articulate that vision, are willing to take risks to achieve that
vision, are sensitive to both environmental constraints and
follower needs, and exhibit behaviors that are out of the
ordinary
b. An increasing amount of research shows impressive
correlations between charismatic leadership and high
performance and satisfaction among followers. Most experts
think that individuals can be trained to exhibit charismatic
behaviors.
c. Charismatic leadership may not always be needed to achieve
high levels of employee performance. This type of leadership
may be most appropriate when an employee’s job has a
significant amount of ideological content.
2. Visionary leadership is the ability to create and articulate a realistic,
credible, and attractive vision of the future that improves upon the
present situation.
a. If the vision is properly selected and implemented, it can
energize individuals to use their skills, talents, and resources
to fulfill the vision.
b. An organization’s vision should tap into people’s emotions and
inspire enthusiasm. Visions that are clearly communicated are
generally more accepted.
D. Team Leadership. As work teams become more prevalent in the workplace,
the role of team leader becomes increasingly important.
1. The existence of work teams necessitates that managers learn
how to become effective team leaders.
2. Skillful team leaders master the difficult balancing act of knowing
when to leave their teams alone and when to become involved.
3. A team leader has two priorities:
a. Managing the team’s external boundaries
b. Facilitating the team process
4. These two priorities can be broken down into four specific
leadership roles (see Exhibit 17-5):

55
 Exhibit 17-5: Team Leadership Roles

A meaningful way to describe the team leader’s job is to focus on two priorities: (1) managing
the team’s external boundary and (2) facilitating the team process. These priorities entail four
specific leadership roles. (See Exhibit 17-5.)
a. Liaisons with external constituencies
b. Troubleshooters
c. Conflict managers
d. Coaches

5. LEADERSHIP ISSUES IN THE TWENTY-FIRST CENTURY

The concept of leadership is continually being refined. This section of the text
examines several contemporary issues in leadership.
A. Managing Power
Power is the capacity of a leader to influence work actions or decisions.
Because leaders must influence others, we need to look at how leaders
acquire power. French and Raven identified five sources or bases of power.
1. Legitimate power is the power a leader has as a result of his or her
position in the organization.
2. Coercive power is the power a leader has because of his or her
ability to punish or control.
3. Reward power is the power a leader has because of his or her ability
to give positive benefits or rewards.
4. Expert power is influence that is based on expertise, special skills, or
knowledge.
5. Referent power is power that arises because of a person’s desirable
resources or personal traits.
6. Most effective leaders rely on several different bases of power.

B. Developing Trust
1. Credibility is the degree to which followers perceive someone as
honest, competent, and able to inspire.
2. Trust is the belief in the integrity, character, and ability of a leader.
3. Research has identified five dimensions that make up the concept of
trust:
a. Integrity (honesty and truthfulness)
b. Competence (technical and interpersonal knowledge and
skills)

56
 c. Consistency (reliability, predictability, and good judgment in
handling situations)
d. Loyalty (willingness to protect a person, physically and
emotionally)
e. Openness (willingness to share ideas and information freely)
4. Given the fact that many organizations have moved to self-managed
work teams, establishing trust in the leadership is critical.
5. Some suggestions for leaders to use in building trust are found in
Exhibit 17-6.

Exhibit 17-6: Building Trust

Research has shown that trust in leadership is significantly related to positive job outcomes
including job performance, organizational citizenship behavior, job satisfaction, and
organizational commitment. Given the importance of trust in effective leadership, how can
leaders build trust? Exhibit 17-6 lists some suggestions.

C. Empowering Employees
Another method of leadership increasingly used by contemporary managers
is the empowerment of employees.
1. The increased use of empowerment is being driven by two
considerations:
a. Quick decisions often need to be made by the individuals who
are most knowledgeable about particular issues.
b. Organizational downsizing has given managers larger spans of
control, and in order to cope, managers are turning to
employee empowerment.
D. Leading Across Cultures
National culture is an important situational variable in selecting the most
appropriate style.
1. Findings from research are provided in Exhibit 17-7).

Exhibit 17-7: Cross-Cultural Leadership

57
 Leaders can’t (and shouldn’t) simply choose their styles randomly. They’re constrained by the
cultural conditions their followers have come to expect. Exhibit 17-7 provides some findings
from selected examples of cross-cultural leadership studies.

2. The GLOBE research program identifies universal aspects, including

vision, foresight, trustworthiness, dynamism, positiveness, ability to
provide encouragement, and proactiveness.
E. Becoming an Effective Leader
1. Leadership training takes many different forms, however, not
everyone has what it takes to make a great leader. Depending on the
type of training, leaders may learn skills such as vision creation, trust
building and mentoring.
2. Substitutes for Leadership. Certain individual, job, and organizational
variables can act as “substitutes for leadership,” negating the
importance of having an individual leader. Possible variables of this
type include characteristics of followers (e.g., experience, training,
professional orientation, or the need to be independent).
a. Routine, unambiguous, or intrinsically satisfying jobs may
require little leadership.
b. Cohesive work groups, explicit formal goals, and/or rigid rules
and procedures may serve as substitutes for leadership.
Power, Influence, and Authority
 Power - the ability of one person to cause another person to do something.
 Influence - the use of power or power in action.
 Authority - Authority is a specific type of power. An individual has authority if
she has a legitimate right to require another person to do something, usually
because the individual with authority holds a certain position.

Types of Power
 Person Based Power:
 Expert Power—leader has special knowledge.
 Referent Power—followers admire or identify with the leader.
 Position Based Power:
 Legitimate Power—the leader has the right to make requests.
 Position and/or Person Based Power:
 Reward Power—followers comply to obtain rewards.
 Coercive Power—followers comply to avoid punishments.
 Connection/Resource Power—leader provides needed resources or
relationships.

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Guidelines for Using Legitimate Authority
 Make polite, clear requests
 Explain the reasons for a request
 Do not exceed your scope of authority
 Verify authority if necessary
 Follow proper channels
 Follow up to verify compliance
 Insist on compliance if appropriate
Guidelines for Using Reward Power
 Offer the type of rewards that people desire
 Offer rewards that are fair and ethical
 Do not promise more than you can deliver
 Explain the criteria for giving rewards and keep it simple
 Provide rewards as promised if requirements are met
 Use rewards symbolically (not in a manipulative way)

Guidelines for Using Coercive Power

 Explain rules and requirements, and ensure that people understand the serious
consequences of violations
 Respond to infractions promptly and consistently without showing favoritism to
particular individuals
 Investigate to get the facts before using reprimands or punishment, and avoid
jumping to conclusions or making hasty accusations
 Except for the most serious infractions, provide sufficient oral and written warnings
before resorting to punishment
 Administer warnings and reprimands in private, and avoid making rash threats
 Stay calm and avoid the appearance of hostility or personal rejection
 Express a sincere desire to help the person comply with role expectations and
thereby avoid punishment
 Invite the person to suggest ways to correct the problem, and seek agreement on a
concrete plan
 Maintain credibility by administering punishment if noncompliance continues after
threats and warnings have been made
 Use punishments that are legitimate, fair, and commensurate with the seriousness of
the infraction
Ways to Acquire and Maintain Referent Power
 Show acceptance and positive regard
 Act supportive and helpful
 Use sincere forms of ingratiation
 Defend and back up people when appropriate
 Do unsolicited favors
 Make self-sacrifices to show concern
 Keep promises

59
  Explain rules and requirements, and ensure that people understand the serious
consequences of violations
 Respond to infractions promptly and consistently without showing favoritism to
particular individuals
 Investigate to get the facts before using reprimands or punishment, and avoid
jumping to conclusions or making hasty accusations
 Except for the most serious infractions, provide sufficient oral and written warnings
before resorting to punishment
 Administer warnings and reprimands in private, and avoid making rash threats

Ways to Use and Maintain Expert Power

 Explain the reasons for a request or proposal and why it is important
 Provide evidence that a proposal will be successful
 Do not make rash, careless, or inconsistent statements
 Do not lie, exaggerate, or misrepresent the facts
 Listen seriously to the person’s concerns and suggestions
 Act confident and decisive in a crisis
How Power is Acquired or Lost
 Social Exchange Theory – Power based on exchange of benefits or favors
 Acquired
 Control over scarce resources
 Access to vital information
 Skill in dealing with critical problems
 Accumulated idiosyncratic credits
 Innovative proposals
 Lost
 Pursuing selfish motives
 Innovation (if leads to failure)
 How serious the failure is
 Amount of status
Delegation

 Varieties of Delegation
 Potential Advantages of Delegation
 Improvement in decision quality
 Greater subordinate commitment
 Making subordinates’ jobs more interesting, challenging, and meaningful
 Improved time management
 Important form of management development

Potential Advantages of Delegation

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  Reasons for Lack of Delegation
 Aspects of the leader’s personality
 Fear of subordinate making a mistake
 High need for personal achievement
 Characteristics of the subordinate
 Nature of the work

Guidelines for Delegation

 What to Delegate
 Tasks that can be done better by a subordinate
 Tasks that are urgent but not high priority
 Tasks relevant to a subordinate’s career
 Tasks of appropriate difficulty
 Both pleasant and unpleasant tasks
 Tasks not central to the manager’s role
 How to Delegate
 Specify responsibilities clearly
 Provide adequate authority and specify limits of discretion
 Specify reporting requirements
 Ensure subordinate acceptance of responsibilities
 How to Manage Delegation
 Inform others who need to know
 Monitor progress in appropriate ways
 Arrange for the subordinate to receive necessary information
 Provide support and assistance, but avoid reverse delegation
 Make mistakes a learning experience

Job enrichment is helpful in keeping the worker engaged in their work. There are many
actions a manager can take to help the worker. These actions help to achieve core job
dimensions. For example if the manager combines tasks for the worker it can help the
worker increase the amount of skills they are utilizing and help them to identify tasks that
need to be completed. This action can help the worker to have a better understanding of
their job and how it helps the organization complete its goals as well as help the worker
enjoy their work more because they are using more of their skill set.

61
Enrichment reduces turnover and absenteeism while increasing satisfaction.

Alternate Work Arrangements

 Flextime
 Some discretion over when worker starts and leaves
 Job Sharing
 Two or more individuals split a traditional job
 Telecommuting
 Work remotely at least two days per week
There are some alternative work arrangements that have been successful in helping
increase the motivation of workers. These arrangements give the worker more control
over their work and thereby can increase their level of motivation. An example of this is
Flextime. Flextime is short for flexible work hours and allows the workers to choose what
hours they work within a set time period. So for example, if the worker needs to work 8
hours a day the manager may say you can choose 8 hours between 6am and 8pm. That
may allow a mom to be home when her kids are coming home from school. Another
example is job sharing where two workers split a job and each work part-time.
Telecommuting is another alternative work arrangement that has been utilized. This is
when workers work from home at least 2 days a week.

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Motivation and its Theories
INTRODUCTION
Managers need to understand and apply motivational concepts and practices to
encourage their employees to devote maximum effort to their jobs. This chapter
explores essential information on the concepts of motivation.

16.1 WHAT IS MOTIVATION?

Motivation is the process by which a person’s efforts are energized, directed, and
sustained towards attaining a goal. Effort is a measure of intensity or drive. High
levels of effort are unlikely to lead to favorable job performance unless the effort is
channeled in a direction that benefits the organization.

16.2 EARLY THEORIES OF MOTIVATION

Three early theories of motivation provide the best-known explanations for employee
motivation, even though their validity has been questioned.
A. Maslow’s hierarchy of needs theory was developed by psychologist Abraham Maslow.
This theory states that there is a hierarchy of five human needs: physiological, safety,
social, esteem, and self-actualization. (See Exhibit 16-1)

Exhibit 16-1: Maslow’s Hierarchy of Needs

Maslow argued that each level in the needs hierarchy must be substantially
satisfied before the next need becomes dominant. An individual moves up the
needs hierarchy from one level to the next. (See Exhibit 16-1.)

1. As each need is substantially satisfied, the next need becomes

dominant.

63
 2. These five needs:
• Physiological needs - a person’s needs for food, drink, shelter,
sexual satisfaction, and other physical needs.
• Safety needs - a person’s needs for security and protection from
physical and emotional harm.
• Social needs - a person’s needs for affection, belongingness,
acceptance, and friendship.
• Esteem needs - a person’s needs for internal factors (e.g., self-
respect, autonomy, and achievement) and external factors (such as
status, recognition, and attention).
• Self-actualization needs - a person’s need to become what he or
she is capable of becoming.
3. Maslow separated the needs into lower-level needs (including the
physiological and safety needs) and higher-level needs (including
social, esteem, and self-actualization).
B. McGregor’s Theory X and Theory Y were developed by Douglas McGregor
and describe two distinct views of human nature.
1. Theory X is the assumption that employees dislike work, are lazy,
avoid responsibility, and must be coerced to perform.
2. Theory Y is the assumption that employees are creative, enjoy work,
seek responsibility, and can exercise self-direction.
3. Theory X assumes that Maslow’s lower-order needs dominate
individuals, while Theory Y assumes that higher-order needs are
dominant.
4. No empirical evidence exists to confirm that either set of assumptions
is valid or that altering behavior based on Theory Y assumptions will
increase employees’ motivation.
C. Motivation-hygiene theory, developed by Frederick Herzberg, is the
motivation theory that intrinsic factors are related to job satisfaction and
motivation, whereas extrinsic factors are associated with job dissatisfaction.
(See Exhibit 16-2.)
Exhibit 16-2: Herzberg’s Two Factor Theory

Frederick Herzberg’s Two-Factor Theory (also called Motivation-Hygiene Theory)

proposes that intrinsic factors are related to job satisfaction, while extrinsic factors
are associated with job dissatisfaction. Herzberg wanted to know when people felt
exceptionally good (satisfied) or bad (dissatisfied) about their jobs. (These findings
are shown in Exhibit 16-2.)

64
 1. Herzberg believed that the opposite of satisfaction was not
dissatisfaction. (See Exhibit 16-3) According to Herzberg, simply
removing dissatisfying characteristics from a job would not necessarily
make the job satisfying.

Exhibit 16-3: Contrasting Views of Satisfaction -Dissatisfaction

As shown in Exhibit 16-3, Herzberg proposed that a dual continuum existed: The
opposite of “satisfaction” is “no satisfaction,” and the opposite of “dissatisfaction”
is “no dissatisfaction.”

2. Hygiene factors are factors that eliminate dissatisfaction. They

include factors such as supervision, company policy, salary, working
conditions, and security—i.e., extrinsic factors associated with job
context, or those things surrounding a job.
3. Motivators are factors that increase job satisfaction and motivation.
They include factors such as achievement, recognition, responsibility,
and advancement—i.e., intrinsic factors associated with job content,
or those things within the job itself.
4. Herzberg’s theory has been criticized for the statistical procedures and
methodology used in his study. In spite of these criticisms, Herzberg’s
theory has had a strong influence on how we currently design jobs.
D. The three-needs theory, developed by David McClelland, is the motivation
theory that says three acquired (not innate) needs—achievement, power, and
affiliation—are major motives in work.
1. The need for achievement (nAch) is the drive to excel, to achieve in
relation to a set of standards, and to strive to succeed.
a. McClelland found that high achievers differentiate themselves
from others by their desire to do things better.
b. High achievers like moderately challenging goals.
c. They avoid what they perceive to be very easy or very difficult
tasks.
2. The need for power (nPow) is the need to make others behave in a
way that they would not have behaved otherwise.
3. The need for affiliation (nAff) is the desire for friendly and close
interpersonal relationships.
4. A person’s levels of these three needs are typically measured by
reacting to a set of pictures included in the Thematic Apperception
Test, or TAT.

16.3 CONTEMPORARY THEORIES OF MOTIVATION

A number of contemporary theories represent state-of-the-art explanations of
employee motivation. These contemporary theories have a reasonably strong degree
of validity through supporting documentation.
A. Goal-setting theory is the proposition that specific goals increase
performance, and difficult goals, when accepted, result in higher performance
than easy goals. What is known about goals as motivators?

65
1. Intention to work toward a goal is a major source of job motivation.
Specific and challenging goals are superior motivating forces. Specific
hard goals produce a higher level of output than do generalized goals.
2. Is there a contradiction between achievement motivation and goal
setting? No, as the following points explain:
a. Goal-setting theory deals with people in general; achievement
theory is based only on people who have a high need for
achievement. Difficult goals are still recommended for the
majority of employees.
b. The conclusions of goal-setting theory apply to those who
accept and are committed to the goals. Difficult goals will lead
to higher performance only if they are accepted.
3. Will employees try harder if they participate in the planning and
formulation of goals?
a. It cannot be said that participation is always desirable.
b. However, participation is probably preferable to assigning
goals whenever a manager expects resistance.
4. Will people do better when they get feedback on how well they are
progressing toward their goals?
a. Feedback acts to guide behavior.
b. Self-generated feedback has been shown to be a more
powerful motivator than externally generated feedback.
5. What four contingencies exist in goal-setting theory?
a. Feedback influences the goal-performance relationship.
b. Goal commitment is most likely to occur when goals are made
public, when the individual has an internal locus of control, and
when the goals are set by the individual rather than assigned.
c. Self-efficacy is an individual’s belief that he or she is capable
of performing a task.
d. National culture is a contingency that also affects goal-setting
theory.
6. One may conclude that intentions, as defined by hard and specific
goals, are a powerful motivating force in goal-setting efforts.
a. In the proper conditions, intentions can lead to higher
performance.
b. However, no evidence exists that such goals are associated
with increased job satisfaction.
c. Exhibit 16-5 summarizes the relationships among goals,
motivation, and performance.

Exhibit 16-5: Goal-Setting Theory

Exhibit 16-5 summarizes the relationships among goals, motivation, and

performance. Our overall conclusion is that the intention to work toward

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 difficult and specific goals is a powerful motivating force. Under the proper
conditions, it can lead to higher performance. However, no evidence
indicates that such goals are associated with increased job satisfaction.

B. Reinforcement theory is counter to goal-setting theory. It proposes that

behavior is a function of its consequences.
1. Reinforcement theory argues that behavior is externally caused.
2. Reinforcers are consequences immediately following a response that
increase the probability that the behavior will be repeated.
3. Reinforcement theory ignores factors such as goals, expectations, and
needs; it focuses on what happens when a person takes an action.
4. How can the concept of reinforcement be used to explain motivation?
a. People will most likely engage in a desired behavior if they are
rewarded for doing so.
b. These rewards are most effective if they immediately follow a
desired response.
c. Behavior that isn’t rewarded or is punished is less likely to be
repeated.
5. Managers can influence employees’ behavior by reinforcing the work
behaviors they desire.

C. Job Design Theory can be used to influence employee motivation. Job

design is the way tasks are combined to form complete jobs. Managers
should design jobs to reflect the demands of the changing environment as
well as the organization’s technology, and its employees’ skills, abilities, and
preferences of its employees.
1. One of the earliest efforts at overcoming the drawbacks of job
specialization was through increasing job scope, the number of
different tasks required in a job and the frequency with which those
tasks are repeated.
a. This type of job design is called job enlargement—the
horizontal expansion of a job or an increase in job scope.
b. Job design programs that focused solely on task enlargement
have had little success.
c. When knowledge enlargement activities were implemented,
however, workers were more satisfied and made fewer errors.
2. Job enrichment, another approach to designing jobs, is the vertical
expansion of a job by adding planning and evaluating responsibilities.
a. In job enrichment, job depth, the degree of control employees
have over their work, is increased.
b. Research evidence has been inconclusive about the benefits
of job enrichment activities.
3. The job characteristics model (JCM) is a framework for analyzing
and designing jobs that identifies five primary job characteristics, their
interrelationships, and their impact on employee productivity,
motivation, and satisfaction. These five job dimensions are described
below (see Exhibit 16-6):

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Exhibit 16-7: Guidelines for Job Redesign

The JCM provides specific guidance to managers for job design (see Exhibit 16-7). These
suggestions specify the types of changes that are most likely to lead to improvement in the five
core job dimensions.

a. Skill variety is the degree to which a job requires a variety of

activities so that an employee can use a number of different
skills and talents.
b. Task identity is the degree to which a job requires completion
of a whole and identifiable piece of work.
c. Task significance is the degree to which a job has a
substantial impact on the lives or work of other people.
d. Autonomy is the degree to which a job provides substantial
freedom, independence, and discretion to the individual in
scheduling the work and determining the procedures to be
used in carrying it out.
e. Feedback is the degree to which carrying out the work
activities required by a job results in the individual’s obtaining
direct and clear information about the effectiveness of his or
her performance.
f. Skill variety, task identity, and task significance combine to
create meaningful work. Autonomy leads to an increased
sense of responsibility for outcomes of the work. Feedback
leads to knowledge of the actual results of the work activities.
g. The JCM suggests that intrinsic (internal) rewards are gained
when an employee learns (knowledge of results through
feedback) that he/she personally (responsibility through
autonomy of work) has performed well on a task that he/she
cares about (experiences meaningfulness of work through skill
variety, task identify, and/or task significance).
h. The more these three conditions characterize a job, the greater
the employee’s work motivation, performance, and satisfaction
and the lower his or her absenteeism and likelihood of
resigning.
i. The JCM also provides specific guidelines to managers for job
design (see Exhibit 16-7).

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D. Equity theory, developed by J. Stacey Adams, is the theory that an
employee compares his/her job’s input-outcomes ratio with that of relevant
others and then corrects any inequity (see Exhibit 16-8).

Exhibit 16-8: Equity Theory

Equity theory, developed by J. Stacey Adams, proposes that employees compare what they get from a
job (outcomes) in relation to what they put into it (inputs), and then they compare their inputs–
outcomes ratio with the inputs–outcomes ratios of relevant others (Exhibit 16-8).

1. Referents are the persons, systems, or selves against which

individuals compare themselves to assess equity.
2. Equity theory recognizes that individuals are concerned with their
absolute rewards as well as the relationship of those rewards to what
others receive.
3. What will employees do when they perceive an inequity?
a. Distort either their own or others’ inputs or outcomes.
b. Behave in some way to induce others to change their inputs or
outcomes.
c. Behave in some way to change their own inputs or outcomes.
d. Choose a different comparison person.
e. Quit their job.
4. Historically, equity theory focused on distributive justice. Recent
equity research has focused on issues of procedural justice.
F. Expectancy theory is the theory that an individual tends to act in a certain
way based on the expectation that the act will be followed by a given outcome
and on the attractiveness of that outcome to the individual. Three
relationships are important to this theory. (See Exhibit 16-9)

Exhibit 16-9: Expectancy Model

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Expectancy theory states that an individual tends to act in a certain way based on the expectation that
the act will be followed by a given outcome and on the attractiveness of that outcome to the individual.
It includes three variables or relationships (see Exhibit 16-9).
1. Effort-performance linkage (expectancy) is the probability perceived
by the individual that exerting a given amount of effort will lead to a
certain level of performance.
2. Performance-reward linkage (instrumentality) is the degree to which
an individual believes that performing at a particular level is
instrumental in, or will lead to, the attainment of a desired outcome.
3. Attractiveness of the reward (valence) is the importance that the
individual places on the potential outcome or reward that can be
achieved on the job.
4. Four features are inherent in expectancy theory:
a. What perceived outcomes does the job offer the employee?
b. How attractive do employees consider these outcomes to be?
c. What kind of behavior must the employee exhibit to achieve
these outcomes?
d. How does the employee view his or her chance of doing what
is asked?
5. The key to understanding expectancy theory is understanding an
individual’s goal and the linkage between effort and performance,
between performance and rewards, and between rewards and
individual goal satisfaction.

G. Integrating Contemporary Theories of Motivation

Exhibit 16-10 presents a model that integrates much of what is known about
motivation.
Exhibit 16-10: Integrating Contemporary Theories of Motivation

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 Many of the ideas underlying the contemporary motivation theories are complementary, and you’ll
understand better how to motivate people if you see how the theories fit together. Exhibit 16-10
presents a model that integrates much of what we know about motivation. Its basic foundation is the
expectancy model.
1. The basic foundation is the simplified expectancy model.
2. The model also considers the achievement-need, reinforcement,
equity, and JCM theories.
3. Rewards also play an important role in the model.

16.4 CURRENT ISSUES IN MOTIVATION

Understanding and predicting employee motivation continues to be one of the most
popular areas in management research. Several significant workplace issues are
important to examine in understanding motivation.
A. Motivating in Tough Economic Circumstances
Tough economic times leave companies with tight budgets, minimal or no pay
raises, benefit cuts, no bonuses, long hours doing the work of those who had
been laid off. As conditions worsen, employee confidence, optimism, and job
engagement plummeted as well. During these times managers are have to be
creative in keeping their employees’ efforts energized, directed, and
sustained toward achieving goals. This means motivating employees in ways
that don’t involve money or that were relatively inexpensive. Suggestions
include:
1. Holding meetings with employees to keep the lines of communication
open and to get their input on issues.
2. Establishing a common goal, such as maintaining excellent customer
service, to keep everyone focused.
3. Creating a community feel so employees could see that managers
cared about them and their work.
4. Giving employees opportunities to continue to learn and grow.

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 5. And, of course, an encouraging word always went a long way.
B. Managing Cross-Cultural Motivational Challenges
In today’s global environment, motivational programs that work in one location
may not be effective in another. An American bias exists in some of the
motivational theories. For example, in Japan, Greece, and Mexico, security
needs would appear at the top of Maslow’s pyramid. The motivation concept
of achievement need clearly has an American bias. Equity theory is relatively
strong in the United States, based on pay-for-performance systems.
C. Motivating Unique Groups of Workers.
1. Motivating a diverse workforce requires managers to think in terms of
flexibility. Lifestyle (e.g., single parenthood) is an important factor.
a. A compressed workweek is a workweek where employees
work longer hours per day but fewer days per week.
b. Flexible work hours (flextime) is a scheduling system in
which employees are required to work a number of hours a
week, but are free, within limits, to vary the hours of work.
c. Job sharing is the practice of having two or more people split
a full-time job.
d. Telecommuting is a job approach where employees work at
home and are linked to the workplace by computer and
modem.
e. The advantages of telecommuting include a decrease in the
time and stress of commuting and an increase in flexibility to
cope with family demands.
f. Drawbacks of telecommuting center on the lack of social
contact, the reward system used, and the separation of
organization work and homework.
1. Motivating professionals
This group of employees values challenging work, problem solving,
and support
3. Motivating contingent workers
a. Contingent workers do not have the security or stability that
permanent employees do.
b. Managers might use the opportunity for permanent status,
opportunity for training, and equitable treatment to motivate
contingent workers.
4. Motivating low-skilled, minimum wage workers is one of the most
difficult motivation challenges a manager can face.
a. Although money is important as a motivator, it is not the only
reward that people seek and that managers use.
b. Job design and expectancy theories can provide some
answers to motivating low-skilled, minimum wage workers.
D. Designing Appropriate Rewards Programs
1. Open-book management is a motivational approach in which an
organization’s financial statements (the “books”) are shared with all
employees.
a. The goal of open-book management is to motivate employees
to think as an owner would think as a result of being able to
see the impact their decisions and actions have on financial
results.
b. In order for open-book management to be effective, employees
must be taught the fundamentals of financial statement
analysis.
2. Employee recognition programs consist of personal attention and
expressions of interest, approval, and appreciation for a job well done.

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 3. Pay-for-performance programs are variable compensation plans
that pay employees on the basis of some performance measure.
a. Performance-based compensation is probably most
compatible with expectancy theory.
b. The increasing popularity of pay-for-performance programs
can be explained in terms of both motivation and cost control.
c. Do pay-for-performance programs work? Studies seem to
indicate that they do.

Controlling
Even when managers carefully and thoroughly plan, a program or decision may be poorly or
improperly implemented if an effective control system has not been established.
18.1 WHAT IS CONTROLLING, AND WHY IS IT IMPORTANT?
Control is the process of monitoring, comparing, and correcting work performance.
Control is important for three main reasons:
A. Control serves as the final link in the functional chain of management. Exhibit
18-1 show the planning-controlling link.

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 B. Controlling is also important to delegation. The development of an effective
control system may decrease resistance to delegation.
C. Finally, control serves to protect the company and its assets.
18.2 THE CONTROL PROCESS
The control process is a three-step process including measuring actual performance,
comparing actual performance against a standard, and taking managerial action. (See
Exhibit 18-2)

A. Measuring is the first step in the control process.

1. Measurement is frequently achieved through four common sources of
information:
a. Personal observation
b. Statistical reports
c. Oral reports
d. Written reports
2. What we measure is probably more critical than how we measure.
What is measured often determines the area(s) in which employees
will attempt to excel.
B. Comparing is the next step in the control process.
1. Comparing determines the degree of variation between actual
performance and the standard.
2. Of critical importance to the control process is determining the range
of variation. The range of variation is the acceptable parameters of

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 variance between actual performance and the standard. (See Exhibit
18-4)

3. An example of comparing actual performance to standards is

presented in Exhibit 18-5.

Exhibit 18-5: Green Earth Gardening Supply — June Sales

C. Taking managerial action is the final step in the control process. Although the
manager might decide to “do nothing,” two additional alternatives may be
taken.
1. Correct actual performance. Once the manager has decided to correct
actual performance, he/she must make another decision:
a. To take immediate corrective action, which is corrective
action that corrects problems at once to get performance back
on track, or
b. To take basic corrective action, which is corrective action
that looks at how and why performance deviated and then
proceeds to correct the source of deviation.
c. After analyzing deviations, effective managers identify and
correct causes of variance when the benefits of doing so justify
the cost involved.
2. Revise the standard. If the standard was set too high or too low, a
manager may decide to revise the standard.
D. Summary of Managerial Decisions

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 The control process is a continuous flow among measuring, comparing, and
managerial action. Exhibit 18-6 summarizes the manager’s decisions in the
control process.

Exhibit 18-6: Managerial Decisions in the Control Process

18.3 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE

A. What Is Organizational Performance?
Performance is the end result of an activity. Managers are concerned with
organizational performance—the accumulated end results of all the
organization’s work activities.
B. Measures of Organizational Performance
Employees need to recognize the connection between what they do and the
outcomes. The most frequently used organizational performance measures
include organizational productivity, organizational effectiveness, and industry
rankings.
1. Productivity is the overall output of goods or services produced
divided by the inputs needed to generate that output. The
management of an organization seeks to increase this ratio.
2. Organizational effectiveness is a measure of how appropriate
organizational goals are and how well an organization is achieving
those goals.
3. Industry and company rankings are often used as a measure to
describe organizational effectiveness. Exhibit 18-8 and PowerPoint
slide 18-24 list some of the more popular industry rankings used to
measure organizational performance.

Exhibit 18-8: Types of Control

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Exhibit 18-7: Popular Industry and Company Rankings
Rankings are a popular way for managers to measure their organization’s performance. As Exhibit 18-
7 shows, there’s not a shortage of these rankings.

Managers can implement controls before an activity begins, during the time the activity is going on,
and after the activity has been completed. The first type is called feedforward control; the second,
concurrent control; and the last, feedback control (see Exhibit 18-8).

• Traditional Controls
– Ratio analysis
• Liquidity
• Leverage
• Activity
• Profitability
– Budget Analysis
• Quantitative standards
• Deviations

18.4 TOOLS FOR CONTROLLING ORGANIZATIONAL PERFORMANCE

Three basic types of controls are used to control organizational performance: feedforward
controls, concurrent controls, and feedback controls. (See Exhibit 18-8)

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 A. Feedforward, Concurrent, and Feedback Control. Feedforward control is a
type of control that takes place before a work activity is done. Concurrent
control is a type of control that takes place while a work activity is in
progress. Feedback control is a type of control that takes place after a work
activity is done.
B. Financial Controls
1. Traditional Financial Control Measures (See Exhibit 18-9)

Exhibit 18-9: Popular Financial Ratios

Exhibit 18-9: Popular Financial Ratios (cont.)

a. Financial ratios are calculated by taking numbers from the

organization’s primary financial statements—the income
statement and the balance sheet. Financial ratios can be
organized into four categories:
1) Liquidity ratios measure an organization’s ability to
meet its current debt obligations.
2) Leverage ratios examine the organization’s use of debt
to finance its assets and whether the organization is
able to meet the interest payments on the debt.
3) Activity ratios assess how efficiently the firm is using its
assets.
4) Profitability ratios measure how efficiently and
effectively the firm is using its assets to generate
profits.
b. Budgets were discussed in Appendix B as a planning tool.
Budgets also function as control tools; budgets provide
managers with quantitative standards against which to

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 measure and compare actual performance and resource
consumption.
C. The Balanced Scorecard
The Balanced Scorecard is a performance measurement tool that
looks/measures the company’s performance at four areas—financial,
customer, internal processes, and people /innovation/ growth assets—that
contribute to a company’s performance.
D. Information Controls
Information controls can be viewed in two ways: (1) as a tool for controlling
other activities in an organization and (2) as an area that managers should
control. The use of management information systems is an important
development in the control of information used to monitor and measure an
organization’s activities and performance.
1. A management information system (MIS) is a system used to
provide management with needed information on a regular basis.
1. Managers need information, not merely data.
2. Data are raw, unanalyzed facts. Information is processed and
analyzed data.
E. Benchmarking of Best Practices
Benchmarking is the search for the best practices among competitors or
noncompetitors that lead to their superior performance.
1. The benchmark is the standard of excellence against which to
measure and compare.
a. Benchmarking can be used to monitor and measure
organizational performance.
b. This practice can be used to identify specific performance gaps
and potential areas of improvement.
c. Exhibit 18-10 provides a summary to guide managers in
implementing benchmarking programs.

Exhibit 18-10: Suggestions for Internal Benchmarking

18.5 CONTEMPORARY ISSUES IN CONTROL

A. Adjusting Controls for Cross-Cultural Differences
Should global organizations use particular control systems? What should
global managers know about adjusting controls for national differences?
1. Methods of controlling people vary in different countries.

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 2. Technology has an impact on control, depending on the level of
sophistication of technology in a particular country.
3. Managers must consider the legal constraints in different countries.
4. Managers face challenges in making comparisons of goods and
services among countries, even when comparing similar products and
services.
B. Workplace Concerns
Three areas of potential concern for managers: workplace privacy, employee
theft, and workplace security.
1. Workplace privacy. Many employers monitor employees at work.
Employers monitor workers for a number of reasons.
a. Web surfing while at work is thought to cost billions of dollars
in lost work productivity each year. Eg facebook and some
music download sites.
b. Employers do not want to risk being sued for creating a hostile
workplace environment because of offensive messages or
material displayed on an employee’s computer screen.
c. Managers want to ensure that the company’s secrets are not
being leaked by employees.
2. Employee theft. Employee theft is any unauthorized taking of
company property by employees for their personal use. Exhibit 18-11
presents actions taken by managers to deal with employee theft.

Exhibit 18-11: Controlling Employee Theft

3. Workplace violence. Anger, rage, and violence in the workplace

adversely affect productivity.

Exhibit 18-12: Controlling Workplace Violence

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 What can managers do to deter or reduce possible workplace violence? Once
again, the concept of feed forward, concurrent, and feedback control can help
identify actions that managers can take.

Exhibit 18-12 provides actions managers can take in dealing with workplace
violence. A number of primary contributors to dangerously
dysfunctional work environments have been identified:
a. Work driven by TNC (time, numbers, and crises)
b. Rapid and unpredictable change
c. Destructive communication styles of managers
d. Authoritarian leadership
e. Little or no feedback
f. Double standards in terms of policies
g. Unresolved grievances
h. Emotionally unstable employees
i. Repetitive, boring work
j. Faulty equipment or deficient training
k. Hazardous work environments
l. Culture of violence
C. Controlling Customer Interactions
The service profit chain is the service sequence from employees to
customers to profit.
D. Corporate governance is the system used to govern a corporation so that
the interests of corporate owners are protected.

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 a. The role of boards of directors is to have a group, independent
of management, looking out for the interest of stockholders
b. Financial reporting. Senior managers are now required by law
(Sarbanes Oxley Act) to certify their companies’ financial
results.

Staffing

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INTRODUCTION
The quality of an organization is, to a large degree, dependent upon the quality of the
people it hires and retains. Chapter 12 examines the concepts of human resource
management.

121 THE HUMAN RESOURCE MANAGEMENT PROCESS

Various studies have concluded that an organization’s human resources can be an
important strategic tool and can help establish a firm’s sustainable competitive
advantage.
A. Why Is Human Resource Management Important? Whether or not an
organization has a human resource department, every manager is involved
with human resource management activities.
1. Studies that have explored the link between HRM policies and
practices and organizational performance have found that certain
HRM policies and practices have a significant impact on performance.
a. These high-performance work practices are human
resource policies and practices that lead to both high individual
and high organizational performance.
b. Examples of high-performance work practices are shown in
Exhibit 12-1
2. The human resource management process consists of eight
activities necessary for staffing the organization and sustaining high
employee performance. See Exhibit 12-2.

Exhibit 12-2 HRM Process

In order to ensure that the organization has qualified people to perform the work that needs to
be done—activities that comprise the RM process. Exhibit 12-2 shows the eight activities in
this process

C. External Factors that affect the HRM Process. A number of

environmental forces constrain human resource management activities. The
four factors most directly influencing the HRM process are economic

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 conditions, employee labor unions, governmental laws and regulations, and
demographic trends.
1. Recent economic changes have had a profound impact on the nature
of work. Unemployment (and under employment) are high in most
developed countries due to the latest recession felt world-wide.
Economic news, whether good or bad, has effect on employment,
attitudes toward work, careers, and retirement.
2. Unionization can affect a company’s human resource management
activities.
a. A labor union is an organization that represents workers and
seeks to protect their interests through collective bargaining.
b. Good labor-management relations, the formal interactions
between unions and an organization’s management, are
important.
c. Although only about 12.5 percent of the workforce in the
United States is unionized, that percentage is higher in other
countries.

3. Government laws and regulations have greatly expanded and have

influence over HRM.Balance of the “should and should-not’s” of many
of these laws often fall within the realm of affirmative action—
programs that enhance the organizational status of members of
protected groups.
4. Demographic trends will continue to play an important role in the
Human Resource function as the pool of workers change i.e. increase
in older workers ready for retirement and greater ethnic diversity due
to an increasing number of Hispanics residing in the US.

12.2 IDENTIFIYING AND SELECTING COMPETENT EMPLOYEES

A. Human resource planning is ensuring that the organization has the right
number and kinds of capable people in the right places and at the right times.
1. Current Assessment. Managers begin HR planning by conducting a
current assessment of the organization’s human resource status.
a. This assessment is typically accomplished through a human resource
inventory.
b. Another part of the current assessment process is the job analysis,
which is an assessment that defines jobs and the behaviors necessary
to perform them.
c. From this information, management can draw up a job description,
which is a written statement that describes a job.
d. In addition, management must develop a job specification, which is a
statement of the minimum qualifications that a person must possess to
perform a given job successfully.
B. Meeting Future Human Resource Needs. Future HR needs are determined
by looking at the organization’s mission, goals, and strategies. Developing a
future program requires estimates in which the organization will be
understaffed or overstaffed.
C. Recruitment And Decruitment. Recruitment is the process of locating,
identifying, and attracting capable applicants. Job candidates can be found
using a number of different sources (see Exhibit 12-4).

Exhibit 12-4 Recruiting Sources

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Exhibit 12-4 explains different recruitment sources managers can use to find potential job
candidates

Decruitment is reducing an organization’s workforce. Decruitment options include

firing, layoffs, attrition, transfers, reduced workweeks, early retirements, and
job sharing. (See Exhibit 12-5)

Exhibit 12-5 Decruitment Options

The other approach to controlling labor supply is decruitment, which is not a pleasant task for any
manager. Decruitment options are shown in Exhibit 12-5. Although employees can be fired, other
choices may be better. However, no matter how you do it, it’s never easy to reduce an organization’s
workforce

E. Selection. Selection is screening job applicants to ensure that the most

appropriate candidates are hired. A. Selection is an exercise in prediction.

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 1. Prediction is important because any selection decision can result in
four possible outcomes (see Exhibit 12-6).

Exhibit 12-6 Selection Decision Outcomes

As shown in Exhibit 12-6, any selection decision can result in four possible outcomes—two
correct and two errors

2. The major aim of any selection activity should be to reduce the

probability of making reject errors or accept errors, while increasing
the probability of making correct decisions.
F. Validity and Reliability
1. Validity is the proven relationship that exists between a selection
device and some relevant job criterion.
2. Reliability is the ability of a selection device to measure the same
thing consistently.
G. Types of Selection Devices
Managers can select employees using numerous and varied selection
devices. Exhibit 12-7 list the strengths and weaknesses of each of these
devices.

Exhibit 12-7 Selection Tools

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 The best-known selection tools include application forms, written and performance-simulation tests,
interviews, background investigations, and in some cases, physical exams. Exhibit 12-7 lists the
strengths and weaknesses of each

1. The application form is used for job candidates by almost all

organizations.
2. Written tests can include tests of intelligence, aptitude, ability, and
interest.
3. Performance-simulation tests involve having job applicants simulate
job activities. Two well-known examples of performance-simulation
tests are described below:
a. Work sampling is a type of job tryout in which applicants
perform a task or set of tasks that are central to that job.
b. Assessment centers are used to evaluate managerial
potential through job simulation activities.
4. Interviews are a widely used selection device, although many
concerns have been voiced about their reliability and validity.
5. Background investigations can be done through the verification of
application data and/or reference checks.
6. Physical examinations are useful for jobs that have particular physical
requirements, but are most often used by the company for insurance
purposes to ensure that new hires will not submit claims for conditions
that existed before the date of hire.
7. A realistic job preview is a preview of a job that provides both
positive and negative information about the job and the company.
Including an RJP can increase job satisfaction among employees and
reduce turnover.

12.3 PROVIDING EMPLOYEES WITH THE NEEDED SKILLS AND KNOWLEDGE

A. Orientation is introducing a new employee to his or her job and the
organization.
1. Work unit orientation familiarizes the employee with the goals of the
work unit, clarifies how his/her job contributes to the unit’s goals, and
includes an introduction to his or her coworkers.
2. Organization orientation informs the new employee about the
organization’s objectives, history, philosophy, procedures, and rules.
3. Major objectives of orientation include the following:
a. To reduce initial anxiety.
b. To familiarize new employees with the job, the work unit, and
the organization.
c. To facilitate the outsider-insider transition.
4. Formal orientation programs are prevalent in many organizations,
particularly in large ones. Managers have an obligation to new
employees to ensure that their integration into the organization is as
smooth and as comfortable as possible.

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B. Employee training is a critical component of the human resource
management program.
1. Types of training include general and specific. See Figure 12-8.

Exhibit 12-8 Types of Training

Exhibit 12-8 describes the major types of training that organizations provide

2. Exhibit 12-9 describes the major types of training that organizations

provide.
a. Traditional Training methods. On-the-job training is very
common, and it may involve job rotation. Job rotation is on-the-
job training that involves lateral transfers to enable employees
who work on the same level of the organization to work in
different jobs. On-the-job training can also involve mentoring,
coaching, experiential exercises, and classroom training.
b. Technology-driven training methods. Today’s organizations are
increasingly relying on technology-based training, including e-
learning applications to communicate important information
and to train employees.

Exhibit 12-9 Traditional Training Methods

Exhibit 12-9 provides a description of the various traditional and technology-based

training methods that managers might use. Of all these training methods, experts
believe that organizations will increasingly rely on e-learning applications to deliver
important information and to develop employees’ skills.

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12.4 RETAINING COMPETENT, HIGH-PERFORMING EMPLOYEES
A. Employee Performance Management. Managers need to know whether their
employees are performing their jobs efficiently and effectively or when
improvement is needed. A performance management system
establishes performance standards that are used to evaluate employee
performance.
1. Performance Appraisal Methods (Exhibit 12-10 summarize the
advantages and disadvantages of each of these methods.)
a. A written essay appraises performance through a written
description of an employee’s strengths and weaknesses, past
performance, and potential.

Exhibit 12-10 Performance Appraisal Methods

Although appraising someone’s performance is never easy, especially with employees who
aren’t doing their jobs well, managers can be better at it by using any of the seven different
performance appraisal methods. A description of each of these methods, including
advantages and disadvantages, is shown in Exhibit 12-10.

b. Critical incidents are used to appraise performance by focusing on the

critical job behaviors. In this technique the appraiser writes anecdotes to
describe what the employee did that was especially effective or ineffective.
Only specific behaviors, rather than vaguely defined personality traits, are
cited.

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 c. The use of graphic rating scales is one of the oldest and most popular
performance appraisal methods. This method appraises performance
using a rating scale on a set of performance factors. Graphic rating
scales list a set of performance factors; the evaluator goes down the list
and rates the employee on each factor, using an incremental scale.
d. Using behaviorally anchored rating scales (BARS) is an appraisal
approach that appraises performance using a rating scale on examples
of actual job behavior. BARS combines major elements from the critical
incident and graphic rating scale approaches. The appraiser rates an
employee according to items along a scale, but the items are examples
of actual behavior on the job rather than general descriptions or traits.
e. Multiperson comparison appraises performance by comparing it with
others’ performance.
f. Management by objectives (MBO) is another mechanism for appraising
performance. It is often used to assess the performance of managers
and professional employees.
g. 360 degree feedback appraises performance by using feedback from
supervisors, employees, and coworkers.

B. COMPENSATION AND BENEFITS

How do organizations determine the compensation levels and benefits that
employees will receive?
1. The purpose of having an effective reward system is to attract and
retain competent and talented individuals who can help the
organization achieve its mission and goals.
2. A compensation system can include base wages and salaries, wage
and salary add-ons, incentive payments, and benefits and services.
3. What factors determine the compensation and benefits packages for
different employees? A number of factors influence these differences
(see Exhibit 12-11):
Exhibit 12-11 What Determines Pay and Benefits

How do managers determine who gets paid what? Several factors influence the compensation and benefit
packages that different employees receive. Exhibit 12-11 summarizes these factors, which are job-based and
business- or industry-based. Many organizations,
however, are using alternative approaches to determining compensation: skill-based pay and variable pay.

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 a. Under a skill-based pay system, employees are compensated
for the job skills they can demonstrate. Research shows that
skill-based pay systems tend to be more successful in
manufacturing organizations than in service organizations.
b. Under a variable pay system, an individual’s compensation is
contingent on performance.
c. Flexibility is becoming a key consideration in the design of an
organization’s compensation system.
11.5 CONTEMPORARY ISSUES IN MANAGING HUMAN RESOURCES
A. Managing downsizing
Downsizing is the planned elimination of jobs in an organization, is a
challenge for management in a tight economy. Downsizing can occur when
management faces (1) a poor management past, (2) declining market share,
and/or (3) overly aggressive organizational growth.
B. Managing Workforce Diversity
In a business environment where the composition of the workforce is
changing, these changes affect recruitment, selection, orientation, and
training.
C. Managing Sexual Harassment
Sexual harassment is any unwanted action or activity of a sexual nature that
explicitly or implicitly affects an individual’s employment, performance, or
work environment.
D. Managing Work-Life Balance
Family concerns, especially work-life balance, are another issue of current
importance in human resource management.
1. Organizations increasingly realize that employees cannot completely
leave their family needs and problems behind when they walk into the
workplace each day. Businesses are responding to these needs by
developing programs to help employees deal with family issues that
may arise.
2. Many progressive organizations provide a variety of scheduling
options and benefits that provide more flexibility at work in order to
allow employees to better balance or integrate their work and personal
lives.
3. Many progressive organizations provide a variety of scheduling
options and benefits that provide more flexibility at work in order to
allow employees to better balance or integrate their work and personal
lives.
E. Controlling HR Costs
1. With health care costs rising an average of 15 percent per year it is
important for employers to keep their portion of what they pay for
health insurance low. Two factors that affect what employers pay for
their premiums are smoking and obesity. To keep costs low,
employers are responding by offering wellness programs, reimbursing
employees for health club costs (or providing fitness equipment and
classes on site) and offering healthy food choices in their cafeterias.
2. Employee pension plans are other increasing costs. The choice for
employers is whether to suspend offering pension plans or to continue
to offer new retirement choices to attract employees.

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References
1. http://en.wikipedia.org/wiki/Henri_Fayol
2. http://maureencutajar.suite101.com/max-weber-bureaucracy-theory-a267433
3. http://www.learnmanagement2.com/scientificmanagement.htm Accessed 02 September 2011
4. http://www.netmba.com/mgmt/scientific/ Accessed 02 September 2011
5. http://www.vectorstudy.com/management_schools/scientific_management.htm
6. Gomez-Mejia & Balkin (2012) Management. Prentice Hall.
7. Hitt, Black & Porter (2012) Management. 3rd Ed. Prentice Hall
8. Certo & Certo (2012) Concepts and Skills, 12/E. Prentice Hall
9. Robbins, De Cenzo & Coulter (2011) Fundamentals of Management, 7/E. Prentice Hall

I. What Is Leadership?
A. John Kotter believes management is about “coping with complexity.”
B. Good management brings about order and consistency by drawing up formal plans,
designing rigid organization structures, and monitoring results against the plans.
C. Leadership is about coping with change.
D. Leaders establish direction by developing a vision of the future; then they align
people by communicating this vision and inspiring them to overcome hurdles.
E. Leadership is “the ability to influence a group toward achievement of a vision or set
of goals.”
F. Managers use the authority inherent in their designated formal rank to obtain
compliance.
G. Management consists of implementing vision and strategy, coordinating and staffing,
and handling day-to-day problems.
H. The source of this influence may be formal. A person may assume a leadership role
simply because of his/her position.
I. Not all leaders are managers, nor, for that matter, are all managers leaders.
J. Non-sanctioned leadership—the ability to influence that arises outside the formal
structure of the organization—is often as important as or more important than formal
influence.
K. Leaders can emerge from within a group as well as by formal appointment to lead a
group.
L. Organizations need strong leadership and strong management for optimum
effectiveness. Leaders must challenge the status quo, create visions of the future, and
inspire organizational members.

II. Trait Theories

A. Strong Leaders
1. They identify leaders by focusing on personal qualities and characteristics such as
charisma, enthusiasm, and courage.
2. Research efforts at isolating leadership traits resulted in a number of dead ends. A
review of 20 different studies identified nearly 80 leadership traits, but only five
of these traits were common to four or more of the investigations.
B. The trait approach has at least four limitations:

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 1. Big Five personality framework provided some breakthroughs. Most of the dozens
of traits that emerged could be subsumed under one of the Big Five traits.
2. Extraversion is the most important trait of effective leaders—more strongly
related to leader emergence than to leader effectiveness.
3. Conscientiousness and openness to experience strong, consistent relationships to
leadership
4. Agreeableness and emotional stability weren’t as strongly correlated with
leadership.
C. Recent studies suggest that Emotional Intelligence (EI—See Chapter 8), may be
associated with leadership. Empathy is the key. There needs to be more rigorous
investigation in this area.
1. Traits do a better job at predicting the appearance of leadership than in actually
distinguishing between effective and ineffective leaders.

III. Behavioral Theories

A. Introduction
1. Researchers began to wonder if there was something unique in the way that
effective leaders behave. The behavioral approach would have implications quite
different from those of the trait approach.
2. Trait and behavioral theories differ in terms of their underlying assumptions.
3. Trait theories’ assumption: Leadership is basically inborn; therefore we could
select the right leaders.
4. Behavioral approach assumption: suggests that we could train people to be
leaders. We can design programs to implant behavioral patterns. If training
worked, we could have an infinite supply of effective leaders.
B. Ohio State Studies
1. The most comprehensive and replicated of the behavioral theories resulted from
research that began at Ohio State University in the late 1940s. These researchers
sought to identify independent dimensions of leader behavior.
2. They narrowed over a thousand dimensions into two dimensions—initiating
structure and consideration.
3. Initiating structure refers to the extent to which a leader is likely to define and
structure his/her role and those of employees in the search for goal attainment.
4. It includes attempts to organize work, work relationships, and goals.
5. The leader high in initiating structure could be described as someone who “assigns
group members to particular tasks,” “expects workers to maintain definite
standards of performance,” and “emphasizes the meeting of deadlines.”
6. Consideration is described as “the extent to which a person is likely to have job
relationships that are characterized by mutual trust, respect for employees’ ideas,
and regard for their feelings.”
7. The leader shows concern for followers’ comfort, well-being, status, and
satisfaction.
8. A leader high in consideration could be described as one who helps employees
with personal problems, is friendly and approachable, and treats all employees as
equals.
9. Leaders high in initiating structure and consideration tended to achieve high
employee performance and satisfaction.
10. The “high-high” style did not always result in positive consequences.

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 11. Leader behavior characterized as high on initiating structure led to greater rates of
grievances, absenteeism, and turnover, and lower levels of job satisfaction for
routine tasks.
12. High consideration was negatively related to performance ratings of the leader by
his/her superior.
C. University of Michigan Studies
1. Leadership studies were undertaken at the same time as those being done at Ohio
State, with similar research objectives. They discovered two dimensions of
leadership behavior—employee-oriented and production-oriented.
a. Employee-oriented leaders emphasized interpersonal relations. They took a
personal interest in the needs of their employees and accepted individual
differences among members.
b. The production-oriented leaders tended to emphasize the technical or task
aspects of the job—group members were a means to that end.
2. Michigan researchers’ conclusions strongly favored the leaders who were
employee oriented. Employee-oriented leaders were associated with higher group
productivity and higher job satisfaction.
3. Production-oriented leaders tended to be associated with low group productivity
and lower job satisfaction.
D. Summary of Trait Theories and Behavioral Theories
1. The behavioral theories have had modest success in identifying consistent
relationships between leadership behavior and group performance.
2. As important as traits and behaviors are in identifying effective or ineffective
leaders, they do not guarantee success. The context matters, too.

IV. Contingency Theories

A. Introduction
1. Tough-minded leaders seem successful in difficult times, but tend to be dismissed
when the environment improves.
2. Situational factors that influence success or failure need to be explored further.
B. Fiedler Model
1. Introduction
a. The first comprehensive contingency model for leadership was developed by
Fred Fiedler who proposed that effective group performance depends upon the
proper match between the leader’s style and the degree to which the situation
gives control to the leader.
2. Identifying Leadership Style
a. Fiedler believed that a key factor in leadership success is the individual’s basic
leadership style. He created the least preferred coworker (LPC) questionnaire
for this purpose.
b. It purports to measure whether a person is task- or relationship-oriented.
c. The questionnaire contains 16 contrasting adjectives (such as pleasant-
unpleasant, efficient-inefficient, open-guarded, supportive-hostile).
d. It asks respondents to describe the one person they least enjoyed working with
by rating him or her on a scale of one to eight for each of the 16 sets of
contrasting adjectives.
e. Fiedler believes that based on the respondents’ answers to this questionnaire,
he can determine their basic leadership style.

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 f. If the least preferred coworker is described in relatively positive terms (a high
LPC score), the respondent is primarily interested in good personal relations
with this coworker.
g. If the least preferred coworker is seen in relatively unfavorable terms (a low
LPC score), the respondent is primarily interested in productivity and thus
would be labeled task-oriented.
h. About 16 percent of respondents cannot be classified as either.
i. Fiedler assumes that an individual’s leadership style is fixed.
3. Defining the Situation
a. After assessing leadership style, it is necessary to match the leader with the
situation. Fiedler has identified three contingency dimensions:
i. Leader-member relations—The degree of confidence, trust, and respect
members have in their leader
ii. Task structure—The degree to which the job assignments are procedural
iii. Position power—The degree of influence a leader has over power
variables such as hiring, firing, discipline, promotions, and salary increases
b. The next step is to evaluate the situation in terms of these three contingency
variables.
i. Leader-member relations are either good or poor.
ii. Task structure is either high or low.
iii. Position power is either strong or weak.
c. Fiedler states the better the leader-member relations, the more highly
structured the job, and the stronger the position power, the more control the
leader has.
d. Altogether, by mixing the three contingency variables, there are potentially
eight different situations or categories in which leaders could find themselves.
4. Matching Leaders and Situations
a. The Fiedler model proposes matching them up to achieve maximum
leadership effectiveness.
b. Fiedler concluded that task-oriented leaders tend to perform better in situations
that were very favorable to them and in situations that were very unfavorable.
c. Fiedler would predict that when faced with a category I, II, Ill, VII, or VIII
situation, task-oriented leaders perform better.
d. Relationship-oriented leaders, however, perform better in moderately
favorable situations—categories IV through VI.
5. Findings from the Fiedler Model
a. Fiedler has condensed these eight situations to three. Task-oriented leaders
perform best in situations of high and low control, while relationship-oriented
leaders perform best in moderate control situations.
b. Given Fiedler’s findings, you would seek to match leaders and situations.
Because Fiedler views an individual’s leadership style as being fixed, there are
only two ways to improve leader effectiveness.
i. First, you can change the leader to fit the situation.
ii. The second alternative would be to change the situation to fit the leader.
6. Evaluation of Fiedler
a. There is considerable evidence to support at least substantial parts of the
model. If predictions from the model use only three categories rather than the
original eight, there is ample evidence to support Fiedler’s conclusions.

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 b. There are problems and the practical use of the model that need to be
addressed. The logic underlying the LPC is not well understood and studies
have shown that respondents’ LPC scores are not stable.
c. Also, the contingency variables are complex and difficult for practitioners to
assess.
7. Other Contingency Theories
a. Situational Leadership Theory
i. This model—Situational Leadership Theory (SLT)—has been
incorporated into leadership training programs at over 400 of the Fortune
500 companies, and over one million managers a year from a wide variety
of organizations are being taught its basic elements.
ii. Situational leadership is a contingency theory that focuses on the
followers.
iii. Successful leadership is achieved by selecting the right leadership style,
which is contingent on the level of the followers’ readiness. The term
readiness refers to “the extent to which people have the ability and
willingness to accomplish a specific task.”
iv. The emphasis on the followers in leadership effectiveness reflects the
reality that it is the followers who accept or reject the leader.
v. SLT views the leader-follower relationship as analogous to that between a
parent and child.
vi. Just as a parent needs to relinquish control as a child becomes more mature
and responsible, so too should leaders.
vii. Four specific leader behaviors—from highly directive to highly laissez-
faire. The most effective behavior depends on a follower’s ability and
motivation.
viii. SLT has an intuitive appeal. Yet, research efforts to test and support the
theory have generally been disappointing.
b. Path-Goal Theory
i. The Theory
(a) One of the most respected approaches to leadership is the path-goal
theory developed by Robert House.
(b) It is a contingency model of leadership that extracts key elements from
the Ohio State leadership research on initiating structure and
consideration and the expectancy theory of motivation.
(c) It is the leader’s job to assist followers in attaining their goals and to
provide the necessary direction and/or support to ensure that their goals
are compatible with the overall objectives of the firm.
(d) The term path-goal is derived from the belief that effective leaders
clarify the path to help their followers achieve their work goals.
c. Leader Behaviors
i. House identified four leadership behaviors:
(a) The directive leader lets followers know what is expected of them, etc.
(b) The supportive leader is friendly and shows concern for the needs of
followers.
(c) The participative leader consults with followers and uses their
suggestions before making a decision.
(d) The achievement-oriented leader sets challenging goals and expects
followers to perform at their highest level.
d. Leader-Participation Model

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 i. In 1973, Victor Vroom and Phillip Yetton developed a leader-participation
model. Recognizing that task structures have varying demands for routine
and non-routine activities, these researchers argued that leader behavior
must adjust to reflect the task structure.
ii. The model was normative—it provided a sequential set of rules that should
be followed in determining the form and amount of participation in
decision making, as determined by different types of situations.
iii. The model was a decision tree incorporating seven contingencies and five
leadership styles.
iv. More recent work by Vroom and Arthur Jago revised this model.
v. Retains the same five alternative leadership styles but adds a set of
problem types and expands the contingency variables to twelve.

V. Leader-Member Exchange Theory

A. The leader-member exchange (LMX) theory argues that because of time pressures,
leaders establish a special relationship with a small group of their followers.
B. These individuals make up the in-group—they are trusted, get a disproportionate
amount of the leader’s attention, and are more likely to receive special privileges.
C. The theory proposes that early in the history of the interaction between a leader and a
given follower, the leader implicitly categorizes the follower as an “in” or an “out”
and that relationship is relatively stable over time.
1. How the leader chooses who falls into each category is unclear.
2. The leader does the choosing on the basis of the follower’s characteristics.
3. In-groups have similar characteristics. (See Exhibit 12-2)

D. The theory and research surrounding it provide substantive evidence that leaders do
differentiate among followers.

VI. Charismatic and Transformational Leadership

A. Introduction
1. Views leaders as individuals who inspire followers through their words, ideas, and
behaviors.
B. Charismatic Leadership
1. What Is Charismatic Leadership?
a. Charismatic Leadership Theory proposed by Robert House.
b. Followers make attributes of heroic or extraordinary leadership abilities when
they observe certain behaviors. (See Exhibit 12-3)
c. General characteristics are:
i. They have vision.
ii. They are willing to take personal risk.
iii. They are sensitive to followers’ needs.
iv. They exhibit extraordinary behaviors.
2. Are Charismatic Leaders Born or Made?
a. Individuals are born with traits that make them charismatic.
b. Most experts believe individuals can be trained to exhibit charismatic
behavior.
c. A three-step process is suggested:
i. First, an individual needs to develop the aura of charisma by maintaining
an optimistic view; using passion as a catalyst for generating enthusiasm;
and communicating with the whole body, not just with words.

97
 ii. Second, an individual draws others in by creating a bond that inspires
others to follow.
iii. Third, the individual brings out the potential in followers by tapping into
their emotions.
d. This approach seems to work as evidenced by researchers who have succeeded
in actually scripting undergraduate business students to “play” charismatic
leaders. Moreover, followers of these leaders had higher task performance,
task adjustment, and adjustment to the leader and to the group than did
followers who worked under groups led by non-charismatic leaders.
3. How Charismatic Leaders Influence Followers
a. Appealing vision
i. Vision statement
ii. High performance expectations
iii. A new set of values
4. Does Effective Charismatic Leadership Depend on the Situation?
a. A strong correlation between charismatic leadership and high performance and
satisfaction among followers
b. Charisma appears to be most appropriate when the follower’s task has an
ideological component or when the environment involves a high degree of
stress and uncertainty.
c. This may explain why, when charismatic leaders surface, it’s more likely to be
in politics, religion, wartime; or when a business firm is in its infancy or
facing a life-threatening crisis.
5. The Dark Side of Charismatic Leadership
a. Don’t necessarily act in the best interest of their companies.
b. Use their charisma to shape company in their own image.
c. Charismatic leadership is NOT always the best situation.
C. Transformational Leadership
1. Introduction
a. Most of the leadership theories presented in the previous chapters—for
instance, the Ohio State studies, Fiedler’s model, path-goal theory, and the
leader participation model—have concerned transactional leaders.
b. These kinds of leaders guide or motivate their followers in the direction of
established goals by clarifying role and task requirements.
c. Transformational leaders inspire followers to transcend their own self-interests
for the good of the organization.
d. They change followers’ awareness of issues by helping them to look at old
problems in new ways; and they are able to excite, arouse, and inspire
followers to put out extra effort to achieve group goals.
e. Transformational leadership is built on top of transactional leadership—it
produces levels of follower effort and performance that go beyond what would
occur with a transactional approach alone. (See Exhibit 12-4)
f. Evidence indicates that transformational leadership is more strongly correlated
with lower turnover rates, higher productivity, and higher employee
satisfaction.
2. Full Range of Leadership Model (See Exhibit 12-5)
a. Laissez-Faire is the most passive and least effective type.
b. Management by exception is slightly better.
c. Contingent reward leadership can be effective.
d. The remaining four correspond to transformational leadership:

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 i. Individualized consideration
ii. Intellectual stimulation
iii.Inspirational motivation
iv. Idealized influence
3. How Transformational Leadership Works
a. Recently, great deal of research in this area
b. Transformational leaders:
i. Encourage followers to be more innovative and creative
ii. Followers are more likely to pursue ambitious goals
iii. Vision explains part of the effect of transformational leadership
4. Evaluation of Transformational Leadership
a. Advantages
i. Transformational leadership has been supported in different countries and
cultures.
ii. It is related to followers’ motivation and satisfaction.
b. Concerns
i. Contingent reward leadership
ii. Strongly correlated with:
(a) Low turnover rates
(b) High productivity
(c) High satisfaction
5. Transformational Leadership versus Charismatic Leadership
a. Debate whether the two are the same
b. Robert House considers them synonymous.
c. Bernard Bass considers charisma to be part of transformational leadership.
d. Studies show that a leader who scores high on transformational leadership is
also likely to score high on charisma.

VII. Authentic Leadership: Ethics and Trust Are the Foundation of Leadership
A. What Is Authentic Leadership?
1. Leaders know who they are.
2. Know what they believe in and value
3. Act on those values and beliefs openly and candidly
B. Ethics and Leadership
1. Only recently have ethicists and leadership researchers begun to consider the
ethical implications in leadership.
2. Ethics touches on leadership at a number of junctures.
3. Transformational leaders have been described by one authority as fostering moral
virtue when they try to change the attitudes and behaviors of followers.
4. Unethical leaders are more likely to use their charisma to enhance power over
followers, directed toward self-serving ends.
5. The issue of abuse of power by leaders, for example, when they give themselves
large salaries and bonuses while, at the same time, they seek to cut costs by laying
off long-time employees
6. The topic of trust explicitly deals with honesty and integrity in leadership.
7. Leadership effectiveness needs to address the means that a leader uses in trying to
achieve goals as well as the content of those goals. Leadership is not value free.
8. Efforts have been made to combine ethical and charismatic leadership into an idea
of Socialized Charismatic Leadership.
C. Trust and Leadership

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 Trust is a psychological state that exists when you agree to make yourself
1.
vulnerable to another because you have positive expectations about how things are
going to turn out.
2. Trust is a primary attribute associated with leadership. When trust is broken, it can
have serious adverse effects on a group’s performance.
3. It is evident that it is impossible to lead people who do not trust you. Trust and
trust-worthiness modulate the leader’s access to knowledge and cooperation.
4. When followers trust a leader, they are willing to be vulnerable to the leader’s
actions, confident that their rights and interests will not be abused.
5. Honesty consistently ranks at the top of most people’s list of characteristics they
admire in their leaders.
D. How is Trust Developed?
1. Trust isn’t just about the leader; the characteristics of the followers will also
influence the development of trust.
2. What key characteristics lead us to believe a leader is trustworthy? Evidence has
identified three: integrity, benevolence, and ability (see Exhibit 12-6).
3. Integrity refers to honesty and truthfulness. It seems the most critical of the three
in assessing another’s trustworthiness.
4. Benevolence means the trusted person has your interests at heart, even if yours
aren’t necessarily in line with theirs.
5. Ability encompasses an individual’s technical and interpersonal knowledge and
skills.
E. Trust as a Process
1. Trust propensity refers to how likely a particular employee is to trust a leader.
Some people are simply more likely to believe others can be trusted.
2. Time is the final ingredient in the recipe for trust. Trust doesn’t happen
immediately: we come to trust people based on observing their behavior over a
period of time.
3. Trust can also be won in the ability domain simply by demonstrating competence.
4. Leaders who break the psychological contract with workers, demonstrating they
aren’t trustworthy, will find employees are less satisfied and less committed, have
higher intentions to turnover, engage in less citizenship behavior, and have lower
task performance.
F. What Are the Consequences of Trust?
1. Trust Encourages Taking Risks
a. Whenever employees decide to deviate from the usual way of doing things, or
to take their supervisors’ word on a new direction, they are taking a risk.
2. Trust Facilitates Information Sharing
a. One big reason employees fail to express concerns at work is that they don’t
feel psychologically safe revealing their views.
3. Trust Enhances Productivity
a. The bottom-line interest of companies also appears positively influenced by
trust. Employees who trust their supervisors tend to receive higher
performance ratings.

VIII. Leading For The Future: Mentoring

A. Mentoring
1. A mentor is a senior employee who sponsors and supports a less-experienced
employee (a protégé). The mentoring role includes coaching, counseling, and
sponsorship.

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 2. As a coach, mentors help to develop their protégés’ skills.
3. As counselors, mentors provide support and help bolster protégés’ self-
confidence.
4. As sponsors, mentors actively intervene on behalf of their protégés, lobby to get
their protégés visible assignments, and politic to get their protégés rewards such as
promotions and salary increases.
5. Some organizations have formal mentoring programs where mentors are officially
assigned to new or high-potential employees; however, most organizations rely on
informal mentoring—with senior managers personally selecting an employee and
taking that employee on as a protégé.
6. Why would a leader want to be a mentor?
a. The mentor-protégé relationship gives the mentor unfiltered access to the
attitudes and feelings of lower-ranking employees.
b. The mentor-protégé relationship is a valuable communication channel that
allows mentors to have news of problems before they become common
knowledge to others in upper management.
c. In addition, in terms of leader self-interest, mentoring can provide personal
satisfaction to senior executives. The opportunity to share knowledge with
others can be personally rewarding for the mentor.
d. The gains of mentoring are primarily psychological.
e. Mentors may be effective not because of the functions they provide but
because of the resources they can obtain.
f. Most evidence suggests network ties, whether built through a mentor or not,
are a significant predictor of career success.

IX. Challenges To The Leadership Construct

A. Introduction
1. Much of an organization’s success or failure is due to factors outside the influence
of leadership. In many cases, success or failure is just a matter of being in the right
or wrong place at a given time.
2. Two perspectives that challenge the widely accepted belief in the importance of
leadership:
a. The first argument proposes that leadership is more about appearances than
reality. You do not have to be an effective leader as long as you look like one!
b. The second argument directly attacks the notion that some leadership will
always be effective regardless of the situation. This argument contends that in
many situations, whatever actions leaders exhibit are irrelevant.
B. Leadership as an Attribution
1. The attribution framework has shown that people characterize leaders as having
such traits as intelligence, outgoing personality, strong verbal skills,
aggressiveness, understanding, and industriousness.
2. The high-high leader (high on both task and people dimensions) has been found to
be consistent with attributions of what makes a good leader.
3. The attribution framework accounts for the conditions under which people use
leadership to explain organizational outcomes. When an organization has either
extremely negative or extremely positive performance, people are prone to make
leadership attributions to explain the performance.
4. This tendency helps to account for the vulnerability of CEOs when their
organizations suffer a major financial setback, and the credit for extremely
positive financial results—regardless of how much or how little they contributed.

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 5. One finding in the attribution model of leadership literature is the perception that
effective leaders are generally considered consistent or unwavering in their
decisions.
C. Substitutes and Neutralizers to Leadership (See Exhibit 12-8)
1. Contrary to the arguments, leadership may not always be important. Data from
numerous studies collectively demonstrate that, in many situations, whatever
actions leaders exhibit are irrelevant.
2. Certain individual, job, and organizational variables can act as substitutes for
leadership or neutralize the leader’s effect to influence his or her followers.
3. Neutralizers make it impossible for leader behavior to make any difference to
follower outcomes. They negate the leader’s influence.
4. Substitutes make a leader’s influence not only impossible but also unnecessary.
They act as a replacement.
a. For example, training can replace the need for a leader’s support or ability to
create structure and reduce task ambiguity.
5. Organizational characteristics like explicit formalized goals, rigid rules and
procedures, and cohesive work groups can also replace formal leadership.
6. Supporters of the leadership concept place an undue burden on this variable for
explaining and predicting behavior. It is important to recognize explicitly that
leadership is merely another independent variable in our overall OB model.
D. Online Leadership
1. Today’s managers and their employees are increasingly linked by networks rather
than geographic proximity.
2. Networked communication is a powerful channel that can build and enhance
leadership effectiveness.
3. But when misused, it can undermine much of what a leader has achieved through
verbal communication.
4. Online leaders also confront unique challenges, the greatest of which appears to
be developing and maintaining trust. Identification-based trust is particularly
difficult to achieve without face-to-face interaction.
5. For an increasing number of managers, good leadership skills may include the
abilities to communicate support, trust, and inspiration through keyboarded words
and accurately read emotions in others’ messages.

X. Finding And Creating Effective Leaders

A. Selecting Leaders
1. The entire process that organizations go through to fill management positions is
essentially an exercise in trying to identify individuals who will be effective
leaders.
2. Items of consideration during selection include:
a. Reviewing the specific requirements for the position. What knowledge, skills,
and abilities are needed to do the job effectively?
b. Analyze the situation in order to find candidates who will make a proper
match.
c. Testing is useful for identifying and selecting leaders. Personality tests can be
used to look for traits associated with leadership—ambition and energy, desire
to lead, honesty and integrity, self-confidence, intelligence, and job-relevant
knowledge.

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 d. Testing to find a leadership-candidate’s score on self-monitoring. High self-
monitors are likely to outperform their low-scoring counterparts because the
former is better at reading situations and adjusting his or her behavior.
e. Assess candidates for emotional intelligence. High EI should have an
advantage, especially in situations requiring transformational leadership.
f. Interviews provide an opportunity to evaluate leadership candidates.
3. Since nothing lasts forever, the most important event an organization needs to
plan for is a change in leadership.
4. Some organizations seem to spend no time on leadership succession and are
surprised when their picks turn out poorly
B. Training Leaders
1. Billions are spent on leadership training and development every year.
2. Here are some things management can do to get the maximum effect from their
leadership-training budgets:
a. People are not equally trainable. Leadership training is likely to be more
successful with individuals who are high self-monitors than with low self-
monitors.
b. It may be optimistic to believe that we can teach “vision-creation,” but we can
train people to develop “an understanding about content themes critical to
effective visions.”
c. We also can teach skills such as trust building, mentoring, and situational-
analysis skills.
d. There is evidence suggesting that behavioral training through modeling
exercises can increase an individual’s ability to exhibit charismatic leadership
qualities.

XI. Global Implications

A. Are we different?
1. We know very little about how culture might influence the validity of the theories,
particularly in Eastern cultures.
2. A study looked at how culture affected U.S. managers given lead for projects in
foreign countries. They found:
a. Based on the values of Brazilian employees, a U.S. manager leading a team in
Brazil would need to be team oriented, participative, and humane. Leaders
high on consideration who emphasize participative decision making and have
high LPC scores would be best suited to managing employees in this culture.
b. Compared to U.S. employees, the French have a more bureaucratic view of
leaders and are less likely to expect them to be humane and considerate. A
leader high on initiating structure (relatively task oriented) will do best and
can make decisions in a relatively autocratic manner. A manager who scores
high on consideration (people-oriented) may find that style backfiring in
France.
c. Employees in Egypt are more likely to value team-oriented and participative
leadership than U.S. employees. However, Egypt is also a relatively high-
power-distance culture, meaning status differences between leaders and
followers are expected.
B. According to the GLOBE study, Chinese culture emphasizes being polite,
considerate, and unselfish. But it also has a high performance orientation. These two
factors suggest consideration and initiating structure may both be important. Although
Chinese culture is relatively participative compared to that of the United States, there

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 are also status differences between leaders and employees. This suggests a moderately
participative style may work best.
1. The GLOBE study suggests leaders need to take culture into account whenever
managing employees from different cultures.
2. A number of elements making up transformational leadership appear associated
with effective leadership, regardless of the country.
3. A number of elements making up transformational leadership appear associated
with effective leadership, regardless of the country. This conclusion is very
important because it disputes the contingency view that leadership style needs to
adapt to cultural differences.
4. Elements of transformational leadership that appear universal are vision, foresight,
providing encouragement, trustworthiness, dynamism, positiveness, and
proactiveness.
5. A vision is important in any culture, then, but how it is formed and communicated
may still need to vary by culture.

XII. Summary and Implications for Managers

A. Leadership is central to understanding group behavior.
B. Leaders provide direction toward goals.
C. Traits Theory
1. Generally disappointing in outcome
2. Big Five Personality Framework more successful
D. Behavioral Theory
1. Task-oriented style
2. People-oriented style
E. Contingency Theory
1. Uses situational analysis.
2. Except for LPC, these theories have been ineffective in research.
F. Charismatic and Transformational Leadership
1. Has made major contributions to understanding of leadership effectiveness
2. Organizations seek managers/leaders with vision and charisma to carry out
the
vision.
G. Selection and Training of Leaders
1. Tests and Interviews help identify people with leadership qualities.
2. Training should be an investment to include formal courses, workshops, rotating
job responsibilities, coaching, and mentoring.

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