LO1 Describe the four functions of

management.

1 | THE FOUR
FUNCTIONS OF
MANAGEMENT
Management is the process of working with people and
resources to accomplish organizational goals. Good managers
do those things both effectively and efficiently:
● Mary Barra, chair and CEO of GM, speaks at the opening ceremony of
∙ To be effective is to achieve organizational goals. the GM China Advanced Technical Center-Phase 1 in Shanghai, China.
© AP Images
∙ To be efficient is to achieve goals with minimal waste
of resources—that is, to make the best possible use of
money, time, materials, and people. As any exceptional manager, coach, or professor would say,
excellence always starts with the fundamentals.
Unfortunately, far too many managers fail on both criteria or
focus on one at the expense of another. The best managers
maintain a clear focus on both effectiveness and efficiency.
1.1 | P
 lanning Helps You
Although business is changing rapidly, there are still plenty Deliver Value
of timeless principles that make managers great and companies Planning is specifying the goals to be achieved and deciding in
thrive. While fresh thinking and new approaches are required advance the appropriate actions needed to achieve those goals.
now more than ever, much of what we already know about suc- As Exhibit 1.1 illustrates, planning activities include analyz-
cessful management practices (Chapter 2 discusses historical ing current situations, anticipating the future, determining
but still-pertinent contributions) remains relevant, useful, and objectives, deciding on what types of activities the company
adaptable to the current highly competitive global marketplace. will engage, choosing corporate and business strategies, and
Great managers and executives like Howard Schultz of determining the resources needed to achieve the organization’s
Starbucks not only adapt to changing conditions but also apply— goals. Plans set the stage for action.
passionately, rigorously, consistently, and with discipline—the For example, Mary Barra, the first woman to become chair
fundamental management principles of planning, organizing, and chief executive officer (CEO) at General Motors, has sev-
leading, and controlling. These four core functions remain as eral plans to make her firm the “the most valuable automotive
relevant as ever, and they still provide the fundamentals that company” in the world.6 An engineer with 35 years of experi-
are needed to manage effectively in all types of organizations, ence at GM, Barra’s strategic goals include controlling costs
including private, public, nonprofit, and entrepreneurial (from by using fewer vehicle platforms from which to build multiple
microbusinesses to global firms). models, meeting stricter safety and emissions guidelines, and
entering into the autonomous vehicle and ride-sharing indus-
tries.7 A driving force behind Barra’s strategies is to deliver
st ud y ti p 1
Exhibit 1.1 Examples of planning activities
Study more efficiently
You’re busy with work, school, family, and a social life and probably Analyze
Anticipate the Determine
don’t have four or five hours to spend studying in one sitting. Try current
future. objectives.
chunking your study time into separate 30- to 45-minute minises- situation.
sions. This will help you focus better while reading and outlining
a chapter, reviewing vocabulary, studying action review cards,
or preparing for a quiz or exam. This will work only if you turn off Decide in Choose a Determine
your e-devices; so no texting, updating Facebook, messaging on what actions business resources to
Snapchat, or playing online games. Get (and stay) in the study zone! to engage. strategy. achieve goals.

4 PART 1 | Introduction
 management the process
of working with people and
resources to accomplish
value to customers in multiple ways, including trying to extend 1.2 | Organizing organizational goals
the life of GM’s vehicles to 12 or more years.8 A innova-
tive part of Barra’s plan was jumpstarted recently when GM Resources planning the management
invested $500 million in Lyft, a ride-share company that com- Achieves function of systematically
petes with better-known Uber.9 Reasons GM partnered with the Goals making decisions about
start-up include the development of a network for self-driving the goals and activities
cars and establishing hubs to rent cars to Lyft drivers at dis- Organizing is assembling that an individual, a group,
counted rates.10 and coordinating the human, a work unit, or the overall
financial, physical, informa- organization will pursue
In today’s highly competitive business environment, the
planning function can also be described as delivering strate- tional, and other resources organizing the
gic value. Value is a complex concept.11 Fundamentally, it needed to achieve goals. management function
describes the monetary amount associated with how well a job, Organizing activities include of assembling and
task, good, or service meets users’ needs. Those users might attracting people to the organi- coordinating human,
be business owners, customers, employees, governments, and zation, specifying job respon- financial, physical,
even nations. When Steve Jobs, founder and CEO of Apple, sibilities, grouping jobs into informational, and other
died on October 5, 2011, many people around the world experi- work units, marshaling and resources needed to
enced a sense of loss both for him as a person and for the value allocating resources, and cre- achieve goals
that his transformational Apple products provided. The better ating conditions so that people
you meet users’ needs (in terms of quality, speed, efficiency, and things work together to
and so on), the more value you deliver. That value is “strategic” achieve maximum success.

“Innovation distinguishes between a leader

and a follower.”
—Steve Jobs

when it contributes to meeting the organization’s goals. On a LISTEN & LEARN ON LINE
personal level, you should periodically ask yourself and your
boss, “How can I add value?” Answering that question will
enhance your contributions, job performance, and career. Young Managers SPEAK OUT!
Traditionally, planning was a top-down approach in which
top executives established business plans and told others to
“It’s all about balance in this business. You really
have to pay attention to what is going on . . . what
implement them. For the best companies, delivering strategic
value is a continual process in which people throughout the you do well. What you can do better. At the same
organization use their knowledge and that of their external time, you do have to pay attention to what is
customers, suppliers, and other stakeholders to identify oppor- going on outside and how you can keep up.”
tunities to create, seize, strengthen, and sustain competitive
advantage. (Chapter 3 discusses the external competitive envi- —Michael Kettner, Bar Manager
ronment of business and how managers can influence it.) This Photo: © McGraw-Hill Education
dynamic process swirls around the objective of creating more
and more value for the customer. For example, Trader Joe’s
leverages information about its customers to offer high-quality,
popular products at low prices.12
Effectively creating value requires fully considering a new
and changing set of factors, including the government, the nat-
ural environment, global forces, and the dynamic economy
in which ideas are king and entrepreneurs are both formida-
ble competitors and potential collaborators. You will learn
about these and related topics in Chapter 4 (ethics and corpo-
rate responsibility), Chapter 5 (strategic planning and decision
making), and Chapter 6 (entrepreneurship).
 Tr ad it ional Thinking

Planning is a top-down approach where top executives establish business plans and
tell others to implement them.

The B es t M anag e rs Today

Deliver strategic value that draws on the collective knowledge and ideas of a wide
variety of people both inside and outside the organization.

The organizing function’s goal is to build a dynamic orga- resources needed to achieve success. You will learn more about
nization. Traditionally, organizing involved creating an orga- these topics in Chapter 7 (organizing for action), Chapter 8
nization chart by identifying business functions; establishing (human resources management), and Chapter 9 (managing diver-
reporting relationships; and having a personnel department that sity and inclusion).
administered plans, programs, and paperwork. Now and in the
future, effective managers will be using new forms of organizing 1.3 | Leading Mobilizes Your People
and viewing their people as their most valuable resources. They Leading is stimulating people to be high performers. It includes
will build organizations that are flexible and adaptive, particu- motivating and communicating with employees, individually
larly in response to competitive threats and customer needs. and in groups. Leaders maintain close day-to-day contact with
Tony Hsieh, CEO of Zappos, has built a dynamic and suc- people, guiding and inspiring them toward achieving team and
cessful online shoe and retail business by changing the rules of organizational goals. Leading takes place in teams, departments,
how to organize and treat its diverse employees and customers. and divisions, as well as at the tops of large organizations.
After he founded the business in 2000, Hsieh’s entrepreneur- In earlier textbooks, the leading function described how man-
ial approach was rewarded when Amazon purchased Zappos in agers motivate workers to come to work and execute top manage-
2009 for $1.2 billion.13 ment’s plans by doing their jobs. Today and in the future, managers
A major goal of Zappos is to treat its employees and custom- must be good at mobilizing and inspiring people to engage fully in
ers with integrity, honesty, and commitment.14 Hsieh encourages their work and contribute their ideas—to use their knowledge and
employees to develop themselves by checking out books stored experience in ways never needed or dreamed of in the past.
at the company, to post questions to the “Ask Anything” news- Ursula M. Burns, chair and CEO of Xerox since 2009, is
letter, to make suggestions to improve how things get done, and inspiring her employees to change their thinking about the future
to contribute to making Zappos a positive and fun place to work. direction of the $19.5 billion company and mobilizing them to
Employees have been known to volunteer to shave their heads
(in a mullet style or in the shape of a “No. 1”), act in zany ways
during job interviews, wear fun wigs, and blow horns and ring
cowbells to entertain tour groups who visit the company.15
Employees aren’t the only stakeholders who benefit from
Hsieh’s flexible and adaptive approach to organizing. Customers
who call the online retailer often feel spoiled by the treatment
they receive. Surprisingly, customer service employees at Zappos
aren’t told how long they can spend on the phone with custom-
ers. In a time when many call-in customer service operations are
tightly controlled or outsourced, Hsieh encourages his employ-
ees to give customers a “wow” experience such as staying on the
phone with a customer for as long as it takes to connect with them
and make them happy (the longest recorded phone call lasted six
hours), giving customers free shipping both ways, sending flow-
ers and surprise coupons, writing thank-you notes, or even help-
ing a customer find a pizza place that delivers all night.16
Progressive employee and customer-oriented practices
such as those at Zappos help organizations organize and effec- ● Online retail giant Zappos’ zany culture and work environment make it a
tively deploy the highly dedicated, diverse, and talented human great place to work. © Tribune Content Agency LLC/Alamy Stock Photo

6 PART 1 | Introduction
 leading the management
function that involves the
manager’s efforts to stimulate
apply their talents and energies in new ways.17 The company’s by both the U.S. government high performance by
acquisition of Affiliated Computer Systems for $6.4 billion and the oil companies.23 employees
means that Burns is counting on employees to help transform When managers implement
the document technology manufacturer into a “formidable” their plans, they often find that controlling the
services company that offers business and IT outsourcing.18 things are not working out as management function of
Additional acquisitions and an investment of $185 billion has planned. The controlling func- monitoring performance and
helped Xerox gain a larger share of the expanding business tion makes sure that making needed changes
process outsourcing market than First Data, Accenture, goals are met. It asks
IBM, and Paychex.19 As long as Burns can continue to and answers the
motivate Xerox employees to embrace the new direction question, “Are our actual outcomes consistent with
of the firm, this new service side of the business (which our goals?” It then makes adjustments as needed.
accounts for 50 percent of total company revenues) will Elon Musk, chief executive officer of the premium
help Xerox continue its long history of success.20 electric car firm Tesla Motors, has applied this func-
Like Ursula Burns, today’s managers must rely on a very tion to make needed changes at that firm. Like
different kind of leadership (Chapter 10) that many start-ups, Tesla has hit a few pot-
empowers and motivates people (Chapter 11). holes along the way. Conflicts with the
Far more than in the past, great work must firm’s founder and technical prob-
be done via great teamwork (Chapter 12), lems during development pushed
both within work groups and across group back the launch of the company’s
boundaries. Underlying these processes first car by more than a year, caus-
will be effective interpersonal and orga- ing cash flow problems. Musk was
nizational communication (Chapter 13). forced to close one office and lay
off nearly 25 percent of the com-
|
1.4 Controlling pany’s workforce. But Musk also
raised $55 million of capital from
Means Learning investors, and since production
and Changing started in 2008, there are more than
Planning, organizing, and lead- 100,000 Model S cars on the road in
ing do not guarantee success. the United States and Europe.24 The
The fourth function, controlling, company continues to pick up momen-
is about monitoring performance ● Ursula Burns, chair and CEO of Xerox, smiles as she attends an tum. Within hours of Musk’s
and making necessary changes in interview at The Times Center in New York. © Eduardo Munoz/ announcement regarding the 2017
a timely manner. By controlling, Reuters/Corbis launch of the new Model 3 (priced
managers make sure the organi- at $35,000), more than 100,000 cus-
zation’s resources are being used as planned and the organization tomers deposited $1,000 each to get on the wait list.25
is meeting its goals for quality and safety. Successful organizations, large and small, pay close atten-
Control must include monitoring. If you have any doubts that tion to the controlling function. But today and for the future,
this function is important, consider some control breakdowns the key managerial challenges are far more dynamic than in the
that caused catastrophic problems for workers, the environment, past; they involve continually learning and changing. Controls
and local economies. Consider the explosion of Transocean must still be in place, as described in Chapter 14. But new tech-
Ltd.’s Deepwater Horizon oil rig in the Gulf of Mexico on April nologies and other innovations (Chapter 15) make it possible
20, 2010, which killed 11 workers. Some argue that this worst to achieve controls in more effective ways, to help all people
offshore oil spill in U.S. history could have been prevented if throughout a company and across company boundaries change
tighter controls were in place. One recent report suggested that in ways that forge a successful future.
the rig’s crew failed to react to multiple warning signs: “ . . . the Exhibit 1.2 provides brief definitions of the four functions of
crew deviated from standard well-control and well-abandonment management and the respective chapters in which these func-
protocols by testing for pressure during the removal of the drill- tions are covered in greater detail.
ing mud, instead of prior to it, an operation that resulted in the
drilling pipe being present in the blowout preventer at the time of
the blowout, keeping it from closing properly to contain the out- |
1.5 Managing Requires All Four
21
burst.” This was not the only oil well to go out of control in the Functions
Gulf of Mexico. According to an interview with William Reilly, As a manager in the ever-changing global economy, your typ-
former head of the U.S. Environmental Protection Agency, there ical day will not be neatly divided into the four functions. You
have been “79 losses of well control” during the 2000–2009 will be doing many things more or less simultaneously.26 Your
22
period. He suggests that greater controls need to be put in place days will be busy and fragmented, with interruptions, meetings,

CHAPTER 1 | Managing Effectively in a Global World 7

 The four management functions apply to your career and
other areas of your life, as well. You must find ways to create
value; organize for your own personal effectiveness; mobilize
your own talents and skills as well as those of others; monitor
your performance; and constantly learn, develop, and change
for the future. As you proceed through this book and this course,
we encourage you to engage in the material and apply the ideas
to your other courses (e.g., improve your teamwork skills), your
part-time and full-time jobs (e.g., learn how to motivate cowork-
ers and “wow” your customers), and use the ideas for your own
personal development by becoming an effective manager.

LO2 Understand what managers at different

organizational levels do.

2 | F OUR DIFFERENT
● A Tesla Model S electric car sits on display in the Tesla Motors Inc. auto
plant, formerly operated by New United Motor Manufacturing Inc. (NUMMI), in
LEVELS OF
Fremont, CA. © Tony Avelar/Bloomberg via Getty Images
MANAGERS
Organizations—particularly large organizations—have many
and firefighting. If you work with heavy digital users who con- levels. In this section, you will learn about the types of manag-
stantly send texts and e-mails, then your workdays will require ers found at four different organizational levels:
even more stop-and-go moments.27 There will be plenty of ∙ Top-level manager.
activities that you wish you could be doing but can’t seem to get
to. These activities will include all four management functions. ∙ Middle-level manager.
Some managers are particularly interested in, devoted to, ∙ Frontline manager.
or skilled in one or two of the four functions. Try to devote
enough time and energy to developing your abilities with all ∙ Team leader.
four functions. You can be a skilled planner and controller,
but if you organize your people improperly or fail to inspire 2.1 | T
 op Managers Strategize
them to perform at high levels, you will not be realizing your
potential as a manager. Likewise, it does no good to be the kind
and Lead
of manager who loves to organize and lead but doesn’t really Top-level managers are the organization’s senior executives
understand where to go or how to determine whether you are and are responsible for its overall management. Top-level man-
on the right track. Good managers don’t neglect any of the four agers, often referred to as strategic managers, focus on the sur-
management functions. You should periodically ask yourself vival, growth, and overall effectiveness of the organization.
whether you are devoting adequate attention to all of them. Top managers are concerned not only with the organization
as a whole but also with the interaction between the organi-
zation and its external environment. This interaction often
Exhibit 1.2 The four functions of management requires managers to work extensively with outside individuals
and organizations.
Function Brief Definition See Chapters The chief executive officer (CEO) is one type of top-level man-
Planning Systematically making decisions about 4, 5, and 6
ager found in large corporations. This individual is the primary
which goals and activities to pursue. strategic manager of the firm and has authority over everyone
else. Others include the chief operating officer (COO), company
Organizing Assembling and coordinating resources 7, 8, and 9
needed to achieve goals. presidents, vice presidents, and members of the top management
team. As companies have increasingly leveraged technology and
Leading Stimulating high performance by 10, 11, 12,
employees. and 13
knowledge management to help them achieve and maintain a
competitive advantage, they created the position of chief infor-
Controlling Monitoring performance and making 14 and 15 mation officer (CIO). A relatively new top manager position,
needed changes.
chief ethics officer, has emerged in recent years. Emmanuel Lulin

8 PART 1 | Introduction
 “In a nationwide survey, employees had mixed reviews of their manager’s
leadership skills. As a result, a manager who excels in leadership is
especially valuable.”28
Percentage of employees who say . . .

They relate positively to

77%
their boss.

Their boss is competent. 50%

Their boss rewards them

30%
for accomplishments.

Their boss is a good role

29%
model and mentor.

They feel motivated by

22%
their boss.

0 20 40 60 80 100
Percent

holds that position for L’Oréal. Lulin has been recognized as a downward and channeling and
champion for “ethics as a way of life within the company.”29 translating information from top-level
Traditionally, the role of top-level managers has been to the front lines upward. managers senior
set overall direction by formulating strategy and controlling As a stereotype, the term executives responsible for
resources. But now, more top managers are called on to be not middle manager connotes the overall management
only strategic architects, but also true organizational leaders. mediocre, unimaginative peo- and effectiveness of the
organization
Like Indra Nooyi of PepsiCo, leaders must create and articulate ple defending the status quo.
a broader corporate purpose with which people can identify— Companies have been known to middle-level
and one to which people will enthusiastically commit. cut them by the thousands, and managers managers
television often portrays them as located in the middle layers of
2.2 | M
 iddle Managers Bring incompetent (such as Michael the organizational hierarchy,
Strategies to Life Scott of NBC’s The Office).30 reporting to top-level
But middle managers are closer executives
As the name implies, middle-level managers are located in
than top managers to day-to-day
the organization’s hierarchy below top-level management and
operations, customers, frontline
above the frontline managers and team leaders. Sometimes
managers, team leaders, and employees, so they know the prob-
called tactical managers, they are responsible for translating
lems. They also have many creative ideas—often better than their
the general goals and plans developed by strategic managers
bosses’. Good middle managers provide the operating skills and
into more specific objectives and activities.
practical problem solving that keep the company working.31
Traditionally, the role of the middle manager is to be an
administrative controller who bridges the gap between higher
and lower levels. Today, middle-level managers break corporate
2.3 | F
 rontline Managers Are the
objectives down into business unit targets; put together separate Vital Link to Employees
business unit plans from the units below them for higher-level Frontline managers, or operational managers, are lower-level
corporate review; and serve as nerve centers of internal communi- managers who execute the operations of the organization. These
cation, interpreting and broadcasting top management’s priorities managers often have titles such as supervisor or sales manager.

CHAPTER 1 | Managing Effectively in a Global World 9

 Indra Nooyi of PepsiCo Pursues
“Performance with Purpose” Strategy
At a typical college, you wouldn’t have to
look far before seeing someone with a bag of
Doritos and a can of Pepsi. These two prod-
ucts, along with Classic Lay’s, Cheetos, Fritos,
and Mountain Dew, are some of the best sell-
ers from PepsiCo. While these products are
still very important to the financial success
of the company, Indra Nooyi, the Indian-born
CEO, is encouraging the company to follow a
dual-growth strategy: focusing on maintain-
ing the success of its salty snacks and sweet
drinks, and pursuing a multifaceted sustain-
ability initiative called “Performance with
Purpose.” Nooyi believes a major driver for the
next level of PepsiCo’s success will come from
“delivering sustainable growth by investing in
a healthier future for people and our planet.” PepsiCo, in partnership with Waste Management, has placed 4,000
At first, this may seem like a major change
Dream Machine recycling kiosks in schools, offices, stores, and
in direction for a company that has made bil-
lions of dollars from selling sweet drinks and
malls around the United States. Since 2010, Dream Machines have
snack foods, but Nooyi doesn’t see it that collected 94 million plastic beverage bottles and aluminum cans.
way. Perhaps concerned about the growing Proceeds provide career training, education, and job creation for
societal concerns about unhealthful foods returning U.S. veterans with disabilities.
and drinks that are seen as contributing to the © The McGraw-Hill Companies, Inc./Roberts Publishing Services
childhood and adult obesity problem in the
United States and elsewhere, she believes
Even for a CEO, change is not easy. Some to be working as PepsiCo has recently enjoyed
strongly that “ethics and growth are not just
Wall Street analysts and critics feel Nooyi steady revenue growth and a rising stock
linked, but inseparable.”
should focus less on health and wellness and price. It seems that “fun for you” and “good for
Two major components of PepsiCo’s sus-
more on PepsiCo’s “sugary and salty product you” products and beverages are here to stay
tainability strategy include
portfolio.” However, Nooyi’s strategy appears at this forward-looking company.
1. Human sustainability. The company is
encouraging people to live balanced and
healthy lives through nonprofit initiatives
and by expanding its product and drink
lines to include more healthful choices. Discussion Questions
For example, Baked Lays have zero trans
fats, and Propel Zero is water enhanced • Indra Nooyi, as CEO of PepsiCo, faces SOURCES: See www.pepsico.com; “What We
some unique challenges as she advocates Believe,” accessed March 27, 2016, http://www
with vitamins and antioxidants.
.pepsico.com; A. Igantius, “How Indra Nooyi
2. Environmental sustainability. PepsiCo a dual-focus strategy for her company.
Turned Design Thinking into Strategy: An Interview
sells millions of products worldwide in Describe your reaction to her dual-focus with PepsiCo’s CEO,” Harvard Business Review,
packages, containers, or bottles. To strategy and whether you think it will help September 2015 Issue, http://www.hbr.org; “Pepsico
reduce the impact on natural resources, PepsiCo succeed in the future. Reports Dream Machine Recycling Progress,”
Plastic News, April 20, 2012, www.plasticnews
the company is reducing water usage, • To what degree do you think a
.com; “Bottoms Up!” Newsweek, October 10 and
increasing recycling levels, and min- “Performance with Purpose” strategy 17, 2011 (double issue), p. 29; A. Rappeport, “Pepsi
imizing its carbon footprint. In 2013, would be applicable to other organizations Chief Faces Challenge of Putting Fizz Back into
PepsiCo’s worldwide operational water (using examples)? How could leaders of Brand,” Financial Times, March 21, 2011, p. 19; and
efficiency programs led to water flow sav- other organizations modify the strategy so V. Bauerlein, “CEO Indra Nooyi Stands by Strategy
to Promote ‘Good for You’ Foods,” The Wall Street
ings of more than 14 billion liters, saving it would fit their particular organizational
Journal, June 28, 2011, p. B1.
the company nearly $15 million. cultures and industries?

10 PART 1 | Introduction

They are directly involved with nonmanagement employees,
implementing the specific plans developed with middle man-
agers. This role is critical because operational managers are the
link between management and nonmanagement personnel. Your
first management position probably will fit into this category.
Traditionally, frontline managers were directed and con-
trolled from above to make sure that they successfully imple-
mented operations to support the company strategy. But in
leading companies, their role has expanded. Operational execu-
tion remains vital, but in leading companies, frontline managers
are increasingly called on to be innovative and entrepreneurial,
managing for growth and new business development.
● Actor Steve Carell played Michael Scott, the likeable but often incompetent manager on NBC’s
The Office. © Chris Haston/NBC/NBCU Photo Bank via Getty Images
Managers on the front line—usually newer, younger
managers—are crucial to creating and sustaining quality, inno-
vation, and other drivers of financial performance.32 In out-
standing organizations, talented frontline managers are not
only allowed to initiate new activities but are expected to do so
by their top and middle-level managers. And they receive the
freedom, incentives, and support to do so.33
2.4 | T
 eam Leaders Facilitate Team
Effectiveness
A relatively new type of manager, known as a team leader,
engages in a variety of behaviors to achieve team effectiveness.34
The use of teams (discussed in Chapter 12) has increased as orga-
nizations shift from hierarchical to flatter structures that require
lower-level employees to make more decisions.35 While both
team leaders and frontline managers tend to be younger man-
agers with entrepreneurial skills, frontline managers have direct
managerial control over their nonmanagerial employees. This
means that frontline managers may be responsible for hiring,
training, scheduling, compensating, appraising, and if necessary,
frontline managers lower-
firing employees in order level managers who supervise
to achieve their goals and the operational activities of
create new growth objec- the organization
tives for the business.
In comparison, team team leaders employees
who are responsible for
leaders are more like
facilitating successful team
project facilitators or performance
coaches. Their responsi-
bilities include organiz-
ing the team and establishing its purpose, finding resources to
help the team get its job done, removing organizational imped-
iments that block the team’s progress, and developing team
members’ skills and abilities.36 In addition, a
good team leader creates and supports a positive
social climate for the team, challenges the team,
provides feedback to team members, and encour-
ages the team to be self-sufficient.37 Beyond their
internally focused responsibilities, team leaders
also need to represent the team’s interests with
other teams, departments, and groups within
and outside of the organization. In this sense,
the team leader serves as the spokesperson and
champion for the team when dealing with exter-
nal stakeholders.
Team leaders are expected to help their teams
achieve important projects and assignments. In
some ways, a team leader’s job can be more chal-
lenging than frontline and other types of manag-
ers’ jobs because team leaders often lack direct
control (e.g., hiring and firing) over team mem-
bers. Without this direct control, team leaders
need to be creative in how they inspire, motivate,
and guide their teams to achieve success.
Exhibit 1.3 elaborates on the changing roles
and activities of managers at different levels within the organi-
zation. You will learn about each of these aspects of manage-
ment throughout the course.
© Thomas Barwick/Iconica/Getty Images
CHAPTER 1 | Managing Effectively in a Global World 11
 Exhibit 1.3 Transformation of management roles and activities

Frontline Middle-Level Top-Level

Team Leaders Managers Managers Managers
Changing Roles From operational From operational From From resource
implementer to implementers administrative allocators to
facilitator of team to aggressive controllers institutional
effectiveness. entrepreneurs. to supportive leaders.
controllers.
Key Activities Structuring teams Attracting and Linking dispersed Establishing high
and defining their developing knowledge and performance
purpose. resources. skills across units. standards.
Finding resources Creating and Managing the Institutionalizing
and removing pursuing tension between a set of norms
obstacles so teams new growth short-term purpose to support
can accomplish their opportunities for and long-term cooperation and
goals. the business. ambition. trust.
Developing team Managing Developing Creating an
members’ skills continuous individuals and overarching
so teams can be improvement supporting their corporate
self-managing. within the unit. activities. purpose and
ambition. © snapgalleria/Getty Images RF

Sources: Adapted from F. P. Morgeson, D. S. DeRue, and E. P. Karam, “Leadership in Teams: A Functional Approach to Understanding Leadership Structures and Processes,” Journal of
Management 36, no. 1 (January 2010), pp. 5–39; J. R. Hackman and R. Wageman, “A Theory of Team Coaching,” Academy of Management Review 30, no. 2 (April 2005), pp. 269–87; and
C. Bartlett and S. Goshal, “The Myth of the Generic Manager: New Personal Competencies for New Management Roles,” California Management Review 40, no. 1 (Fall 1997), pp. 92–116.

∙ Liaison—Maintaining a network of outside contacts

2.5 | T
 hree Roles That All Managers and alliances that provide information and favors.
Perform Example: A human resources manager attends
The trend today is toward less hierarchy and more teamwork. monthly HR association meetings.
In small firms—and in large companies that have adapted to ∙ Figurehead—Performing symbolic duties on behalf
these highly competitive times—managers have strategic, tac- of the organization, like greeting important visitors
tical, and operational responsibilities and team responsibilities. and attending social events.
They are complete businesspeople; they have knowledge of all Example: The president of a university presides
business functions, are accountable for results, and focus on over a graduation ceremony.
serving customers both inside and outside their firms. All of
this requires the ability to think strategically, translate strate-
2. Informational roles:
gies into specific objectives, coordinate resources, and do real
work with lower-level people. ∙ Monitor—Seeking information to develop a thor-
Today’s best managers can do it all; they are adaptive and ough understanding of the organization and its
agile, and are “working leaders.”38 They focus on relationships environment.
with other people and on achieving results. They don’t just Example: A marketing researcher for a fast-food
make decisions, give orders, wait for others to produce, and company tracks changing consumer tastes.
then evaluate results. They get their hands dirty, do hard work
∙ Disseminator—Sharing information between dif-
themselves, solve problems, and create value.
ferent people like employees and managers;
What does all of this mean in practice? How do managers
sometimes interpreting and integrating diverse
spend their time—what do they actually do? A classic study
perspectives.
of top executives found that they spend their time engaging in
Example: A team leader in an accounting firm shares
10 key activities, falling into three broad categories or roles:39
her team’s concerns with the managing partner.
1. Interpersonal roles:
∙ Spokesperson—Communicating on behalf of the
∙ Leader—Staffing, training, and motivating people to organization about plans, policies, actions, and results.
achieve organizational goals. Example: A public relations officer of a global
Example: The manager of a real estate company company issues a news release detailing plans to
leads and manages 10 realtors. expand operations in China and India.

12 PART 1 | Introduction

3. Decisional roles:
∙ Entrepreneur—Searching for new business opportu-
nities and initiating new projects to create change.
Example: A software engineer at a social network-
ing website company identifies a new and more
intuitive way to connect its users.
∙ Disturbance handler—Taking corrective action
during crises or other conflicts.
Example: An accounting manager at a firm disciplines
a junior accountant for engaging in unethical behavior.
∙ Resource allocator—Providing funding and other
resources to units or people; includes making major
organizational decisions.
Example: The chief financial officer at a company
determines the size of each division’s budget for
the upcoming fiscal year.
∙ Negotiator—Engaging in negotiations with parties
inside and outside the organization.
Example: An account executive from an advertising
company negotiates the purchase price and terms
of an advertising campaign with a team from a
large client.
This classic study of managerial roles remains highly descrip-
tive of what all types of managers do today. As you review the
list, you might ask yourself, “Which of these activities do I
enjoy most (and least)? Where do I excel (and not excel)? Which
would I like to improve?” Whatever your answers, you will be
learning more about these activities throughout this course.
LO3 Define the skills needed to be an
effective manager.
3 | MANAGERS NEED
THREE BROAD SKILLS
Performing management functions and roles, pursuing effec-
tiveness and efficiency, and competitive advantage (discussed
later in this chapter) are the cornerstones of a manager’s job.
However, understanding this fact does not ensure success.
Managers need a variety of skills to do these things well. Skills
are specific abilities that result from knowledge, information,
aptitude, and practice. Although managers need many individ-
ual skills, which you will learn about throughout this text, three
general categories are crucial:40
∙ Technical skills.
∙ Conceptual and decision skills.
∙ Interpersonal and communication skills.
technical skills the ability
to perform a specialized task
involving a particular method
First-time managers tend to
or process
underestimate the challenges of
the many technical, human, and conceptual and decision
conceptual skills required.41 skills skills pertaining to the
However, with training, expe- ability to identify and resolve
rience, and practice, managers problems for the benefit of the
organization and its members
can learn to apply each of these
skills to increase their effec-
interpersonal and
tiveness and performance. communication skills
3.1 | T
 echnical
people skills; the ability to lead,
motivate, and communicate
Skills effectively with others
A technical skill is the ability
to perform a specialized task
that involves a certain method or process. Most people develop
a set of technical skills to complete the activities that are part of
their daily work lives. The technical skills you learn in school
will give you the opportunity to get an entry-level position
or change careers; they will also help you as a manager. For
example, your accounting and finance courses will develop the
technical skills you need to understand and manage an organi-
zation’s financial resources.
Lower-level managers who possess technical skills earn
more credibility from their subordinates than comparable man-
agers without technical know-how.42 Thus, newer employees
may want to become proficient in their technical area (e.g.,
human resources management or marketing) before accepting a
position as team leader or frontline manager.
3.2 | Conceptual and Decision Skills
Conceptual and decision skills involve the ability to identify and
resolve problems for the benefit of the organization and every-
one concerned. Managers use these skills when they consider the
overall objectives and strategy of the firm, the interactions among
different parts of the organization, and the role of the business in
its external environment. Managers (like Indra Nooyi of PepsiCo)
are increasingly required to think out of their comfort zones to
make “new connections between social and environmental chal-
lenges on the one hand and firm growth and innovation on the
other, and to plan far beyond the quarter and into the future.”43
As you acquire greater responsibility, you will be asked
often to exercise your conceptual and decision skills. You will
confront issues that involve all aspects of the organization and
must consider a larger and more interrelated set of decision fac-
tors. Much of this text is devoted to enhancing your conceptual
and decision skills, but experience also plays an important part
in their development.
3.3 | I nterpersonal and
Communication Skills
Interpersonal and communication skills influence the manager’s
ability to work well with people. These skills are often called
people skills or soft skills. Managers spend the great majority
of their time interacting with people,44 and they must develop
CHAPTER 1 | Managing Effectively in a Global World 13
 emotional intelligence
the skills of understanding
yourself, managing
their abilities to build trust,
yourself, and dealing
effectively with others
relate to, and communi-
cate effectively with those
around them. Your people
skills often make a difference in the level of success you achieve.
Management professor Michael Morris explains, “At a certain
level in business, you’re living and dying on your social abilities
. . . gets you in the door, but social intelligence gets you to the
top.”45 Supporting this view, a survey of senior executives and
managers found that more than 6 out of 10 said they base hiring
and promotion decisions on a candidate’s “likability.” Roughly
equal numbers (62 versus 63 percent) said they base these deci-
sions on skills, presumably referring to technical skills.46
Professor Morris emphasizes that it is vital for future man-
agers to realize the importance of these skills in getting a job,
keeping it, and performing well, especially in this era when
so many managers supervise independent-minded knowledge
workers. He explains, “You have to get high performance out
of people in your organization who you don’t have any author-
ity over. You need to read other people, know their motivators,
know how you affect them.”47
As Exhibit 1.4 illustrates, the importance of these skills vary
by managerial level. Technical skills are most important early in
your career when you are a team leader and frontline manager.
Conceptual and decision skills become more important than
technical skills as you rise higher in the company and occupy
positions in the middle and top manager ranks. But interper-
sonal and communication skills are important throughout your
career, at every level of management. One way to increase the
effectiveness of your interpersonal and communication skills is
by being emotionally intelligent at work.
Good, successful managers often demonstrate a set of inter-
personal skills known collectively as emotional intelligence48
(or EQ). EQ combines three skill sets:
The basic idea is that before you can be an effective manager
of other people, you need to be able to manage your own emo-
tions and reactions to others. Maybe you already have a high EQ,
but if you feel that you could use some improvement in this area,
observe how others connect with the people around them, handle
stressful situations, and exercise self-control. This can help you
build your own EQ so that you can be a more effective manager.
LO4 Summarize the major challenges facing
managers today.
4|M
 AJOR CHALLENGES
FACING MANAGERS
When the economy is soaring, business seems easy. Starting
up an Internet company looked easy in the 1990s, and ventures
related to the real estate boom looked like a sure thing during
the early 2000s. Eventually investors grew wary of dot-com
start-ups, and the demand for new homes cooled as the United
States experienced a major economic recession. At such times,
it becomes evident that management is a challenge that requires
constantly adapting to new circumstances.
What defines the competitive landscape of today’s busi-
nesses? You will be reading about many relevant issues in the
coming chapters, but we begin here by highlighting five key
elements that make the current business landscape different
from those of the past:
1. Globalization.
2. Technological change.

∙ Understanding yourself—including your strengths and 3. The importance of knowledge and ideas.
limitations as a manager. 4. Collaboration across organizational boundaries.
∙ Managing yourself—dealing with emotions, making good 5. Increasingly diverse labor force.
decisions, seeking feedback, and exercising self-control.
∙ Working effectively with others—listening, showing 4.1 | B
 usiness Operates
empathy, motivating, and leading.
on a Global Scale
Far more than in the past, today’s enterprises are global, with
Importance of skills at different
Exhibit 1.4 managerial levels
offices and production facilities all over the world. Corporations
such as Lenovo and Unilever transcend national borders. A key
Conceptual/ Interpersonal/ reason for this change is the strong demand coming from con-
Technical Decision Communication sumers and businesses overseas. Companies that want to grow
Skills Skills Skills
often need to tap international markets where incomes are ris-
Top manager Low High High ing and demand is increasing. GE, which became a massive
Middle manager Medium High High and profitable corporation by selling appliances, lightbulbs,
Frontline manager High Medium High and machinery to U.S. customers, reports that nearly half of
the company’s sales revenue is from outside the United States.
Team leader High Medium High
Of the 175 countries in which it does business, GE recently
Source: Adapted from R. Katz, “Skills of an Effective Administrator,” Harvard announced that revenue in 22 of those global markets is in
Business Review 52, no. 5 (September–October 1974), pp. 90–102. excess of $1 billion.49

14 PART 1 | Introduction
Take Charge of Your Career
It takes grit to find Furthermore, visit your school’s career ser- communication, law, performing arts), your top

your passion! vices office. Ask a career counselor if you could

complete some career and occupational interest
occupations (attorney, editor, chef), and your per-
sonal style preferences (you are probably comfort-
inventories. Most schools have several avail- able both leading by example and taking charge).

M any people go through life tolerating (or

worse, hating) their jobs and careers. Given
the amount of time people spend working each
able (for free) online for students, including the
Campbell Interest and Skill Survey, the Strong
After reading the test results, make an
appointment with the career counselor to ask for
Interest Inventory, and Holland’s Occupational advice about any internships and full-time jobs
day, this can feel like a life sentence. Whether you
Themes (this last one is also available for a fee that would fit well with your results and interests.
are just starting out or are thinking about switch-
through the U.S. Department of Labor O*Net Parents, mentors, motivational speakers, and
ing careers, take the time to discover what you
Interest Profiler—www.onetcenter.org/IP.html). others often tell students to find their passions.
are passionate about. It takes a lot of research,
How do these online inventories work? You But finding your passion is not easy. Do not get
but with persistence and focus, you can find your
answer several questions about yourself, such discouraged if your first couple of jobs or intern-
passion in life and get paid to follow it. A good
as whether you like talking to people at a party ships teach you what you do not want to do for
starting point is to purchase a copy of What Color
or working with numbers. After you submit your the rest of your life. That is good information,
Is Your Parachute? by Richard Bolles. It’s filled
answers, you receive immediately an interpre- too. It takes a lot of persistence to find the “right”
with exercises and suggestions designed to help
tive report that describes your preferences in internship or job that begins to feel like it is some-
readers understand their career and job prefer-
terms of themes, skills, interests, personal style, thing you could do (and enjoy) for the rest of your
ences. The book will not tell you exactly what job
and occupational preferences. For example, the career. If you keep asking yourself, “What am I
or career is a perfect fit, but it will help you under-
report from the Strong Interest Inventory gives really passionate about?” and pursue jobs and
stand your preferences regarding the types of
your highest-rated themes (investigative, social, careers that fit better and better with that ideal,
skills you want to use in the ideal job, with what
artistic), your top interest areas (writing and mass you will eventually find your passion.
types of people you want to work, and so on.

Globalization also means that a company’s talent can come

from anywhere. As with its sales, half of GE’s employees work
outside the United States.50 Cisco, a San Jose, California–based
leader in equipment for computer networking, considers staffing
its ever-expanding operations in India to be an essential tactic
for staying competitive. Wim Elfrink, the company’s executive
vice president for industry solutions and chief globalization
officer, spent four and a half years on assignment in Bangalore,
India. His job was to create and staff a second global headquar-
ters in Bangalore so Cisco could “establish key resources closer
to the world’s fastest growing markets.”51 He achieved his
goal. Currently, the Indian-based Globalisation Centre East has
approximately 12,000 employees working in three engineer-
ing labs and a data center.52 Similar to its technical peer in San
Jose, California, the Centre is responsible for resolving high-
priority network and IT problems.53 Elfrink also reports that
Cisco has transformed its focus for the Bangalore operation
from cost savings and outsourcing to quality and innovation. Its
talent has earned 420 patents and leads worldwide initiatives for
creating new markets for the company’s products and services.54
Another factor that is making globalization both more pos-
sible and more prevalent is the Internet. In 2016, an astound-
ing 20.8 billion devices worldwide were connected to the ● Chief Globalization Officer Wim Elfrink, left, and Cisco Systems Inc.
Internet.55 From 2010–2015, the largest increases in users Chairman and Chief Executive Officer John Chambers, right, help former
of the Internet were from developing countries in Africa, the Indian President A. P. J. Abdul Kalam, center, to cut the ribbon for the
Middle East, Asia, and Latin America and the Caribbean.56 inauguration of the Cisco Globalization Centre East in Bangalore, India.
Global companies like Dell Computer and Johnson & Johnson © Aijaz Rahi/AP Images

CHAPTER 1 | Managing Effectively in a Global World 15

are taking advantage of this trend in that a growing percentage
of their international sales are to customers in the BRIC (Brazil,
Russia, India, and China) countries.57 As people in developing
nations turn to the power of the web, they develop content in
their own languages and create their own means of access, like
Baidu, the search engine market leader in China.58
The Internet is a powerful force for connecting people with-
out regard to time and space. The Internet enables people to
connect and work from anywhere in the world on a 24/7 basis.
Laura Asiala, a manager for Dow Corning, based in Midland,
Michigan, supervises employees in Tokyo, Seoul, Hong Kong,
Shanghai, and Brussels. To keep in touch with them, she starts
working at 5:00 a.m. some days and ends as late as midnight.
She takes a break from 3:30 to 9:30 each day, and technology
lets her communicate from home.59
China, with its 618 million Internet users, is an attractive market
for tech companies that want to expand internationally. Internet
companies have struggled to operate and suc-
ceed in the Chinese market due to intense local
competition, logistical challenges, and human
rights concerns. For example, Twitter and
Facebook were banned from operating in the
country for political reasons, and when Google
stopped censoring search results, it was no lon- DID YOU KNOW
ger permitted to operate in mainland China.
Involvement in company operations by the
Chinese government has recently reached In 2015, approximately 1.4
a new level. Recently, the state-run Xinhua billion smartphones were
News Agency announced that cybersecurity sold worldwide, triple the
police would be embedded into large Internet number from five years
60
earlier.
companies to help guard against fraud and
the “spreading of rumors.” This policing effort
is believed to be an effort on the part of the
Chinese government to exert greater control over the Internet in
this country of nearly 1.4 billion people.
Despite these challenges, LinkedIn entered the Chinese
market in 2014 to try to attract some of the 140 million knowl-
edge workers to its professional networking site. In exchange
for being granted access to Chinese Internet users, LinkedIn has
agreed to censor content when asked to do so by government
officials. In early 2016, the company reported having 16 million
registered users in China. Time will tell whether LinkedIn can
navigate successfully the myriad of challenges in the world’s
largest Internet market.61
Smaller firms are also engaged in globalization. Many small
companies export their goods. Many domestic firms assem-
ble their products in other countries, using facilities such as
Mexico’s maquiladora plants. And companies are under pres-
sure to improve their products in the face of intense competition
from foreign manufacturers. Firms today must ask themselves,
“How can we be the best in the world?”
16 PART 1 | Introduction
For students, it’s not too early to think about the personal
ramifications. In the words of chief executive officer Jim
Goodnight of SAS, the largest privately held software company
in the world, “The best thing business schools can do to pre-
pare their students is to encourage them to look beyond their
own backyards. Globalization has opened the world for many
opportunities, and schools should encourage their students to
take advantage of them.”62
4.2 | T
 echnology Is Continuously
Advancing
The Internet’s impact on globalization is only one of the ways
that technology is vitally important in the ever-changing busi-
ness world. Technology both complicates things and creates new
opportunities. The challenges come from the rapid rate at which
communication, transportation, information, and other technol-
ogies change.63 Until recently, for example, desktop computers
were a reliable source of income, not only for
computer makers, but also for the companies
that make keyboards and a whole host of acces-
sories like wrist rests and computer desks. But
after just a couple of decades of widespread PC
use, customers switched to laptops, tablets, and
even smartphones for their computing needs,
requiring different accessories and using them in
different ways.64 Any company that still makes
desktops has to rethink its customers’ wants and
needs, not to mention the possibility that these
customers may be doing their work at the airport
or a local coffee shop rather than in an office.
Later chapters will discuss technology
further, but here we highlight the rise of the
Internet and its effects. Why is the Internet so
important to business?65
∙ It enables managers to be mobile and connected 24/7.
∙ It fulfills many business functions. It is a virtual market-
place, a means to sell goods and services, a distribution
channel, an information service, and more.
∙ It speeds up globalization. Managers can see what com-
petitors, suppliers, and customers are doing on the other
side of the world.
∙ It provides access to information, allows better-informed
decisions, and improves efficiency of decision making.
∙ It facilitates design of new products and services, from
smartphones to online banking services.
While these advantages create business opportunities, they also
create threats as competitors capitalize on new developments.
At the beginning, Internet companies dazzled people with
financial returns that seemed limitless. Today, investors and
entrepreneurs have learned that not every business idea will
fly, but many profitable online businesses have become a part

of our day-to-day lives. Just a few years ago, it was novel to
go online to order plane tickets, read the news, or share pho-
tos. Some online success stories, such as Evernote, Shopify,
Pandora, and DuckDuckGo, are purely Internet businesses.
Other companies, including Target, Walmart, and Macy’s, have
incorporated online channels into an existing business strategy.
The Internet’s impact is felt not only at the level of busi-
nesses as a whole, but also by individual employees and their
managers. Just as globalization has stretched out the workdays
of some people, high-tech gadgets have made it possible to stay
connected to work anytime and anywhere. Wi-Fi hotspots make
connections available in shared working spaces, coffee shops,
restaurants, hotels, airports, and libraries. Software lets users
download and read files and e-mail over their phones and tablets.
Social media and networking are also challenging the way
businesses operate and managers connect. Facebook, the larg-
est online social network, has reported 1 billion daily active
users as of December 2015; nearly 84 percent of these users are
located outside of the United States and Canada.66 Facebook is
not just an American phenomenon; about 70 percent of its users
are located outside the United States. Other popular social net-
working sites—like Twitter, LinkedIn, Instagram, Google+,
and Tumblr—also connect people with one another.
Finding the time to build and maintain meaningful connec-
tions to a large and diverse network of contacts, clients, and
other key stakeholders is a major challenge for managers today.
While it can be time-consuming, connecting with people has
never been easier because of online social networking sites that
allow you to develop your social capital. The goodwill stem-
ming from your social relationships is more important than
ever and aids your career success, compensation, employment,
team effectiveness, successful entrepreneurship, and relation-
ships with suppliers and other outsiders.67 Students should take
time to build a large and diverse network while in school. This
network may prove valuable in the future.
The stress comes when employees or their supervisors
don’t set limits on being connected. As out-of-office flex
work becomes increasingly common, research suggests that
individuals are using their smartphones to work longer hours
© Ariel Skelley/Getty Images RF
social capital goodwill
stemming from your social
relationships
during workday evenings and
on weekends.68 Users can and knowledge
should decide when to turn off management practices
the devices. Jean Chatzky, an aimed at discovering and
editor for Money magazine, harnessing an organization’s
realized that the device had intellectual resources
become more of a distraction
than a help and began remind-
ing herself that the messages were not emergencies.69 Thus,
using technology effectively is more than a matter of learning
new skills; it also involves making judgments about when and
where to apply the technology for maximum benefit.70
4.3 | K
 nowledge Is a Critical
Resource
Companies and managers need new, innovative ideas. Because
companies in advanced economies have become so efficient
at producing physical goods, most workers have been freed
up to provide services like training, entertainment, research,
and advertising. Efficient factories with fewer workers pro-
duce the cereals and cell phones the market demands; mean-
while, more and more workers create software and invent new
products. These workers, whose primary contributions are
ideas and problem-solving expertise, are often referred to as
knowledge workers.
Managing these workers poses some particular challenges,
which we will examine throughout this book. For example,
determining whether they are doing a good job can be difficult
because the manager cannot simply count or measure a knowl-
edge worker’s output. Also, these workers often are most moti-
vated to do their best when the work is interesting, not because
of a carrot or stick dangled by the manager.71
Because the success of modern businesses so often depends
on the knowledge used for innovation and the delivery of ser-
vices, organizations need to manage that knowledge. Knowledge
management is the set of practices aimed at discovering and
harnessing an organization’s intellectual resources—fully uti-
lizing the intellects of the organization’s people. Knowledge
management is about finding, unlocking, sharing, and capital-
izing on the most precious resources of an organization: peo-
ple’s expertise, skills, wisdom, and relationships.
Typically, knowledge management relies on software that
lets employees contribute what they know and share that knowl-
edge readily with one another. As a result, knowledge manage-
ment may be the responsibility of an organization’s information
technology (IT) department, perhaps under the leadership of a
chief information officer or chief knowledge officer.
In hospitals, important knowledge includes patients’ histo-
ries, doctors’ orders, billing information, dietary requirements,
prescriptions administered, and much more. With lives at stake,
many hospitals have embraced knowledge management. At
Virginia Commonwealth University (VCU) Health System, a
single information system lets doctors write prescriptions, look
up patient information and lab results, and consult with one
CHAPTER 1 | Managing Effectively in a Global World 17
another. Billing also is automated as part of VCU’s knowledge
management system, making the process more efficient and
connecting with patient data so that it can remind the physician
of all the conditions being treated—and billed for.72 Hospitals
may also give patients access to the knowledge management
system so they can schedule appointments, request prescription
refills, and send questions to their doctors.
4.4 | C
 ollaboration Boosts
Performance
One of the most important processes of knowledge manage-
ment is to ensure that people in different parts of the organi-
zation collaborate effectively. This requires communication
among departments, divisions, or other subunits of the organi-
zation. For example, BP tries to encourage managers to break
out of the traditional corporate hierarchy to share knowledge
freely across the organization while remaining fiercely com-
mitted to the performance of their individual business units.
This emphasis on dual responsibilities for performance and
knowledge sharing also occurs at pharmaceutical giant Glaxo-
SmithKline, the large German industrial company Siemens,
and the London-based steelmaker Ispat International.73
Toyota keeps its product development process efficient by
bringing together design engineers and manufacturing employ-
ees from the beginning. Often, manufacturing employees can
see ways to simplify a design so that it is easier to make with-
out defects or unnecessary costs. Toyota expects its employ-
ees to listen to input from all areas of the organization, making
this type of collaboration a natural part of the organization’s
culture. The collaboration is supported with product devel-
opment software including an online database that provides a
central, easily accessible source of information about designs
and processes. Along with this information, employees use the
software to share their knowledge—best practices they have
developed for design and manufacturing.74 At Toyota, knowl-
edge management supports collaboration and vice versa.
Collaboration also occurs beyond the boundaries of the
organization itself. Companies today must motivate and capi-
talize on the ideas of people outside the organization. AT&T,
in an effort to connect with more small business owners (a key
source of potential customers) over the Internet, is collaborat-
ing with an outside firm to develop more than 100 how-to arti-
cles.75 Topics include everything from writing a business plan
to setting up a wireless network. AT&T is putting content like
this on the web to attract these new customers when they use
search engines and social media.76
Customers, too, can be collaborators. Creating outstand-
ing products and services can start with involving customers
in company decisions. For example, Design’N’Buy is a web-
to-print service that allows users to design their own per-
sonalized products before buying them. Another example is
MyStarbucksIdea, a website that invites product ideas from
Starbucks’ customers and transforms some of them into real
products.77
18 PART 1 | Introduction
4.5 | Diversity Needs to Be
Leveraged
The labor force is becoming more and more diverse. This
means that it is likely that your coworkers, customers, suppli-
ers, and other stakeholders will differ from you in race, ethnic-
ity, age, gender, physical characteristics, or sexual orientation.
To be an effective manager, you’ll need to understand, relate
to, and work productively with these individuals. How diverse
are we becoming at work? The following trends in the U.S.
labor force are expected from 2014 through 2024:78
∙ The labor force will continue to grow more diverse.
∙ The share of women in the labor force will increase to
just over 47 percent.
∙ Fast growth of “older workers” will occur to the point that
approximately one out of four workers will be 55 and older.
∙ Hispanics will grow to about 20 percent, African
Americans to nearly 13 percent, and Asians to approxi-
mately 7 percent of the labor force.
∙ A higher percentage of women than men will join the
labor force.
∙ White (non-Hispanic) workers’ participation in the labor
force will decrease from 65 to 60 percent.
The increase in gender, racial, age, and ethnic diversity in
the workplace will accentuate the many differences in employ-
ees’ values, attitudes toward work, and norms of behavior. In
addition to leveraging the strengths of diverse employees,
effective managers need to find ways to connect with diverse
customers, suppliers, and government officials, both in the
United States and internationally. As will be discussed in
greater detail in later chapters, managers need to be acutely
aware of these differences and be prepared to prevent (or
deal with) miscommunication, insensitivity, and hostility on
the part of an employee, customer, or other stakeholder who
doesn’t embrace the benefits of diversity management.
Fortunately, effective managers and organizations are tak-
ing steps to address these concerns and leverage the diversity of
their resources and talent in new ways. Members of IBM’s board
of directors are 50 percent female and multicultural (not U.S.-
born).79 Accounting, taxation and consulting firm Deloitte LLP
has undertaken several steps to break the “glass ceiling” and
retain more of its talented female employees. The firm decreased
the amount of travel for employees to allow them to have better
work/life balance, provided enhanced career opportunities for
women, and made diversity management a key priority for the
entire organization. By making a concerted effort to retain and
value female employees, Deloitte is managing its talent in a more
effective and efficient manner. The company now has more than
1,000 female partners, principals, and directors.80 By retaining
valuable human resources, Deloitte avoids having to spend time
and money on recruiting, selecting, orienting, and training new

employees who may or may not fit the organizational culture or
be able to do the job as well as a current employee.
Globalization, technological change, the monumental
importance of new ideas, collaboration across disappearing
boundaries, diversity—what are the effects of this tidal wave
of new forces? The remainder of this chapter and the following
chapters will answer this question with business and manage-
ment principles, real-world examples, and insights from suc-
cessful managers and leaders.
LO5 Recognize how successful managers
achieve competitive advantage.
5 | SOURCES OF
COMPETITIVE
ADVANTAGE
Why do some companies lose their dominant positions while
others manage to stay on top?81 Blockbuster was a successful
video rental chain until Netflix, cable companies, and online
enterprises changed the delivery and pricing of videos and
entertainment content. Then there’s Eastman Kodak. For more
than 100 years, this company dominated the camera and film
markets until being upended by the invention of digital pho-
tography, file sharing, and the like. On the other hand, how
does a company like Apple continually excite customers with
its “iGadget” offerings?82 How does the Chinese electric car
manufacturer BYD compete effectively in this emerging seg-
ment of the automobile industry? How does the Indian technol-
ogy company Infosys compete effectively against its American
rivals, Accenture and McKinsey?83
These successful companies have strong managers who
know they are in a competitive struggle to survive and win.
To do this, you have to gain advantage over your competitors
and earn a profit. You gain competitive advantage by being
better than your competitors at doing valuable things for your
customers. But what does this mean, specifically? To succeed,
managers must deliver the fundamental success drivers: inno-
vation, quality, service, speed, and cost competitiveness.
5.1 | I nnovation Keeps You Ahead
of Competitors
Founded in 2000, Baidu is the number one Chinese-language
Internet search engine. With 46,000 employees and nearly
$8 billion in sales in 2015, Baidu is hoping that its recent
innovations—from online payments to food-delivery services—
will help it maintain an innovative edge in China.84
Innovation is the introduction of new goods and services.
Your firm must adapt to changes in consumer demand and
to new competitors. Products don’t sell forever; in fact, they
innovation the
introduction of new goods
and services
don’t sell for nearly as long
as they used to because so
many competitors are introducing so many new products all the
time. Likewise, you have to be ready with new ways to com-
municate with customers and deliver products to them, as when
the Internet forced traditional merchants to learn new ways of
reaching customers directly. Globalization and technological
advances have accelerated the pace of change and thus the need
for innovation.
Sometimes, the most important innovation isn’t the product
itself but the way it is delivered. Borrowing an idea that has
proved popular in Europe, Opaque–Dining in the Dark collab-
orated with the Braille Institute of America to present dining
events at the Hyatt West Hollywood in total darkness. Diners
select gourmet meals from a menu in a lighted lounge and then
are led into a dark banquet room by blind or visually impaired
waiters. The attraction is that diners experience the meal in a
completely new way because they are forced to concentrate on
their senses of taste, smell, and touch. The company has added
dark dining restaurants in San Francisco, San Diego, New
York, and Dallas.85
Innovation is today’s holy grail.86 And like the other sources
of competitive advantage, innovation comes from people,
it must be a strategic goal, and it must be managed properly.
Later chapters will show you how great companies innovate.
5.2 | Quality Must Continuously
Improve
When Spectrum Health, a hospital chain based in Grand Rapids,
Michigan, asked patients how well they were served, the hos-
pital learned that it had a problem. Patients rated staff low on
helpfulness and said they didn’t get good information about
the procedures they received in the hospital or the way they
were supposed to take care of themselves after being released
to return home. Spectrum responded to the survey results by
© Iain Masterton/Alamy Stock Photo
CHAPTER 1 | Managing Effectively in a Global World 19
quality the excellence
of your products (goods or
services)
setting up an advisory council
service the speed and of patients and family members,
dependability with which making visiting hours more flex-
an organization delivers ible, getting patient input on who
what customers want was allowed to hear medical infor-
mation and make decisions about
treatment, and calling discharged
patients at home to make sure they understood the directions
they had received. Within two years of conducting the survey
and beginning to make these changes, satisfaction scores of
Spectrum patients improved dramatically.87
Spectrum Health’s efforts reflect a commitment to quality.
In general, quality is the excellence of your product or service.
The importance of quality and the standards for acceptable
quality have increased dramatically. Customers now demand
high-quality goods and services, and often they will accept
nothing less.
Historically, quality pertained primarily to the physical
goods that customers bought, and it referred to attractiveness,
lack of defects, reliability, and long-term dependability. The
traditional approach to quality was to check work after it was
completed and then eliminate defects. But then W. Edwards
Deming, J. M. Juran, and other quality gurus convinced manag-
ers to take a more complete approach to achieving total quality.
This includes several objectives:
∙ Preventing defects before they occur.
∙ Achieving zero defects in manufacturing.
∙ Designing products for quality.
The goal is to plan carefully, prevent from the beginning all
quality-related problems, and live a philosophy of continuous
improvement in the way the company operates. Deming and
his ideas were actually rebuffed by U.S. managers; only when
he found an audience in Japan, and Japan started grabbing big
chunks of market share from the United States in vehicles,
computer chips, and TVs, did U.S. managers start internalizing
and practicing his quality philosophy.88
Although these principles were originally applied to manu-
facturing tangible goods, the experiences of Spectrum Health
remind us that service quality is vital as well. Quality is also
enhanced when companies customize goods and services to
individual consumers’ wishes. While large retailers like Nike,
Starbucks, and M&Ms have allowed customers to personal-
ize products for some time, smaller retailers are increasingly
doing the same. For example, outdoor gear retailer Wild Things
encourages customers to design their own jackets by choosing
everything from the location of the pockets to the type of fabric
for the liner. Another retailer, MixMyOwn, allows customers
to create their own breakfast cereals and snacks by choosing a
customized granola-muesli mix.89
Providing world-class quality requires a thorough under-
standing of what quality really is.90 Quality can be measured
in terms of product performance, customer service, reliabil-
ity (avoidance of failure or breakdowns), conformance to
20 PART 1 | Introduction
standards, durability, and aesthetics. At the beginning of this
section, we mentioned how hospitals are using patient sur-
veys to measure quality. However, a study conducted by the
University of Pennsylvania School of Medicine determined that
a patient’s risk of dying was not significantly less at hospitals
that scored well on Medicare’s quality measures.91 Certainly,
if you enter a hospital, you hope to come out alive! Only when
you move beyond broad, generic concepts like “quality” and
identify specific quality requirements can you identify prob-
lems, target needs, set performance standards more precisely,
and deliver world-class value.
5.3 | S
 ervices Must Meet
Customers’ Changing Needs
As we noted in the discussion of quality, important qual-
ity measures often pertain to the level of service customers
receive. This dimension of quality is particularly important
because the service sector now dominates the U.S. economy.
Services include intangible products like insurance, hotel
accommodations, medical care, and haircuts. Between
now and 2018, the Bureau of Labor Statistics forecasts that
Americans will spend a higher percentage of their personal
income on services than tangible goods.92 The total number of
jobs in service companies—not including retailing, wholesal-
ing, and government workers—is nearly five times the number
in manufacturing companies. And that pattern is expected to
intensify. Between now and 2024, the fastest-growing job cat-
egories will be almost entirely services and retailing jobs, and
the jobs expected to see the greatest declines are almost all in
manufacturing.93
In a competitive context, service means giving customers
what they want or need, when and where they want it. So ser-
vice is focused on continually meeting the changing needs of
customers to establish mutually beneficial long-term relation-
ships. Service is also an important offering for many compa-
nies that sell tangible goods. Software companies, in addition
to providing the actual programs, may help their customers
identify requirements, set up computer systems, and perform
maintenance.
Stores offer a shopping environment and customer service
along with the goods on their shelves. To improve service for a
wider customer base, Best Buy adjusted its store environment
so it would be more inviting to female shoppers.
The chain’s loud music and emphasis on high-tech features
had been aimed at young men, but the store found that women
influence 9 out of 10 consumer electronics purchases. Best Buy
lowered the volume, dimmed the lighting, and trained staff to
discuss what customers want the technology to do for them,
rather than merely pointing out bells and whistles. The chain is
also trying to hire more female salespeople.94
An important dimension of service quality is making it easy
and enjoyable for customers to experience a service or to buy
and use products. For example, Apple made it easy and enjoy-
able for online customers to sample their favorite music and

© NuStock/Getty Images RF
“Be everywhere, do everything, and never fail to
astonish the customer.”
—Macy’s Motto
then download it from the iTunes store. Amazon allows cus-
tomers to look at a free sample of a book to help them decide
whether they want to read and purchase the entire book. These
innovations in service are changing the way companies do
business.
5.4 | Do It Better and Faster
Google’s culture, based on rapid innovation, is constantly
trying to make improvements in its product. When Sheryl
Sandberg (now chief operating officer of Facebook) was a vice
president at Google, she once made a mistake by moving too
fast to plan carefully. Although the mistake cost the company
a few million dollars, Google cofounder Larry Page responded
to her explanation and apology by saying he was actually glad
she had made the mistake. It showed that Sandberg appreciated
the company’s values. Page told her, “I want to run a company
where we are moving too quickly and doing too much, not
being too cautious and doing too little. If we don’t have any of
these mistakes, we’re just not taking enough risks.”95
While it’s unlikely that Google actually favors mistakes
over money-making ideas, Page’s statement expressed an
appreciation that in the modern business environment, speed—
rapid execution, response, and delivery of results—often sep-
arates the winners from the losers. How fast can you develop
and get a new product to market? How quickly can you respond
to customer requests? You are far better off if you are faster
than the competition—and if you can respond quickly to your
competitors’ actions.
Speed is no longer just a goal of some companies; it is a
strategic imperative. Speed combined with quality is a measure
speed fast and timely
execution, response, and
delivery of results
that a company is operating
efficiently. In the auto indus- cost competitiveness
try, getting faster is essential keeping costs low to achieve
just for keeping up with the profits and to be able to offer
competition. A recent study prices that are attractive to
found that the top assembly consumers
plant in the United States
was Ford’s Atlanta facility,
where employees needed just 15.4 hours to assemble a vehicle.
Compare that with the 1980s, when GM employees needed 40
hours to assemble a vehicle.96 Another important measure of
speed in the auto industry is the time a company takes to go
from product concept to availability of a vehicle in the show-
room. During the 1980s, that time was about 30 or 40 months.
Today, Toyota has cut the process to an average of 24 months;
it needed just 22 months to launch its Tundra pickup.97
Speed isn’t everything—you can’t get sloppy in your quest
to be first. But other things being equal, faster companies are
more likely to be the winners, slow ones the losers.
5.5 | L
 ow Costs Help
Increase Your Sales
Walmart keeps driving hard to find new ways to cut billions
of dollars from its already very low distribution costs. It leads
the industry in efficient distribution, but competitors are copy-
ing Walmart’s methods, so the efficiency no longer gives it as
much of an advantage. To stay on top of the game, Walmart
has experimented with using radio frequency ID (RFID) tags
on suppliers’ products for instantaneous identification and
better inventory tracking.98 Walmart also has sought to keep
costs down by scheduling store employees more efficiently. It
introduced a computerized system that schedules employees
based on each store’s sales, transactions, units sold, and cus-
tomer traffic. The just-in-time system is intended to schedule
just enough workers, with full staffing only at the busiest times
and days of the week.99 In response to the growing challenge
employees face when trying to balance work and life priorities,
Walmart is rolling out two more staffing options: fixed shifts
(guaranteeing the same weekly hours) and flex shifts (allow-
ing employees to build their own schedules from the hours
available).100
Walmart’s efforts are aimed at cost competitiveness, which
means keeping costs low enough so the company can realize
profits and price its products (goods or services) at levels that
are attractive to consumers. Toyota’s efforts to trim product
CHAPTER 1 | Managing Effectively in a Global World 21
 ● Walmart controls costs by continuously improving the efficiency and speed of its inventory management system. One of its
distribution centers is pictured above. © Susana Gonzalez/Bloomberg via Getty Images
development processes are also partly aimed at cost competi-
tiveness. Making the processes more efficient through collabo-
ration between design and manufacturing employees eliminates
wasteful steps and procedures. Needless to say, if you can offer
a desirable product at a lower price, it is more likely to sell.
Managing your costs and keeping them down require being
efficient: accomplishing your goals by using your resources
wisely and minimizing waste. Little improvements can save
big money, but cost cuts involve trade-offs. That explains some
of the growth in the market for private jets. Flying on a private
jet is more expensive than buying a ticket on a commercial air-
line. But for a highly paid, frequently traveling business execu-
tive, the time spent hanging around an airport can become more
costly than the cost of a jet. If the company can arrange to par-
ticipate in a service such as NetJets, where the company buys
only shares in a jet with the rights to use it, this can trim the
price and make the arrangement even more beneficial.101
One reason every company must worry about cost is that
consumers can easily compare prices on the Internet from
thousands of competitors. BuyVia, Purchx, and ScanLife are
only a few of the search tools that can generate lists of prices at
which a product is available from various suppliers. Consumers
looking to buy popular items—such as cameras, printers, and
plane fares—can go online to research the best models and the
best deals. If you can’t cut costs and offer attractive prices, you
can’t compete.
22 PART 1 | Introduction
5.6 | T
 he Best Managers Deliver
All Five Advantages
Don’t assume that you can settle for delivering just one of
the five competitive advantages: low cost alone or quality
alone, for example. The best managers and companies deliver
them all.
Virginia Mason Medical Center, like many hospitals, felt
challenged in delivering low costs along with high-quality
and superior services. Virginia Mason has a reputation for
high-quality care, but it was losing money treating certain
patients. Complicated, high-tech procedures generate higher
fees, but they aren’t necessarily what a patient needs the most.
Some patients may benefit more from a simple doctor visit, but
that’s not as profitable. So Virginia Mason collaborated with
Aetna, an insurer that pays for 10 percent of the medical cen-
ter’s business, and with local employers that provide coverage
for their employees through Aetna. Together, the companies
renegotiated the standard procedures physicians would follow
and the rates Aetna would pay so that some of the most expen-
sive conditions could be treated in ways that were ultimately
more economical to insure but paid for at higher rates that
would be profitable for Virginia Mason. The facility presented
the plan to its department heads, helping them pay attention to
how their decisions affect the cost of care. Virginia Mason has
also improved quality through measures that enhance speed—in
this case, cutting waiting times for patients, such as a reduction
in the four-hour wait for chemotherapy to 90 minutes.102
Trade-offs may occur among the five sources of competi-
tive advantage, but this doesn’t need to be a zero-sum game
where one has to suffer at the expense of another. Columbia
Hotel Management is in the business of managing hotel proper-
ties around the country. Some of these hotels include Comfort
Suites (Georgia), (Tennessee), Holiday Inn (Illinois), Ramada
Plaza (Texas), and the Quality Inn (Mississippi).103 The direc-
tor of human resources for the company focused on cost sav-
ings when he decided to outsource some of the more routine
human resources tasks such as payroll and benefits manage-
ment.104 Turning over those responsibilities to a vendor that
Study Che klist
✓ Did you tear out the perforated student review card
at the back of the text to revisit learning objectives
and key terms and definitions?
Connect ® Management is available for M
Management. Additional resources include:
Interactive applications:
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at Trader Joe’s
specializes in performing them efficiently freed the HR director
to engage in higher-level HR strategies and projects that can
help his organization provide outstanding services for the hotel
properties it manages.
Making decisions about outsourcing and cost savings are
just some important ways to help your organization achieve
competitive advantage. As you read this chapter, you learned
about several of the challenges facing managers today and what
functions and activities managers engage in at different levels
of the organization. The next chapter (Chapter 2) looks back to
help provide a lens for understanding how we got to where we
are today. It provides a brief look at the evolution of manage-
ment thought and practice.
• Video Case: Managing for the Future of State
Farm Bank
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Young Manager Speaks Out: Michael Kettner,
Bar Manager
CHAPTER 1 | Managing Effectively in a Global World 23